What is Fraud?

Fraud is the term used to describe misleading conduct performed by someone with the purpose to gain an unfair advantage or to violate the rights of another person (victim). In this world, one is vulnerable to fraud such as bankruptcy, credit card fraud, security fraud, and wire fraud. Fraudulent activity may be planned and carried out by a major organisation, a large or small group, or even just one individual.

Types of Fraud

• Corruption
• Asset Misappropriation
• Financial Statement Fraud

• Corruption - A person or group in a position of authority may engage in corruption, a kind of dishonesty or criminal offence, in order to obtain illegal benefits or misuse their position for personal advantage.

• Asset Misappropriation - People who are trusted with managing an organization's assets commit asset misappropriation fraud when they steal from it. Asset misappropriation fraud occurs when external parties or internal workers of a company take use of their status to commit fraud against the company. It is also referred to as insider fraud. Anyone entrusted with holding and managing an organization's assets and interests, including company directors, employees, and others, is capable of committing this form of fraud.
• Financial Statement Fraud - Financial statement fraud happens when businesses provide investors false information or mislead them into believing that their company are more profitable than they actually are.

What is Fraud Audit?

In order to identify instances of fraud, a fraud audit entails a comprehensive investigation of a company's financial records. This process is more detailed than a regular audit since some frauds involve such small sums of money and other assets that they might not meet the usual materiality standard. The auditor's responsibility is to collect evidence of a fraud, which may lead to the auditor testifying as an expert witness in following legal actions.

What is Forensic Audit?

A forensic audit is an examination and evaluation of a company's or individual's financial records in order to uncover information that can be utilised in court. Most significant accounting companies have a department dedicated to forensic audits, which is a specialty in the accounting sector. Forensic audits require expertise in the legal framework of forensic audits as well as competence with accounting and auditing procedures.

Forensic audits involve a wide range of investigative operations. A party who is accused of fraud, corruption, or other financial crimes may be subject to a forensic audit. The auditor could be requested to participate in a forensic audit in order to testify as an expert witness in court.

The Process of a Forensic Audit

A forensic audit follows the same steps as a standard accounting audit—planning, gathering data, and drafting a report—with the prospective court appearance as an additional stage. In order to prove or disprove the fraud and establish the extent of the damages, the attorneys for each party present evidence. If the case goes to trial, they deliver their conclusions to the judge and the client.

1. Planning the Investigation

The forensic auditor and team will organise their investigation during the planning stage to achieve goals such as:

• Figuring out what fraud, if any, is being committed.
• Identifying the time frame in which the fraud happened.
• Identifying the methods used to hide the fraud.
• Identifying the fraud's perpetrators.
• Calculating the loss caused by the fraud.
• Gathering essential evidence that will be admissible in court Proposing actions to prevent future scams.

2. Collecting Evidence

The gathered evidence must be sufficient to establish the identification of the fraudster(s) in court, explain the details of the fraudulent activity, and show the individuals affected by the scam as well as the financial losses suffered.

The court will understand the crime and the proof more easily if the evidence is given in a logical order. It is necessary for forensic auditors to take security measures to make sure that no one tampers with the documents and other evidence they have collected.

3. Reporting

To continue with filing a legal complaint, the client must first have a written report about the fraud from the forensic audit. The report should include a minimum of

• The investigation's conclusions
• An overview of the information gathered
• A summary of how the fraud was conducted
• Suggestions for preventing future frauds, such as increasing internal controls

4. Court Proceedings

The forensic auditor is required to be present during court proceedings to discuss the evidence gathered and how the team identified the accused (s). In order for persons who are not familiar with legal or accounting language to understand the fraud, complex accounting problems should be clarified and the case should be explained in simpler words.

Conclusion

Businesses will continue to be affected by fraud and forensic audits in the future. Companies must ensure that their anti-fraud procedures are up to date with new technologies. As technology has improved, so have cases of fraud.