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FINANCE: Digging Deeper: Forensics in Auditing


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An unqualified audit can give a company a clean bill of health. However, when a company finds itself in a situation that could lead to litigation, a pristine audit is not enough writes George Williams.

Before the rise of forensic accounting in the mid 1990s, the South African Police Services’ Commercial Crimes Unit and the now defunct Office for Serious Economic Offences Unit dealt with white collar crime. Post 1994, many Commercial Crime Investigator and Prosecutors had left the law enforcement authorities to join Audit and Law Firms in their forensic services divisions. As a result of this and the closing of specialized investigation units in the SAPS, they found it increasingly challenging to manage and investigate the volume of commercial crime related cases. Forensic services have since been in high demand by public entities and private companies wanting to expedite the process of dealing with corrupt and/or fraudulent practices.

The auditing process follows a sequential list of steps that need to be completed, and forensic science can enter the process at any step. Forensics can identify where auditors are in the process, assess the present situation and find out where things may have gone wrong in an organisation.

“Forensic services looks at a set of financials from any perspective and direction in order to find creative ways of establishing facts, whereas auditing is structured from point A to Z,” states Derick de Beer, Forensic Consultant at BDO SA. “Auditing is an accounting practice that falls under an Act and ensures that companies comply with a list of regulations and international standards. Forensic services are not represented by an Act, but have to meet international standards. They are governed by the Association of Certified Fraud Examiners (ACFE).”

Forensic services use a multi-disciplinary approach in order to resolve and/or investigate challenges that entities might face. Four professions come together in a forensic service environment: legal (former prosecutors and lawyers), accounting, investigations (formerlaw enforcement and current investigators) and forensic technology experts (specialised technicians in forensic technology services).

Forensic services that are offered include commercial crime related investigations, dispute analysis, fraud prevention and forensic technology solutions. In March 2016, BDO’s Risk Advisory division announced a strategic partnership with FIDS and Goldn’Links Cyber to launch a flagship Cyber and Forensic Laboratory, specifically aimed at assisting companies and ensuring they are adequately prepared for any cyberattack. While the lab offers all three services, each service is made up of specialists in the fields that make up the service team.

“When approaching a financial situation, one or a combination of two or all the disciplines can be used to address a problem. Forensic services have a proactive (preventative) and a reactive (investigative) approach which feed off each other,” states George Williams, Director of Risk Advisory Services at BDO. “The proactive approach involves risk assessment, fraud prevention and fraud awareness. Clients are given information about the types of fraud, policies and procedures to be followed when dealing with and reporting fraud,” continues Williams.

The reactive approach involves attending to the clients’ immediate needs and assessing the situation. By having a multi-disciplinary approach, the most effective team can be put together to address a particular situation depending on the nature of the assignment. For instance, if there is a dispute over the sale of a business where there was alleged distortion of facts in financial statements at the time of purchase, legal emphasis will be placed on resolving the matter because of possible litigation. The accounting division will also apply their skills by checking and comparing the financials of the company.

“While law enforcement is able to gather hard evidence, they cannot extract the information from electronic devices,” continues Williams. “This can only be done using forensic technology. When a cellphone is seized as evidence, the forensic technology department will make a forensic extraction of the conversation and/or data and this information will be admissible in court.”

This process involves data analytics and e-discovery, the latter using Optical Character Recognition (OCR) software to extract information from a large volume of data. The data is then put into a practical computer software programme and investigators can easily gather evidence. This is a time-saving exercise that increases productivity.

When gathering evidence, all sectors of the forensic team need to apply their skills to the information. Should a court ask for the evidence to be gathered again, the forensics team needs to demonstrate the ability to achieve the same results using the same methods. This means that evidence needs to be obtained and preserved in a legally accurate and precise manner. If the information is compromised in any way, the case could be placed in jeopardy, leading to financial and/or reputational loss to the company.

It is imperative that companies approach experts in forensic accounting and investigative services in order to ensure a professional and legitimate gathering of relevant information and correct evidence.

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