According to Wikipedia, forensic accounting, forensic auditing or financial forensics is “the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation”.
In the previous article reference was made of KPMG who audited the Gupta’s affairs and failed to capture and present the necessary audit reports to clear the questions surrounding this matter. Forensic auditing was suggested as an adequate measure through which clarity may have been attained.
Now let us probe somewhat into forensic auditing and the worth thereof for the ascension of South Africa’s weak financial state. “Forensic” means “suitable for use in a court of law”, and it is to this standard and potential outcome that forensic accountants and auditors generally have to work. Forensic accountants, forensic auditors or investigative auditors often have to give expert evidence at the eventual trial.
All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies have specialist forensic accounting departments according to Wikipedia. But this stretches much deeper and further. Within these groups, there are further sub-specializations like insurance claims, personal injury claims, fraud, anti-money-laundering, construction or royalty audits.
Financial forensic audits also falls into several categories, for example economic damages calculations, whether suffered through tort or breach of contract, post-acquisition disputes such as earn-outs or breaches of warranties, bankruptcy, insolvency and reorganization.
Then there is tax-fraud, money laundering, business valuation and computer forensics or e-discovery. Some forensic accountants specialize in forensic analytics which is the procurement and analysis of electronic data to reconstruct, detect or otherwise support a claim of financial fraud. Fact remains, forensic auditors often assist in professional negligence claims where they are assessing and commenting on the work of other professionals.
Forensic auditors are also engaged in marital and family law, analyzing lifestyle for spousal support purposes, determining income available for child support and equitable distribution.
Forensic auditing involves investigative accountants who expertly accounts into recovering proceeds of serious crime in relation to the confiscation of proceedings concerning the actual or assumed proceeds. South Africa is in a state of debt! These proceeds can definitely aid in the recovery of this status? Alternatively we are unfortunately increasingly dependent on temporary provision of money at vast interest which makes us dawdle even further towards junk status!
Forensic accountants typically hold the following qualifications: Certified Forensic Accounting (CFA) which differs slightly according to topography and operation. They may be involved into both litigation support (providing assistance on a given case, primarily related to the calculation or estimation of economic damages and related issues) and investigative accounting, namely looking into illegal activities.
According to Wikipedia, the Forensic Auditors Certification Board (FACB) of England and Wales was established in 2016 by the major forensic auditing and accounting bodies from across the world with its registered address in London. FACB is a professional membership body comprising of international institutes. Apart from practitioner’s certification, FACB is an oversight body which accredits prospective member organizations as part of quality checks, before admission. Forensic auditors with the FACB credential can practice as forensic auditors on a global scale.
In conclusion it is worth mentioning that the methodology of forensic auditing or accounting and fraud investigation are different from internal auditing. Therefore forensic accounting services and practices should be handled by forensic accounting experts and not merely by internal auditing experts.
Forensic accountants may appear on the crime scene a little later than fraud auditors, but their major contribution is in translating complex financial transactions and numerical data into terms that ordinary laypersons can understand. This is of great importance, for if the fraud comes to trial, the jury will be made up of ordinary laypersons.
On the other hand and in conclusion, internal auditors move on checklists that may not surface the evidence that the jury or regulatory bodies look for. The fieldwork may carry out legal risks if internal auditing checklists are employed instead of using forensic accountants. These may result in serious risks of consultant malpractices which at present are manifesting increasingly in our beloved land!