Why there is a need of Guiding Template ?
In my school going days, it was my passion to hear and read detective novels like Famous Five, Sherlock Holmes, Feluda of Great Bengali Author Satyajit Ray and many other famous detective characters of Bengali Novels. Due to physical inability, I could not even dream to embed an ambition of being Detective in my mind. But I went on reading more and more of that sort of stories. Now I understand that habit of reading those novels give me the impetus to see any event with a diverse and multiple angles.
When I took up the profession as an Accountant coupled with IS Audit back ground, I thought my life would be boring with figures otherwise loaded with audit of Information technology. I was utterly wrong. Opportunity came in February 2002 to investigate a fraud in one of our clientele. The firm chose me due to my skills set in the areas of computers and systems. The journey began, but at the same time I was landed in a soup. No ready reference on investigation of fraud was available in my hand, nor even in our office library. On the top of it, my senior preferred me to be the Team Leader. Then I really felt a need of a ready manual on Audit of Fraud aka today’s buzz word “Forensic Audit” in order to help the beginners like me. After that I went to Kenya for another complex investigation assignment and completed that successfully. These two assignments had taught me that it is not mere accounting and audit report but something more than that. As this is very tricky and specialized area where you many need to get guided by legal experts in setting the final report. I do hereby purposely avoiding to iterate the facts behind those frauds, techniques of fraud detection and establishment of the facts on the table.
Scope of this Template
To start with, to define the scope, below mentioned guidelines are limited to Fraud done by the employee against any establishment.
I can say it is necessary to assume beforehand that Forensic Audit Report can be used as evidence for the purpose of future litigation and as a consequence Auditor might be called by the Court of Law to act as a witness. So extreme care and caution is necessary while drafting the report and also to ensure adequate guard against any consequential future professional liability.
It is not easy to write Forensic Audit Report, when each word has its legal implications. The selection / choice of each word for each specific areas of the Report is crucial and needs extreme professional care and caution. It depends upon the expertise and drafting skill of the Auditor. Years of experience, legal bent of mind and total control over language in English will help the Auditor to carefully draft the report.
For e.g. there is a difference between word “Annexed“ and word “Attached”in the context of writing report. Auditor has to take responsibility of the usage of word “Annexed” in the Main Report. It implies that any statement annexed along with Main Report is a part and parcel of the Main report. But he may not take responsibilities of the Exhibit, which is attached with the Main report. It may be the additional source of evidence and gives strength to the observations made in the Main Report.
One should know that his Report might axed somebody’s job or might be instrumental to put accused behind the bars. The Report might be challenged in the Court and as a consequence legal implications may not be avoided.Usage Restriction Clause, Liability Exclusion Clause can be intelligently incorporated in the specific areas of the Covering Letter / Report.
Example of Usage Restriction Clause Example of Liability Exclusion Clause
“This report is solely intended for the use of the Management and cannot be used in Court of Law or any other purposes”
“While conducting our review, based on the above premises, we also observed that in respect of certain invoices, the basic underlying documents were not available and as such the same could not be reviewed by us for this purpose. The details of such invoices are set out in ANNEXURE – …….”“In order to determine the responsibilities involved in the perpetration / manipulation of fraud, we have relied on the names / employee codes indicated / mentioned by the transaction logs of the specific module (indicate the name of the module) of the system”
Example of drafting style as regards to Confession Statement
“Notwithstanding the confessional statement made by the perpetrator (mention the name) and in no way limiting our investigating procedures by the contents of such confession and in accordance with the directions given in the appointment letter, we have carried out detailed investigation to unearth the fraudulent transactions and total quantum involved in the same”
Try to draft the Report according to the Scope of Work and Terms of Reference mentioned in the appointment letter.Do not try to be extravagant in reporting something where sufficient evidences have not been obtained to support your observations / remarks – leave some hint for further investigation.Give Report only to the Appointing Authority and any other authorized positions mentioned in the terms of appointment. Keeping in mind that this report is subject to audit and can be used by the person or group persons to whom the charge is made. This report is the foundation for the management to act against the perpetrator and can be subject to litigation. Thus extreme cautions need to be exercised while preparing final version of the report.Do not use the Client’s computers to write the report. If used then, delete the file after completion. Get adequate back up in any format suitable to you. It is better to use own laptop provided by your organization for writing report. It is advisable do not leave any content of report in client’s place. Do not save in the hard disk of the client’s computer. If saved, delete file after taking printouts and make sure that the same is not retrieval. Ensure that draft report or any content should not go in the hands of the unintended users, newspaper agencies.
