A normal financial audit is not intended to uncover fraud. However, while reviewing a company’s financial statements, an auditor must be able to spot false statements that could be the result of fraud or error. Typically an auditor will adhere to one or several established auditing procedures in order to detect fraud during a given audit. Familiarizing yourself with the most popular procedures will give you a better understanding of the fraud detection techniques that an auditor uses while completing a job.
Auditor Fraud Detection Services
Brainstorming Session
At the beginning of an audit, a team will hold a brainstorming session. This session gives the team an opportunity to think about how the company might have committed fraud and to establish a professional skepticism mind frame.1 It is not uncommon for a fraud specialist to be a part of this meeting so that he can share relevant information about similar experiences with fraud in other companies and so that he can identify risk factors for this particular client.
Accounting Estimates
Accounting estimates are subjective, which means that management may try to influence them in order to manipulate financial statements. Auditors are primarily looking to see whether estimates have varied widely from one year to the next and if there is a prominent change in the directionality of the estimates. Both of these characteristics may point to manipulation and should be further examined.
Journal Entry Testing
In many instances, a company will adjust their financial records as part of their fraudulent behavior. As such, it is logical for an auditor to test journal entries for indications of manipulation. An auditor will get a basic understanding of the company’s procedures and guidelines before taking a selection of the journal entries. Most of the time, auditors are looking for large entries from upper management that were posted well into an accounting period.2 They will also select any other entries that are of particular interest. Then the auditor will collection supporting documentation for validation of each entry.
Large Number of Unusual Transactions
There are instances where a company may have sound justification for running a significant number of transactions that are out of the norm. However, these situations are few and far between. It is always worth looking into unusual numbers more closely so that they can learn the purpose and business rationale behind each transaction.
Forensic Accounting Versus Forensic Audit
Forensic accountants are trained to search solely for fraudulent activity within a given organization. Forensic accounting analysis involves analyzing financial documents in an effort to uncover illegal activity, most often white collar crime. In comparison, a forensic auditor confirms that a company is in compliance with federal regulations and business policies. There are two primary types of auditors: public auditors and internal auditors. If you’re in need of accounting work, it is critical to understand the difference between these two specialties so that you can hire the right person for the task at hand.3
If you’re seeking out fraud detection services, take the time to hire a reputable, experienced auditor who knows how to root out fraud effectively. You want someone will get the job done right the first time around.
Related Articles:
- Common Fraud Problems and Strategies to Avoid Them
- The Ultimate Financial Fraud Examination & Prevention Checklist
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Veriti Consulting LLC provides certified fraud investigator services across the U.S. Learn more about our fraud detection services by calling 855.232.4410 or contact us via email.
1 https://smallbusiness.chron.com/audit-procedures-detect-fraud-58686.html
2 https://smallbusiness.chron.com/audit-procedures-detect-fraud-58686.html
3 https://smallbusiness.chron.com/forensic-accounting-analysis-vs-audit-26374.html
