Tag Archives: forensic audits

Avoiding The Costs of a Forensic Audit

From time to time the management of finances of a particular organization, or company raises suspicion. It could be a company that you hold shares in, or a public benefit organization that you part of or donate funds to.

The custodians of other people’s funds are always held in suspicion. Office bearers and treasurers are often subjected to harsh criticism by fellow office bearers or members of a particular club.

In many instances, the criticism leveled at a treasurer, is unfounded, and normally motivated by fellow members interest in a particular position.(Normal organization politics)

There are, however, serious cases of gross financial mis-management in organizations, ranging from churches, schools, companies and even government. It remains important for members of a club/organization to be vigilant, without being petty.

When suspicions about fraud or theft surface, in organizations, the members normally call for an audit or a forensic investigation into the financial affairs of the said organization. The costs of forensic audits, can be prohibitive. And even after fraud has been detected the legal costs can spiral out of control. If the auditor is not available to provide his expert testimony in court, the accused walk free.

Forensic accounting or auditing is considered to be a new specialized field in accounting. And accountants who want specialize in this field ,enhance their skills with additional studies in forensic accounting. Hence it is so costly. Investigations into amounts as small as $20 000.00 can cost an organization as much as $25 000.00 in audit and legal fees!

To save costs, internal investigations can be conducted * Ignore spreadsheets, financial statements provided by the accused(he/she will try to deflect your attention from the problem at hand. · Verify bank statements thoroughly · Reconcile receipts to cash banked · Add up all the totals of petty cash expenses, and compare to petty cash deposits advanced. · Most thefts/frauds occur at the cash management level of finances. So scrutinize cash payments carefully. · Establish if paid invoices are legitimate. Check the suppliers registration and address details, give them a call. Many fraudulent invoices appear valid, and are paid, but could be a “dummy company invoice”. · An invoice could look real, the payment made, but were goods delivered.? Common areas are quantities of inventory or stationery ordered, but far less than the original order could have been delivered. Check your inventories. · If findings lead to definite proof of theft or fraud, reporting the crime to the police should be your last resort.

Confront the alleged perpetrator in a diplomatic fashion. I am in no way condoning the serious crimes of fraud and theft, but believe demanding a repayment of the stolen funds, plus interest, could be a better option. The frightened accused, would invariably be prepared to cooperate. Disciplinary steps should follow. Only if he refuses to cooperate, should legal steps be considered.

I concede, victims of a fraud or theft would feel hurt and betrayed, but my advice is borne out by numerous experiences where fraud cases have dragged on forever in courts, only to be thrown out after years by a judge, for “lack of evidence”.

Of course the approach would be different where millions are involved, but for frauds and thefts of a few thousand dollars, engaging an auditor or an attorney, is just not worth it.






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Sean Goss

Uncovering Missing Income and Expenses

In many small businesses, proper accounting is overlooked. Fact is, many of the income and expense items, go undeclared due to a weak accounting system. Even with a good accounting package, expenses (and income) can be under reported.


How is this so? When the best accounting software is used to record all the transactions? Unfortunately for many businesses, manual inventory control, cash sales and cash purchases and expenses, will remain the norm.


It is with the cash transactions outside the computerised system, where much of this oversight occurs. Electronic bank transfers, be it payments or deposits are identified swiftly on the bank statements, or credit card records accessed via the Internet. These transactions can then be easily replicated on to an accounting software package, and produce accurate reports.


The transactions outside the electronic system, however, can proof to be problematic.

Let me illustrate by way of this example:

1) For certain months, the telephone bill is paid, using the owner’s credit card.

2) The owner pays for gas for the business vehicle.

3) Expenses paid out of the petty cash are not recorded, since a voucher or two was not furnished.


Cash sale proceeds are used to purchase additional inventory. The sales invoice and purchase invoice for this accounting transaction, is not reconciled, surplus cash is not declared. This will invariably lead to an understatement of sales purchases and expenses.


It is accepted, that the above scenario is totally unacceptable, the reality however, is that this occurs, in many small businesses around the globe. Due to this under reporting, businesses do not have a clear indication of their true performance.


  • Income

If uncertainty exists about the income figures for a month or period, check the cash sales journals. If unsuccessful with sales journal scrutinize the order books. Lastly, perform a verification with the customer, if they received goods ordered, and if they in possession of a receipt.


  • Expenses/ purchases

Check all available records. Contact suppliers for copies of cash expenses invoices. 


  • Cash control

Receipt book verification versus cash banked and utilized can assist in uncovering missing amounts from the accounts system.


All business expenses paid for by the owner should be recorded in the books of account of the business. Perusing the owner’s credit card or bank accounts would enable the bookkeeper to trace these expenses.


Vigilance, and control over all expenses and income flowing through the business is of utmost importance. Ideally, the business should refrain as much as possible from dealing with cash, if not possible, proper control should be exerted over the cash sales and cash expenses.

Recording and controlling cash income and expenses is not rocket science! It is the lack of discipline from both business owners and employees alike that creates accounting problems.


Author: Sean Goss  sgafc@mweb.co.za