Forensic auditing is the examination of specific procedure in order to produce evidence. Forensic audits are used to identify and to collect evidences regarding any individual’s financial information to use as evidence in court. In the context of a bank, all financial transactions and decisions involving finance are analysed with a view to arrive at the truth. Forensic Report can be admitted in a court trial and forensic auditors may directly submit evidence in the court or depose before a judicial authority.
Credit Decisions: Credit decisions are made to find a way to make or to ensure all payments. Credit decisions help a company in protecting their assets. These include company financial condition, their competitive edge and any customer’s project size. A limited customer’s information is included in such decisions. Credit is the area where forensic auditors concentrate first and start their probe. A credit decision is a composite of interlinked decisions like to lend or not to lend – Accept / Reject, terms at which the bank should or is willing to lend – covenants or term sheet, the interest rate on the loan – Loan Pricing. A bank’s relationship with a customer, the customer’s credit history, track record, profile, future outlook and management team are big factors. We will come back to these in the session on credit decisions
Investment Decisions: Investment decisions taken are compared with the objectives of investments made and actual returns are compared with anticipated returns. Other aspects like loss incurred if any and its magnitude and whether such loss could have been prevented are also analysed. In lower profit, causes for the fall in profit are gone into. It may be remembered that many investments escape the attention and scrutiny of concurrent auditors and statutory auditors as of now, due to paucity of time. Investment decisions are often supported by decision tools. Investment patterns and financial decision making has always been of great interest to researchers and financial service providers and planners. Investment pattern of individuals and investment decisions are influenced by demographic variables and risk tolerance.
Income & Expenditures: The possible connection between a series of transactions analysed. If the loss was deliberate, the forensic audit will probe the background of the true beneficiary in all such cases. Transactions involving both income and expenditure are taken up for investigation. Income/Revenue foregone/lost and Expenditure that exceeded the normal levels are specifically probed. Violation of Regulator’s guidelines and prescriptions: Instances of deviation from violation of the regulatory authority’s rules and guidelines are probed. The fall out of their image, reputation, discipline, financial risks and loss if any are examined.
Unlawful activities: Any activities carried out by an organisation in contravention of the laws of the land are analysed from various perspectives and all their dimensions are brought out. Such activities make probability of the occurrence of an unanticipated event due to the particular configuration of a system such as an economy, market, or organization.
Illegalities in Recruitment, Promotion and Transfers: Any illegalities or irregularities noticed in recruitment, promotion and transfers must be subjected to further probe for necessary corrective measures. Large scale transfer of resources from some sector to others in a system necessitated fundamental changes in its policies or objectives.
Organisational Structure: Every organisation has their different structures. These are arranged in a definite or fixed sequence of elements. Even same group of organisations decides their own structures as per their wishes and requirements.
All the members of a structure considered as one integrated unit. It also depends upon organization-wide or economy-wide regular, recurring change caused by factors such as seasonal patterns or long time trends. Without recruiting adequate manpower and imparting necessary training to them and without investing adequate money in fixed assets and modern technology, indiscriminate branch expansion may result in huge loss.
Systems and Procedures: Forensic audit into the systems and procedures followed by each bank or any organisation and compare them with the industry. Any deficiencies in the systems in the procedures will weaken the bank or an organisation. This is one sensitive area which if neglected will result in delays, growing customer complaints, monetary loss, frauds and uncertainty in many areas. So, forensic audit is to cover this topic.