FORENSIC ANALYSIS AND BUSINESS PROCESS

Conflict between Forensic Analysis and Business Process

Conflict between Forensic Analysis and Business Process

Forensic Auditing is also referred as forensic accounting; forensic auditing has been defined as an accounting analysis that is performed with a probability of later use in either a civil or criminal legal proceeding. In many criminal investigations, especially those involving criminal enterprises, the mantra “follow the money” is regularly heard; forensic auditing answers that demand (Berenblut and Rosen, 1989).

Through adaptation of accepted accounting procedures, assets can be tracked to their origination and later disbursement. Similarly, forensic auditing can establish if spending patterns are indicative of criminal activity.

Forensic auditing can therefore be divided into two broad classifications: litigation support and investigative accounting. Forensic auditors perceive the information-gathering process as more than a review of ledger information but as research into the operation as a whole. Accounting, auditing, and investigative skills are utilized to obtain an understanding of an operation. Does the accounting of the operation explain the flow of monies in and out of the system; is there any indication that any transaction have been reported in such a way as to disguise its origin; is there any indication that criminal activity is taking place; and is any transaction designed to avoid federal reporting criteria?

What an Auditor Does?

Specific antifraud duties a forensic auditor conducts include:

Business/internal employee fraud: the investigation of a business operation to ascertain if fraud exists, and if it does, to what extent and committed by whom. Additionally, a quantification of the loss is made, as well as a recommendation on methods of recovery. The process would also include the development and implementation of internal rules to prevent a reoccurrence.

Business economic losses: the involvement of the audit process to identify and quantify certain economic losses, that is, contract disputes, product liability, patent infringements, and construction breach of contract claims.

Business interruption losses: cases in which a forensic auditor is assigned to quantify the amount of calculated losses.

Criminal investigation: the involvement of the audit process in cases which will require information to be later presented at a criminal proceeding. The auditor can be retained by a law enforcement agency or by a party to the action.

Matrimonial disputes: forensic audits are utilized in disputes of this type to verify the assets of parties to a matrimonial dispute, quantifying the assets present as well as identifying any attempt to conceal assets.

Professional negligence: forensic auditors can quantify losses in cases involving alleged negligence of professionals other than accountants, and in cases involving accountants, they can both quantify losses as well as review adherence to generally accepted auditing or accounting principles.

Shareholder claims: cases in which forensic auditors are retained to examine claims by made shareholders of mismanagement, and possibly criminal fraud by company management. Recent cases of this type have involved Enron Corporation and WorldCom, with shareholders alleging losses due to fiscal mismanagement by upper management (Frank et al., 1990).

The usage of forensic auditing in investigating criminal enterprises is essential to prosecution efforts; the trail of money will provide ...