Usages Restriction clause can be mentioned here according to the situation demands and to avoid further legal complications. See the example mentioned above.Brief Outlining the highlighted points of Report annexed
Outlining the Terms of Reference of Appointment Letter – Redraft the Terms of Reference if the Scope of work has been enlarged / reduced in the course of Investigation.
Methodology of Reporting / Reporting Pattern
Areas Covered – Extent of checking
Period coveredSpecific functions areas covered% Of total records checked.
Auditing Techniques Adopted in the Investigation
Carefully narrate this area – do no elaborate much. If forensic auditing techniques had not been adopted then mention it also. This will be an example of the Liability Exclusion Clause.
Mention apart from general audit techniques, what other specific audit techniques had been adopted.Mention the positions with whom you have carried out the discussions and other interviewing. If any interrogation had been carried out the mention it in suitable context.Mention the Confession documents if any. Also mention that it is no way limiting your scope of work and extent of checking. See the example mentioned above.Don’t mention the source of acquiring evidences.
Books and records / documents reviewed / examined
Basis of reporting.Narrate with reference to manual and computerized records.External documents / evidences , if any
Detailed Observations in each area of work under following heads:
Modus Operandi of Fraud
Try to highlight the approximate starting time of fraudulent activities.Period of fraudulent activities.
Nature of Fraud
Narrate the internal as well as external collusion if any
Observations should be supported with Annexures and Other Evidences as Exhibits
Direct Beneficiary and Indirect Beneficiary
Try to highlight the persons who have the direct and indirect involvement in the scheme of manipulation / fraud.Carefully draft this area. Choice of word is crucial and has a legal impact.Consult with Appointing Authority and Legal Counselor. The Legal Counselor may use the report in the court.Try to mention the position, not the name, otherwise required specifically by the terms of reference of the appointment letter.
Degree of Responsibility Fixation
Try to grade the responsibility fixation according to position held by the personTry to segregate between follower and initiator / instructor.Try to act as Judge of the Court and apply common rationale of thoroughbred professional
Internal Control Lacuna
Narrate the areas where systems had been flouted.Inherent system weaknesses which gave chances to the perpetrator to commit the fraud
Corrective Action suggested in the Areas of Internal Control
Risk assessment.What is ideal is to be narrated.
Determination of Total Quantum of Fraud and The Amount / Further Amount to be recovered from the Perpetrator
Summation of quantum of fraud for each area. Deduct the amount already recovered from the total quantum of fraud.Mention the mode of recovery if already made.
Suggestions – Possible Steps / Legal Steps to be taken by the Appointing Authority.
Do not suggest the Management to initiate criminal proceeding / sack / transfer of the persons involved in fraud. This is the duty of the appointing authority.
For any further investigation – Indication of Any other strong external forces behind the act of perpetrator. Review of Present System and its improvement
Only mention / indicate those names where you have obtained sufficient evidences to support your claim.
Liability Exclusion Clause can be carefully drafted if there are some limiting factors on which the observations are depended upon. See example mentioned above.Mention the time limit and any other lack of further external evidences which might restrict the extent of checking and which have an overall impact on the conclusion drawn.Thanks giving.
The copy of the Appointment Letter.Modified Scope of Work in the course of Investigation.
Other Annexes -Exhibits as attached
Supporting of Observations mentioned in the Main ReportDo not give the original document acquired in the course of investigation, retain it for future purposes.Provide the certified Xerox copy of it.
This is only a sample template of the report and indicative only. By now we understand that each case of fraud is of different in nature and as a consequence, the structure and contents of the reports may vary according to the specific situation and assignment.
Content of this article is extremely personal and based on hands on experience in this field of the author.
CA Jayjit Biswas