Audit and Assurance
Fraud Examination: Detecting and preventing anomalies
Everybody makes mistakes, but when it comes to fraud, not everybody deliberately makes mistakes to achieve a goal other than those of the business. Fraud Examination is all about finding these intentional errors through a careful inspection of a business’s financial records, putting measures in place to prevent these errors from happening again, and helping to make it easier to recover lost resources.
Anti-fraud professionals or fraud examiners are usually engaged after an error is suspected, and it’s up to them to resolve the issue by tracing it from its very beginnings. This process usually involves tasks such as:
Preventing future errors
Fraud Examination is closely linked to forensic accounting, which combines elements of accounting, auditing, and detective work when taking a closer look at a business’ books. In taking this closer look, forensic accountants consider the financial records in light of the current circumstances of the business to come up with findings that may be used in a court of law.
Do note, however, that while Fraud Examination involves forensic accounting processes, not all forensic accounting is used for Fraud Examination purposes.
This helps a business to foster a culture of integrity and foresight as well as improves overall business performance and profitability.
More and more businesses around the world recognize the need for Fraud Examination. CPAs involved in it need years of experience in the field to develop the necessary expertise, as Fraud Examination as a specialization in itself is rarely offered in universities. This expertise includes sufficient knowledge of the relevant legal codes covering aspects such as what constitutes admissible and complete evidence, and whether there really was malicious intent.
A fraud examiner also needs to know how to gather evidence, as the inspection of financial records must be augmented by skills such as deductive reasoning, problem-solving, and conducting effective interviews. Auditing skills are also a must, as well as high ethical and moral standards.
Examiners must also be able to keep abreast of technological developments, as fraudsters continue to come up with more sophisticated ways for circumventing regulations using digital means.
There are many ways in which errors may be suspected or discovered at a business leading to a Fraud Examination, such as an audit, routine monitoring, or a whistleblower from within or outside the organization. When acting on a tip from such informants, Fraud Examiners need to know how to assess the informants’ motives and know the best ways for acting on the provided information, especially since the actual details have yet to be uncovered.
Examiners follow a framework that outlines consistent, lawful methods which begin with a general analysis of the evidence and end by zeroing in on the fine details. They also work with the assumption that there are adequate grounds for an investigation and that legal proceedings will follow the examination process.
Businesses, as well as their Fraud Examiners, might be held liable for conducting an Examination without sufficient evidence. This doesn’t mean, however, that other methods such as fraud risk assessments may not be used if there is no serious basis for an Examination.