Mortgage Loan Auditing After A Loan Forbearance

To identify the evidence that can be utilized in court cases, a forensic audit is a methodical investigation of the financial records of a company entity. It is a step up from an internal audit, and whoever does it needs to be well-versed in accounting, auditing, and legal frameworks.

Motives for Performing Forensic Audits

1. Conflict of Interest

A forensic audit is necessary when an employee abuses their position for personal benefit and costs the business money. For instance, a manager who approves an employee’s excessive or unnecessary expenses because of personal ties will have some control over the individual. But in this instance, the management won’t get any money from this behavior.

2. Bribe

A company offers a bribe in exchange for favors, such as getting something done or changing the circumstances in its favor. For instance, the head of the purchasing department may accept purchases from a supplier who will charge more or less than other suppliers for the material. Despite the poor product quality, the head receives some personal payment from that vendor.

3. Asset Misappropriation

The most typical kind of fraud occurs when employees take advantage of the business’s resources for personal gain. An employee could submit a fraudulent invoice for using corporate stationery or present broken or outdated products (often in FMCG companies) in exchange for payment.

4. Financial Statement Misrepresentation

This type of fraud typically occurs at a higher level of the organization by presenting better business performance than the actual performance. As a result, investors won’t be hesitant to fund the business, and lenders will find extending loans with cheaper interest rates simple.

Forensic Audit Process

A forensic audit is conducted in four steps:

1. The investigation’s planning

The first step in reporting court proceedings is to plan the investigation. The investigation will be planned by auditors to cover all bases and accomplish the audit’s goal. The following are some considerations for auditors:

• Recognizing the deception being committed
• The time frame in which fraud was committed
• Fraud’s underlying motive or reason
• Identify the personnel responsible for the fraud
• The damage incurred by the business as a result of the deception, whether it be monetary or otherwise
• Duplicating evidence to establish evidence collecting throughout judicial procedures.

2. Gathering Evidence

This is a crucial component of forensic audits. The auditor will gather evidence that can support and be admitted in court after identifying the fraud. These records need to show how the fraud occurred, who committed it, and how much money the company lost as a result.

For instance, a vendor has finished making a raw material purchase. If the auditor has reason to believe that the finalization involved some harmful activity, they will look at the following:

• Who has authorized the supplier?
• Whether the finalization process complied with business policy
• Has the quote from the other 3–4 vendors been used?
• If applicable, were the cost and quality of each of these quotations compared to one another?
• Whether the vendor delivered the same level of material quality as it demonstrated throughout the selection process after making a decision

3. Reporting

A forensic auditor will create a report describing the audit after finishing the aforementioned process and provide it to management or the customer. The following points are found in the report:

• Observations and conclusions from the audit
• Obtained data that will support the fraud
• How much loss has the business incurred?
• How the deception was carried out
• What actions ought to be taken to prevent this kind of fraud?

The management will decide whether or not to pursue legal action based on the report.

4. Legal Process

Let’s say management chooses to file a lawsuit in light of the forensic audit report. In that situation, the auditor should also be in the courtroom to describe how the fraud was committed and how the supporting documentation will bolster the claim. For everyone to grasp accounting fraud, the forensic auditor will also clarify it.

Internal audit versus forensic audit

1. Internal audits look for flaws in accounting procedures or corporate rules, whereas forensic audits look for wrongdoing that occurred within the organization.
2. Internal auditors are not required to possess legal expertise. However, forensic auditors must.

• Unlike internal audits, which cannot be used as evidence in court, forensic audits can be utilized in legal processes.

1. A forensic audit is necessary when there is reason to believe a worker purposefully committed fraud for their own gain. On the other hand, an internal audit is performed regularly to ensure that all accounting policies and standards have been followed but no errors have been made.

Cost of a forensic audit

A forensic audit’s price can change depending on several factors.

• Does the embezzlement span several years?
• Are there several businesses or accounts involved?
• Were any or all of the original documents destroyed?
• How was the deception masked?
• The length of time required to investigate fraud and embezzlement depends on several factors.

Formal Audit

Examining the specifics of potential fraud is the process of forensic auditing or forensic accounting. The accountant is committed to finding and recovering all lost money. The procedure’s steps differ from those of a conventional financial audit due to the forensic investigation’s intensely concentrated character. In an inquiry, a forensic accountant will often follow these fundamental steps:

• Scoping
• Background study
• Data gathering
• Transaction analysis
• Drafting and issuing reports
• Testimony (if necessary) (if necessary)

Depending on the extent of the fraud, these stages may take a short period or a long time.

Ways To Estimate Cost

The time required to investigate the incident is significantly influenced by the length of the embezzlement and the caliber of the source documents. Because of these unknowns, most forensic auditors won’t provide a starting price quote. However, the majority will mention the standard billing rate. A client can estimate the expenses by estimating the hours using an average billing rate.

Conclusion

A forensic audit is necessary for a specific task, such as uncovering fraud or distorting a financial statement by looking at previous transactions and gathering proof of fraud that can be used in court for legal procedures. Internal auditing is concurrently concerned with compliance, rules, guidelines, accounting standards, and other controls businesses must adhere to function.