Forensic Audit

The term forensic, although some identify it with the discipline of legal medicine, in the case at hand, we refer to the universal Spanish dictionary where the term forensic, in Latin forensis, means public; but we can complement its meaning with the Latin word forum, which means forum or public square whose origin is found in ancient Rome. These forums were where the trials were held, which were public and attended by all kinds of people. Consequently, forensics is linked to the application of the diamond law of public law.

When a judge requests a suitable professional from another career, who is called an expert or expert in the matter being investigated, to assist him in a certain case, and to do so he has to provide public evidence in court to combat corruption and other scourges, we are facing a Forensic Audit, because it allows a professional through his expertise to issue concepts and opinions that have a lot of technical value that will allow the judge to act with better knowledge of the cause and, consequently, with greater justice.

The Forensic Audit is an activity that brings together different disciplines, where different professionals or experts can participate, each in their subject, who are directed by a chief investigator or coordinator who must know perfectly the processes in the judicial system and the process. operational for the collection of evidence that will support the evidence against the defendant or accused of committing a crime.

With regard to accounting and auditing, Forensic Auditing is a science that allows gathering and presenting financial, accounting, legal, administrative and tax information, through reports or forms that will be used by a court against the authors. of a crime of economic characteristics.

Service Objectives:

As far as a suitable accounting professional or Certified Public Accountant (CPA) is concerned, the main objective of the forensic audit process is to advise judicial offices to determine the existence of the following situations:

Corruption in public and private actions
Preparation of fraudulent financial statements
Embezzlement of assets
Existence of money laundering
Fraud detection
Detection of technological fraud
Economic crimes
Money laundering
Commercial disputes
Professional negligence
Detection of facade companies
White collar crime detection

However, the primary objective of the forensic audit is the prevention of the aforementioned crimes. It should be noted that the nature and scope of the audit may be affected by legislation, regulations, ordinances and ministerial provisions should be related to the detection of corruption and fraud.

Most common forensic audit processes:

General procedures:

1. Analyze the scope of the contractual terms of the Forensic Audit with the aim that all participating auditors know the purpose of the audit, in such a way that there are no doubts and the proposed purposes can be achieved.

2. Obtain appropriate knowledge of the subject matter and the specific situation of the commitment in which the Forensic Audit will be carried out. This knowledge is acquired through interviews with the client and the lawyers, analyzing the different hypotheses of the problem, and reviewing the documents associated with the problem.

3. Coordinate permanently with legal advisors in order to not incur errors that invalidate the opinion.

4. Establish a strategy that allows obtaining detailed statements from the parties involved, taking care to obtain the written statement.

Specific procedures:

Below we indicate the procedures of a service model in which the Forensic Audit would be developed.

Common procedure to determine possible money laundering operations

1. Analyze the origin of cash deposits for significant amounts, by a natural or legal person whose habitual activities should not normally produce income of this type.

2. Investigate cash transfers of large amounts to destinations that are unrelated to the business environment.

3. Verify deposits and withdrawals of large amounts of cash that do not correspond to income or costs related to the normal operation of the business.

4. Evaluate the origin and nature of the movement that is being carried out in accounts that were inactive for a certain time.

5. Request from the Public Registries documents that reflect the activity of buying or selling real estate carried out without a clear or unusual objective not related to the normal activity of the investigated client.

6. Investigate whether operations are carried out linked to regions considered tax havens or Offshore places that are not related to the line of operation of the client under investigation.

7. Verify whether the guarantees granted to banks for credit operations come from the normal course of business of the client under investigation.

8. Verify whether the payments made to banks for credit operations have been made before their normal maturity and where the funds came from.

9. Verify and evaluate the asset movement of the investigated client.

Procedures to follow to detect asset theft

1. Perform balance tests of bank reconciliations.

2. Review the age of the conciliatory items and verify if they are really transitory situations.

3. Carry out unforeseen cash transactions.

4. Carry out audits of valued company documents, bonds, investment shares, insurance, etc.

5. Request confirmations of balances of obligations with third parties.

6. Verify that purchases of merchandise in the line of business are within market prices.

7. Verify the transfer prices that support the sales of goods or services between associated companies are within the market prices of similar companies.

8. Review sales discounts if they are in accordance with the commercial policies of the investigated company.

9. Review the movement of inactive bank accounts.

10. Review the correspondence received and sent by the investigated company

11. Verify if all payments are deposited in full.

12. Carry out visual inspection of the fixed assets of the investigated company.

13. Examine the age and obsolescence of inventories.

Procedures to detect fraudulent bankruptcies of companies

1. Verify the reasons why the shareholders decided to declare bankruptcy of the investigated business.

2. Review whether the requirements required by the Companies Law regarding bankruptcies were followed.

3. Review and analyze the financial statements for the last five years prior to the date of the bankruptcy declaration and determine the reasons that led to the insolvency and subsequent bankruptcy of the investigated business.

4. Review the expenses recorded in the last months of the operation.

5. Determine the existence of any hidden benefit arising from the bankruptcy of the investigated company or its shareholders.

Procedures aimed at company valuation

1. Request the audited Financial Statements for the last three to five years and verify if they comply with IFRS.

2. Request the parameters that apply to recognize the assets.

3. Check if these comply with the NICs

4. Calculate the evolution of the company's results.

5. Prepare a discounted cash flow of the company for at least three to five projected years that allows establishing its present value.

6. Compare the results with the assets of the investigated company.

7. Perform several different scenarios and compare them.