Fraud and Forensic Auditing in Digital Era

Introduction to Forensic Accounting/Fraud Auditing

Rijadh Djatu Winardi, M.Sc., Ph.D., CFE.

1
Internal &
External Auditing

2 Fraud Examination
 1
Internal & External Auditing
 1
Internal & External Auditing
Planning
Risk assessment
Internal controls
Audit evidence
Reporting
 2
Fraud examination
 2
Fraud examination
Prevention and Deterrence
Detection
Investigation
Remediation
 3
Forensic Accounting
 2
Forensic Accounting
Accounting and legal matters
 3 Forensic Accounting

1
Internal &
External Auditing

2 Fraud Examination
 3
Forensic Accounting
Accounting and legal matters

1
Internal & External
Auditing

2
Planning
Risk assessment
Internal controls Fraud Examination
Audit evidence Prevention and Deterrence
Reporting Detection
Investigation
Remediation
Definition
• Forensic Accounting
Forensic Accounting is the action of identifying, recording, settling,
extracting, sorting, and verifying past financial data or other accounting
activities for settling current or prospective legal disputes or using such
past financial data for projecting future financial data to settle legal
dispute.
• Investigative Auditing
Investigative Auditing is detailed scrutiny of selected activities which help
client understand the process in a better and comprehensive way. An
Investigative Auditing is the complete enquiry of specific account or
records of business and generally used to prove a particular fact.
Role
• Forensic Accounting
A Forensic Accountant may take on fraud auditing engagements and may
be an investigative auditor, but they will also use other accounting,
consulting, and legal skills in broader engagements. In addition to
accounting skills, he or she will need a working knowledge of the legal system
and excellent communication skills to carry out expert testimony in the
courtroom and to aid in other litigation support engagement.
• Investigative Audit
Investigative Auditor is a fraud examiner (could be an accountant),
especially skilled in auditing, who is generally engaged in auditing with a
view toward fraud discovery, documentation, and prevention.
Fraud Cases
Fraud Cases
Fraud Cases
Fraud Cases
The role of forensic accounting professionals
AUDITOR
 AUDITOR
1. I dentifies and assesses the risks of material misstatement of the entity’s (or where relevant, the consolidated)
financial statements, whether due to fraud or error.
2. Designs and performs audit procedures responsive to those risks, and
3. Obtains audit evidence that is sufficient and appropriate to provide a basis for the auditor’s opinion.
 FRAUD
EXAMINER
 FRAUD EXAMINER
1. Evaluate potential fraud indicators and the impact of current fraud trends and make recommendations as to
appropriate mitigation.
2. Conducting investigations into allegations of fraud, waste or abuse committed by clients against our company
3. Reviewing and researching evidence/documents to analyse the overall fact pattern of a claim and synthesise data
into a professional report with recommendations
4. Interviews and records statements of witnesses and suspects.
5. Collaborates and coordinates with law enforcement officers and attorneys concerning investigative efforts.
FORENSIC ACCOUNTANT
 FORENSIC ACCOUNTANT
1. Examine financial records of organisations or individuals with the objective of providing evidence that could be
used in resolving or settling disputes or litigation.
2. Investigate a range of fraudulent activities, including money laundering and tracing and recovering missing
assets.
3. Preparing financial evidence and analysis for court against criminal activity.
4. Analysing financial information to enable lawyers to prosecute criminals, such as those funding illegal activities,
and with insurance companies and other clients to resolve disputes.
OTHERS
 OTHERS
1. Anti Money Laundering/Terrorist financing - Forensic services
2. Insurance services - Forensic services
3. Financial cybercrime - Forensic services
 Differences
Characteristic Audit Fraud Auditing Forensic Accounting
Time perspective Historical Historical Future and historical
Primary focus Periodic Reactive Proactive and ongoing
Investigative scope Narrow Narrow Broad ranging
Main work product Audit opinion Fraud case report Forensic audit report
Main responsibility Company and public Defrauded party Concerned principal or third
party
Guidelines Rules-based Principle-based; under audit Principles-based
rules, rules-based
Purpose of report Ensure GAAP is followed Identify perpetrator of fraud Fraud risk assessment and
strategic services
Professional stance Non-adversarial Adversarial Adversarial and non-
adversarial
Scope

Investigative Auditing
Forensic Accountant

Law Accounting

Criminology
Scope
Handling and managing work with regards Few areas a forensic accountant could
to: specialize in:
• Fraud & Financial Crime • Insurance Frauds
• Investigation Assignments • Health Care Frauds
• Regulatory Enforcement • Procurement Frauds
• Crisis Management • Anti Money Laundering
• Dispute Services • Fraudster Psychology
• Reconstruction of Complex Financial • Digital Forensic
Records
• Data Analysis
• Risk-Based Internal Audit
• Expert Witness
• Systems and Process Audit
• Conducting Interviews
• ERP Implementation and other allied
Forensic Accounting & Internal Audit • Bankruptcy and Insolvency Proceedings
services. • Calculation of Economic Losses
• Business Valuations, etc
.
Career in forensic accounting
Fraud-fighting Careers
Moving into
Fraud & Forensic Auditing in Digital Era