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Forensic auditing, or forensic accounting, is the process of investigating financial transactions of individuals and companies to identify activities linked to fraud or legal disputes. Fraud and legal disputes can occur in several ways, including through tax filings, insurance claims, bankruptcy filings, business acquisitions, personal injury claims or divorce proceedings. Uncovering irregularities indicative of fraud in a forensic audit can be a complex process. A forensic audit checklist, highlighting crucial audit checkpoints, is one tool for keeping investigations on track.
Forensic accountants follow the financial trail whether it leads to personal or business finances. The specifics of the audit process may come into question during legal proceedings resulting from fraud investigations. As a result, a forensic audit checklist is crucial in preparing for the audit and courtroom inquiries. In order to carry out the best possible audit, a checklist should prompt verification of the audit objective, the type of fraud under investigation, suspected participants and financial implications. Evidence gathering methods are also important line items for a forensic audit checklist.
The personal background of a suspected offender can reveal patterns that may be indicative of fraud. For instance, the suspect may have a litigation history or past bankruptcy filings. These activities should be on the forensic audit checklist for investigation. Other checklist items include alias identifications, criminal history or arrest records, tax liens and wage garnishment. Background checks can also include a person’s Internet search history, employment history and education verification. These items alone do not confirm fraud, but when paired with financial evidence, irregularities may be evident.
Upon launching a forensic audit, a forensic accountant meticulously gathers information and reviews it to determine if and how fraud occurred, when it occurred and the financial amount involved. While investigations vary, line items on a forensic audit checklist should prompt auditors to check a multitude of relevant financial records, including credit reports, real estate transactions, stocks, domestic and foreign bank accounts, retirement plans and insurance settlements. Financial evidence may reveal hidden assets or a lifestyle inconsistent with income.
A forensic audit wraps up with a detailed report. The forensic audit report lists the findings with a description of evidence supporting conclusions, whether fraudulent activities were found or not. Depending on the scope of the investigation, checklist items for preparing the forensic audit report include the procedures used to gather evidence, the auditing techniques used to determine and identify fraud and offenders and an inventory of physical evidence collected. The report may also recommend actions to prevent similar fraud from happening again.
Deb Dupree has been an active writer throughout her career in the corporate world and in public service since 1982. She has written numerous corporate and educational documents including project reports, procedures and employee training programs. She has a Bachelor of Science in chemical engineering from the University of Tennessee.