Investigative auditing

Investigative auditing is the Prevention, detection and quantification of fraud , money laundering and terror financing.

Investigative Auditing deals with innocent errors and abnormal or invalid financial incidents/events having fraudulent potential or capable of bringing undesired financial implications to the investigated subject.

http://www.ncbi.nlm.nih.gov/sites/entrez?dbpubmed&cmdSearch&Term=investigative%20auditing&itool=QuerySuggestion

Forensic Accounting

Unlike forensic accounting, which is usually triggered by claims for damages that follow actual forensic events, Investigative Auditing focuses on the preliminary prevention of undesired incidents before they materialize. Usually, the focus of Investigative Audit's review is on examination of internal controls, with the goal of determining whether or not internal controls are compromised.
The constant growth of frauds, money laundering and corruption events have sharpened the need to proactively address corporate operational risks. Educational programs for examiners in charge teach the necessary techniques and methodologies to affectively build enterprise fraud prevention programs within the organization as well as conduct and manage the actual investigation process. Further more, investigative audits are conducted upon demand in order to validate or contradict occasional allegations and claims. Forensic Accounting is applied only after legal proceedings are initiated, which require financial findings to be presented to court. Investigative Auditing offers constructive organizational actions to mitigate the risks that might lead to a legal dispute.

Investigating Auditors autonomy

As represented in the California Government Code , the state Auditor is empowered to conduct Investigative audits in order to investigate allegations regarding improper governmental activity. Such audit may reveal organizational flaws that should be altered in order to prevent similar incidents to occur in the future. The preventive perspective of the audit, which is supported by the assistance and cooperation of any relevant state department, is strictly confidential thus promising investigations' reliability and impact. Investigative Audits are an integrated routine that provide proactive preventive means that improve the subject's capability to deal with casual invalid incidents.

A Branch of Accounting applying Special Auditing doctrines

While a financial audit samples the financial system and verifies that the sampled transactions add up according to basic accounting principles, an investigative audit goes deeper into the financial infrastructure investigating the bookkeeping, the transactions, the payments and the entities behind them, questioning their correctness validity and legality and exposing the truth behind the plain numbers.
The use of traditional audit approaches, such as those employed by the accounting profession, frequently fails to uncover losses or the causes of such losses. The following article relates to how investigative auditing was used to uncover a serious theft problem in a hospital

Investigative Auditing proactive approach towards financial understanding (see book titles on the issue[http://books.google.com/books?q=investigative+audit&cttitle&lr&saN&start10]) is an obligatory course which is a part of the academic accounting studies program in many accounting academies. It is also one of the chapters in some charts of certified accountants' qualification exams that needs to be undertaken before accounting practice.
Investigative Auditing is practically applied in business organizations, local authorities, National institutes, Municipal Agencies, Public Services [http://66.102.9.104/search?q=cache:NVIy62X55ZQJ:app1.lla.state.la.us/PublicReports.nsf/86256EA9004C005986256F4A00536DD3/%24FILE/03800520.PDF+investigative+audit+OR+auditing&hlen&ctclnk&cd=28], NGOs,International institutes and various other entities.
The globalization of business has encouraged most of which to adopt investigative auditing doctorines to fight bribary and corruption, to perform preventive Integrity checks and conduct Fraud vulnerability studies

Investigative Audits practices in schools and universities

A good example for a routine investigative audits which are embedded within the institution as an integral part of its own control mechanisms is the adoption of Investigative Audits in academic institutes [http://www.indiana.edu/~iuaudit/services.html#Services].
Internal Investigative Audits seek to determine that the Universities control their operations and functions, promote efficient and effective processes and on the other hand provide reasonable assurance that undesired errors or irregularities are detected during the normal course of operations.
In case of suspected financial irregularities, misuse of systems, possible fraud, misappropriation of university funds or other complex situations, Internal Audit conducts a specialized investigative audit, tailored to the circumstances. Investigative audits differ from other audits because they are normally conducted without first notifying the personnel who may be affected by the findings. The findings report of the comptroller of the state of Tenessee reveals how potential flaws in the schooling system were exploited by insiders, and how investigative auditing helped revealing those incidents. Similar findings may be found in the Memphis City Report [http://66.102.9.104/search?q=cache:XJJVnC0BsG0J:www.comptroller1.state.tn.us/repository/MA/memphiscityschoolfacility.pdf+investigative+audit+OR+auditing&hlen&ctclnk&cd=11]

The Investigative Team

A typical investigation team conducting an investigative audit includes financial experts and accountants with practical experience in law enforcement, Information Technology (IT) experts that can trace the origins and the lifecycle of any transaction as documented in the IT systems underlying the inspected entity as well as lawyers and jurists that coordinate the investigation process and its artifacts, according to the legal framework and requirements.

Investigative Auditing Branches:

http://www.ncbi.nlm.nih.gov/sites/entrez?dbpubmed&cmdSearch&Term=investigative%20auditing&itool=QuerySuggestion

Loss and fraud investigations, are conducted to determine existing control weaknesses and produce fraud vulnerability studies, assist Risk Management in determining the amount of the loss, and most important - assist the investigated entity by recommending corrective measures to prevent subsequent recurrences. Same principles are applied in formulating anti corruption methodologies and integrity checks that improve financial security of any object.

Investigative auditing include the following activities: Discover fraudulent transactions, Computer fraud audits, Review of financial and operational procedures to assist management in the deterrence of fraud, Investigative Auditing in liquidation and receivership situations, Supplement due diligence procedures prior to business acquisitions and mergers, Advice to lawyers, accountants, internal auditors, security officers and public supervisory concerning Investigative Auditing, Tracing of misappropriated assets and assistance in their recovery, Confidential independent appraisal of third party financial statements and documents, Financial supervision of infrastructure and other Projects.

Fraud Prevention:

Examination of the financial and operational process flows in the organization.
Conducting vulnerability surveys, designed to expose week links that can be manipulated or exploited for fraudulent purposes.
Implementing control and enforcement check points, methodologies and mechanisms.

Fraud Detection and Computer Fraud examinations:

Exposing and verifying suspicious activities;
Analyzing Fraud methodologies;
Filing expert witness reports which are based on the findings of the Investigative Audit;
Detecting frauds committed with the use of computers;

Quantification of Frauds:

Quantifying the damages from frauds based on the findings of the Investigative Audit as part of legal procedure.
The quantification is used for Insurance support in assessing the damages in Insurance claims and by Defining the factual and financial basis for evaluating the damages.

Investigative Consulting and assistance to lawyers applies in legal proceedings as well as various litigation areas. This includes preparation of expert witness reports to courts and testifying as court's expert witness.
This branch of Investigative Auditing is equivalent to forensic accounting.

Many Business conflicts (Insolvencies, Liquidations) come to an end after an Investigative audit provides evidence for the financial issues under dispute. Investigative Audits are applied for tracing assets and assisting in returning them to their rightful owners.
Investigative Auditing oriented Due Diligence checks conducted before completion of M&A, provide objective reliability evaluations of financial reports and documents and other factual integrity checks.
Enforcement agencies are using Investigative Audit techniques and tools in white collar crime investigations and using Investigative Auditors that are sometimes seconded to the investigation team.

Main Menu

See Also

Main Menu