Forensic Audit Definition

During a forensic audit, professionals compile and assess financial information to be used in legal proceedings. The audits are conducted by forensic auditors who rely on the principles of law, business, ethics and general accountancy. While the results of most forensic audits are used in court, they are sometimes used to prepare legal defenses and are made confidential under the law as an attorney work product.

Who Performs Them

Generally, certified public accountants (CPAs), chartered accountants or economists perform forensic audits. Forensic auditors also must have an in-depth knowledge of basic legal principles as well as the standards for legal discovery and professional ethics. Thus, it is not uncommon for forensic auditors to also be licensed attorneys or paralegals.

Purpose

Forensic audits are often conducted in order to calculate damages caused as a result of negligence or deliberate misconduct. They may also be used to assess living and care costs. Forensic audits may be done in anticipation of litigation or as part of the trial process. They may also serve as internal audits to deter illegal actions by employees or determine if a worker should be terminated.

Who Employs Them

Forensic audits take place in a number of settings, including government agencies, schools, law firms, insurance companies, hospitals, private corporations and financial and accounting firms. They may also be retained by professional licensing boards, court mediators and law enforcement agencies.

Cases

Forensic audits are performed in many types of legal cases, including embezzlement, malfeasance, misfeasance, child support, alimony, personal injury settlements and insurance fraud cases. They are also used in administrative hearings, such as when a lawyer is facing disbarment or when an accountant has been formally accused of misrepresenting earnings. Police departments and criminal investigators also use forensic audits to determine whether to bring charges against a suspect.

Duties

During the forensic audit, the auditor may gather evidence though bank statements, credit card receipts, purchase orders, email and electronic files. A forensic auditor may also conduct research on damages, laws and regulations, as well as prepare written reports of findings and provide recommendations to the court, individual attorneys, tax preparers, mediators, risk managers, licensing boards and insurance companies.