forensic accounting

What is a Fraud Investigation (Often Called a “Fraud Audit”)?

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Fraud is, unfortunately, an increasingly common occurrence in the corporate world.

There is an encouraging trend of holding fraudulent businesses and executives responsible for the damage they cause.

In 2016, the U.S. Securities and Exchange Commission hit a single-year high for the number of enforcement actions filed against fraudulent companies and employees. This cost the guilty parties more than $4 billion in penalties.

The same year, the IRS pursued more than 60 criminal cases of corporate fraud. Ninety-seven percent ended in incarceration for the accused.

If you’re litigating a case and you suspect fraud is occurring, you need to conduct a fraud audit.

Keep reading to find out more about the process.

What You Need to Know About a Fraud Audit

A fraud audit is the first step in uncovering illegal activity. While it may lead to a full-scale investigation, it’s not a true investigation by itself.

Here’s what you can expect from the process.

It’s Not a Regular Audit

During a regular financial audit, auditors double-check a company’s financial records and accounting systems on a test basis to form an opinion as to whether the financial statements are presented in accordance to generally accepted accounting principles in the United States.

A fraud audit only has one goal: Uncover fraudulent activity. The forensic accountant will look for specific evidence that a fraud has taken place.

Auditors Will Take a Detailed Look Into Many Business Records

They won’t just look at accounting documents and call it a day. They’ll need to see records for many transactions, including payroll, while they check for anything unusual or suspicious.

An auditor may even contact a business’ customers or clients to check for discrepancies.

They may also conduct interviews with management and staff to root out any concerns.

They Will Look for Common Fraud Indicators

An auditor will look for red flags that could indicate fraud.

They may uncover obvious signs, such as forged documents or missing checks. An auditor could also find out the company’s management is complacent enough to allow fraud to occur.

If an auditor notices any of these common indicators of fraud, they may scale up their investigation:

  • Missing receipts, invoices or other documentation
  • Duplicated payments
  • Unexpected shortages in company inventory
  • More invoices than usual
  • Several voided transactions or canceled checks
  • Fake vendors
  • “Ghost employees”

A Forensic Accounting Firm Can Help

If you’re ready to schedule an audit, you need the support of a forensic accounting firm.

An experienced firm will conduct a thorough review, leaving no stone unturned as they search for fraud indicators. If your auditor does uncover signs that fraud has occurred, they should be able to handle a full-scale investigation.

It’s also essential that you find a firm with experience in litigation support. You’ll need someone who is able to testify about their findings in court if you want to win your case and/or assist you in filing criminal charges.

Contact Shuster & Company, PC, for Help

Shuster & Company, PC, is a forensic accounting firm that can conduct a fraud audit or full-scale investigation, and we can offer litigation support as you build your case. If you’re ready to get started, then contact us today.

 

A full-service Certified Public Accounting Firm located in Denver, Shuster & Company  PC provides quality, personalized financial advice and guidance to individuals, businesses and the legal community. We offer an extensive range of services, with emphasis in forensic accounting, business valuation, and litigation support.