FORENSIC AUDIT

PREPARED BY - AMEER SHAFIQ BIN KAMALULLAIL

PRESENTATION OUTLINE

Understanding the terms

Forensic accounting
Forensic auditing

FORENSIC AUDIT
PREVENTION

DETECTION

INVESTIGATION

Culture of honesty, openness and

assistance

Identify and understand how

accounting and behavioral symptoms
help in detection of fraud

Understand various types of

fraud investigation

Know how to eliminate

opportunities of fraud
Understand how to create
effective organization to minimize
fraud

Describe internal control to detect

fraud

Understand how to coordinate

in an investigation
Explain how to obtain
evidence by using different
forensic tools and kits

Understand the proactive of fraud

auditing
Understand the importance of
creating a comprehensive
approach of fighting fraud

CASE STUDY

UNDERSTANDING THE TERMS

FORENSIC
AUDIT

an examination
and evaluation of
a firms or
individuals
financial
information for
use as evidence in
court. Forensic
audit can be
conducted in order
to prosecute a
party for fraud,
embezzlement or
other financial
claims.

FORENSIC
ACCOUNTING
The use of
accounts skills to
investigate fraud
or embezzlement
and to analyse
financial
information for
use in legal
proceedings.

TO : Differentiate between forensic audit, forensic accounting and forensic auditors

FORENSIC
AUDITORS
employed by
corporations,
government
agencies, public
accounting firms
and consulting and
investigative
firms. Trained in
detecting,
investigating and
deterring fraud
and white collar
crimes.

UNDERSTANDING THE TERM Prevention

Cure
Preventing fraud is generally the
most cost effective way to
reduce losses from fraud.

Prevention

an
h
t
r
e
t
is bet
3 fundamental activities:

Taking steps to create and

maintain a culture of honesty
and high ethics

Assessing the risks for fraud and

developing concrete responses
to mitigate the risks

Eliminate the
opportunities for fraud

CREATING A CULTURE OF HONESTY AND HIGH ETHICS

1

Tone at the top (proper

modelling)
Honesty can be reinforced
when a proper example is set

Provide an employee
assistance program (EAP)

Implement and EAP that helps

employees deal with personal
and non-shareable pressures
in their lives.
5

Ethical Maturity Model that

explains why people make
unethical decisions.

Hiring the right kind of employees

Verify all information on the applicants resume and
application
Require all applicants to affirm the truth of the matters
set forth in their application and resume
Train management to conduct thorough and skilful
interviews.
Create a positive work environment
Create expectations about honesty by having a good
corporate code of conduct and conveying those
expectations throughout the organization.
Have open-door or easy policies.
Have positive personnel and operating procedures.

Ethical
Ethical Leadership
Leadership
Helping
others
Helping others to
to be
be Ethical
Ethical
Ethical
Ethical Courage
Courage
Willingness
Willingness to
to Pay
Pay the
the Price
Price for
for Ethics
Ethics
Application
Application of
of Ethics
Ethics to
to Business
Business Situations
Situations
Fraudulent
Practices,
Misleading
Advertising,
Fraudulent Practices, Misleading Advertising, Unfairness
Unfairness
Personal
Personal Ethical
Ethical Understanding
Understanding

Honesty
Those who will almost always be
honest
Those who are situational-ly honest
Those who will always be dishonest

Right/Wrong,
Right/Wrong, Fairness,
Fairness, Honesty,
Honesty, Personal
Personal Integrity,
Integrity, Respect
Respect for
for Others
Others
TO : Understand how to create a culture of honesty, openness and assistance.

ASSESSING AND MITIGATING THE RISK OF FRAUD

Accurately identifying sources and

measuring risks
Implementing appropriate
preventive and detective controls to
mitigate those risks
Creating widespread monitoring by
employees
Having internal and external
auditors who provide independent
checks on performance
Identify, sourcing, measuring risks

6
TO : Know how to eliminate opportunities for fraud

ELIMINATING OPPORTUNITIES OF FRAUD

Having good internal controls

Discouraging collusion
between employees and
customer vendors and clearly
informing vendors and other
outside controls at the
companys policies against
fraud
Monitoring employees and
providing a hotline for
anonymous tips (whistleblowing system)
Creating an expectation of
punishment
Proactive auditing

