A clean audit gives a company a clean bill of health. However, when a company finds itself in a situation that could lead to litigation, a pristine audit is not enough.
Before the rise of forensic accounting in the mid-1990s, the South African Police Services’ Commercial Crimes Unit and the now defunct Office for Serious Economic Offences Unit dealt with white-collar crime.
Post 1994, the SAPS could not manage the volume of cases because there was a skills shortage. Forensic services have since been in high demand by companies wanting to expedite the process of dealing with corrupt internal practices.
The auditing process follows a sequential list of steps that need to be completed whereas forensic science can enter the process at any step. Forensics must then identify where they are in the process, assess the present situation and find out where things went wrong.
A different perspective
Forensic services looks at a set of financials from any perspective and direction whereas auditing is structured from point A to Z.
Auditing is an accounting practice that falls under an Act and ensures companies comply with a list of regulations and international standards.
Chartered accountants and financial professionals work in the industry using their specialist skills to achieve compliance. They are governed by the South African Institute of Chartered Accountants (SAICA), the pre-eminent accountancy body in the country.
Forensic services are not represented by an Act but have to meet international standards that are governed by the association of Certified Fraud Examiners. Accounting is guided by set rules while forensic services look at creative ways of establishing facts.
Forensic services use a multi-disciplinary approach where four professions come together in a forensic service environment.
- Legal: lawyers,
- Accounting: accountants and chartered accountants,
- Investigations: Ex law enforcement and current investigators
- Forensic Technology: Specialised technicians in forensics.
Forensic services offered are investigations, dispute analysis and forensic technology.
When approaching a financial situation, a combination of two or all three forensic services can be used to address a problem.
Forensic services have a proactive (preventative) and a reactive (investigative) approach, which feed off each other.
The proactive approach – involves risk assessment, fraud prevention and fraud awareness. Clients are given information about the types of fraud and policies, and procedures to be followed when dealing with and reporting fraud.
The reactive approach – is attending to the clients’ immediate needs and assessing the situation. By having a multi-disciplined environment, the most effective team can be put together to address a particular situation depending on the nature of the assignment.
If there is a dispute over the sale of a business where there was alleged distortion of facts in financial statements at the time of purchase, legal emphasis will be placed on resolving the matter because of possible litigation.
Accounting will also apply their skills by checking and comparing the financials of the company but will not be the primary discipline.
While law enforcement is able to gather hard evidence, they cannot extract the information from electronic devices.
This can only be done using forensic technology, which involves data analytics and e-discovery, the latter using Optical Computer Recognition to extract information from a large volume of data.
When gathering evidence, all sectors of the forensic team need to apply their skills to the information gathered to best present and preserve the integrity of the evidence.
Should a court ask for the evidence to be gathered again, the forensics team needs to demonstrate the ability to achieve the same results using the same methods. This means that evidence needs to be accurate and precise.
If the information is compromised in any way, the case can be thrown out of court. This would mean both a financial and reputational loss to the company.