When Suspicion Becomes Reality: The Importance of Forensic Auditing
-
July 01, 2025
-
It all started with a duplicate invoice, which initially seemed like a human error, an oversight by the accounting department, or a simple lack of communication with the commercial department. However, as the situation was investigated further, some concerns arose: excessive trust in an employee, lack of controls, or manipulable controls, combined with constant pressure to show positive results.
In a business environment where the risk of workplace fraud is a reality and a constant, fraud can range from small misappropriations to complex schemes that can go undetected for years. The longer the fraud lasts, the more costly it is for organizations.1
Fraud knows no borders, and it is indifferent to whether it is a renowned multinational or a small business, or whether there are robust controls in place or not. Fraud is dynamic, it reinvents itself, and it adapts, which is why it is so difficult to detect in a timely manner.
This is where forensic auditing becomes important and turns into a tool for companies, allowing them to properly identify irregularities and obtain answers to questions such as: what, who, where, how, when, and how much? These answers are fundamental if legal action is to be taken in the future.
However, there are certain warning signs that, although they may not be an indicator of the existence of fraud, lead to questioning policies, processes, the effectiveness of controls, or ultimately deciding to conduct a forensic audit. Some of these alerts include:
- Anonymous complaints about potential irregularities through established channels, which can come from employees, suppliers, or customers. According to the 2024 ACFE Report to the Nations, 43% of workplace frauds were detected thanks to a complaint.2
- Changes in personal behavior of employees, such as alterations in their lifestyle that exceed their income levels, or the presence of vices or addictions, which can exert financial pressure on the employee.
- Changes in work behavior of employees, such as accumulating unused vacation days or resisting taking them, or those who show reluctance to share financial information without a clear reason, who continuously bypass established controls, or in extreme cases, employees who avoid or evade audits.
- Internal or external technological vulnerabilities, including access to systems or accounting records at unusual hours, unauthorized access to systems, changes in passwords or files without justification, or external threats, such as cyberattacks, which are increasingly frequent in our digital environment.
- Accounting errors or inconsistencies that occur frequently and systematically, incongruities in accounting reports without explanation, duplicate transactions, transactions with multiple records that do not allow traceability, significant transactions with incomplete documentation, or unusual behavior in income or expenses.
The identification of any of these warning signs leads to the million-dollar question: when is the right time to conduct a forensic audit?
The initial answer will be “it depends,” since this decision will depend on the presence of certain situations. The most common ones are:
- Clear signs of fraud, misappropriation, corruption, or other irregularities.
- Significant impacts on the organization, as the presence of fraud not only leads to financial losses but can also affect the company’s reputation, whose impact is incalculable.
- The decision to take legal action, for which it is crucial to gather all necessary information to develop an adequate legal strategy, as well as ensure a chain of custody for the collected evidence.
- Requests from regulatory bodies, where a forensic audit can be of great help in complying with requirements in a more technical and objective manner.
- Mergers, acquisitions, or restructuring, where it is essential to identify any issues of interest that may affect valuation, as part of financial due diligence.
- Preventive measures, where forensic auditing also acts as a preventive tool, whose primary objective is to identify fraud risks before they materialize. As a result, controls can be improved, a continuous internal control model can be addressed, and efforts in training and organizational culture can be strengthened.
It is quite common for companies to minimize warning signs and delay investigations for multiple reasons, such as excessive trust in employees, lack of clarity on how to proceed, or in some cases, the lack of timely legal advice. Another common reason is the fear of scandal, which undoubtedly has a reputational impact.
Undoubtedly, time is a key factor, and the longer we delay acting, the more likely it is that important evidence will be lost, and the impacts will become significant.
This task cannot be assigned lightly, and forensic auditing must be performed by independent experts with methods that guarantee adequate custody of evidence, provide inputs to the legal area for a robust strategy, ensure confidentiality of information, and safeguard the company’s reputation.
Forensic auditing goes beyond numbers; behind each irregularity, there are people, decisions, consequences, and opportunities. The decision to conduct a forensic audit is a reflection of the organization’s culture regarding fraud, responsibility to stakeholders, and that transparency is non-negotiable for the organization.
Related Insights
Published
July 01, 2025
Key Contacts
Associate Director