TO : Know how to eliminate opportunities for fraud

CREATING AN EFFECTIVE ORGANIZATION TO MINIMIZE FRAUD

CURRENT MODEL
1

VS

SOUND ORGANIZATION MINIMAL FRAUD

Tone at the top

Fraud
occur

Resolu
tion

Education and Training

Investi
gation

Integrity risk and control

3
Action

Reporting and monitoring

Proactive fraud detection

Investigation and follow up

TO : Understand how to create effective organization to minimize fraud

GOOD FRAUD AUDITING INVOLVES:

Identifying fraud
risk exposures

Identifying the
fraud
symptoms of
each
exposures

Building audit
programs to
proactively look
for symptoms
and exposures

Investigating
fraud
symptoms
identifies

GOOD FRAUD AUDITING

Very few organizations actively audit for fraud. Rather, their auditors are content to conduct financial,
operational, and compliance audits and to investigate fraud only when symptoms are so egregious that fraud
is suspected.
Organizations that proactively audit for fraud create awareness among employees that their actions are
subject to review at any time. By increasing the fear of getting caught, proactive auditing reduces
fraudulent behavior.
TO : Understand the proactive of fraud auditing

UNDERSTANDING THE TERM Detection

Steps or action taken to discover a fraud that

has been or is being committed.
Common proactive fraud detection whistle
blowing systems

Ways fraud are

usually detected
Identifying symptoms
Indicators
Red flags

2nd proactive
fraud
detection:

Primary ways to
detect fraud

By chance
By providing ways for people to report suspicion of
fraud
By examining transaction records and documents
to determine if there are anomalies that could
represent fraud

Analyze data
Transaction to look for suspicious trends, numbers and other anomalies

10

DETECTION THROUGH ACCOUNTING & BEHAVIORAL SYMPTOMS

Analytical symptoms

Accounting or documentary symptom

Lifestyle symptoms

Control symptoms

Behavioural and verbal symptoms

Tips and complainants

11
TO : Identify and understand how accounting & behavioral symptoms help in detection of fraud

UNDERSTANDING THE TERM Investigation

Investigation process
Pre

During

Post

The art of
interviewing

12

TYPES OF FRAUD INVESTIGATION

Pre
1.
2.
3.
4.

Know what are the information required

Identify the difficulties
Developing the questions
Choosing the interview settings

DURING
1.
2.
3.
4.
5.

a)
b)
c)
d)
e)

Emotional, hostile or resistant witness

Irrelevancies
Getting of the track
Disruption
Unexpected answer but relevant direction

a) Control
b) Free from distractions
c) Face to face most preferred, instead of
telephone interview and written responses
d) Recording oral evidence

Oral evidence
Team based approach for investigation
Forensic examination
Honesty Testing
Data analysis - mining

POST
1.
2.
3.
4.

Testimonial evidence
Documentary evidence
Physical evidence
Personal observation

TO : Understand various type of investigation

Explain how to obtain evidence using different forensic tools and kits

13

THE ART OF INTERVIEWING

Minimize the possibility of people subsequently denying,
changing or contradicting the information they has given.

To ensures that the IO is properly prepared for the interview.

Be seen to be impartial throughout the investigation.

At the outset of every interview it is important that the IO clearly inform the
interviewee of the reason for the interview, although it is not necessary to
mention all he factors relevant to the subjects under discussion at this stage.

The IO must avoid making any statements that cause a witness to believe that they
will obtain any privilege, concession or immunity from official action.

TO :Understand how to coordinate in an investigation

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CASE STUDY ATM SKIMMING

Skimming is any scheme in which cash is stolen from an organization before it is recorded on the
organizations books and records.

Fraudster places
skimming device
at the ATM

Customer performs
withdrawal at the
affected ATM

PREVENTION
1.
2.
3.
4.
5.

Conversion to chipbased ATM card

Introduction of
Overseas Withdrawal
Flag facilities
Daily-frequent
inspection at ATMs by
various parties
Installation of antiskimming devices at
the ATM
Review placement of
ATMs

Fraudster obtains ATM

card information and
produce clone card

DETECTION
1.
2.
3.

Detection through
reported cases
Setting of parameters
to identify anomalies
transaction
Post detection
escalation procedure
by various
stakeholders

Fraudster perform
withdrawals at
overseas ATMs

INVESTIGATION
1.
2.
3.
4.
5.

Engagement with
Customer to gauge
information
Establishing the
existence of 2nd ATM
card
Reviewing the pattern
of disputed withdrawal
Establishing the most
possible point of
compromise
Reviewing the gaps
and recommending
controls

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