3© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Why is this important?
There is a lot of misconception regarding forensic audit
Increasing needs of forensic audit Demonstrate the role of
accountants/auditors to our stakeholders Enabling accountants/auditors to better
protects stakeholders interest Provide insights on what to consider before
accepting forensic engagement
3
4© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Agenda
1. Introduction 2. Forensic versus normal audit3. When to involve forensic auditor4. Methodology and process5. Case studies6. Closing
4
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Introduction
6© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Description Forensic accounting is a term used to describe the wide range of
investigative work whereby a forensic accountant carries outprocedures to gather evidence, which could ultimately be used in legalproceedings or to settle disputes.
An examination and evaluation of a firm's or individual's financialinformation for use as evidence in court.
Normally involve an investigation into financial affairs of an entity andis often associated with investigation into alleged fraudulent activities
Forensic accounting can cover non-fraud situations e.g settling ofmonetary disputes in relation to business closure or matrimonialdisputes under insurance claims
Forensic accountant could aim to discover if a fraud actually had takenplace, to identify those involved, to quantify monetary amount of thefraud and to ultimately present findings to the client and potentially tocourt
7© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Description Specific procedures carried out in order to produce evidence. For
example how long the fraud has been carried out, how it wasconducted and concealed by the perpetrators
Evidence may also be gathered to produce evidence tosupport/identify The suspect’s motive and opportunity to commit fraud Whether fraud involved collusion between several suspects and
any physical evidence at the scene of the crime or contained indocuments
Comments made by the suspect during interviews and/or at thetime of arrest
Attempt to destroy evidence
Investigators findings reflect more than mere opinion on the matter.
8© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Type of investigations Corruption- Conflict of interest, the fraudster exerts their influence to achieve
personal gain which detrimentally affects the company- Bribery (when money/something else of value is offered in order to
influence a situation)- Extortion (the opposite of bribery) - happens when money or
something else of value is demanded in order to secure particularoutcome
Asset misappropriation (the most common)- Theft. E.g. Stealing of physical cash, inventory- Fraudulent disbursements – company funds being used to make
fraudulent payments. Payment to fictitious suppliers, ghost employees- Misuse of assets e.g. employee using company assets for personal use
Financial statement fraud- fraud that causes a material misstatements in the financial statements- Can include deliberate falsification of accounting records; omission of
transactions, balance or disclosures or misapplication of financialreporting standards
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Forensic vs Normal audit
10© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Forensic audit Vs Normal auditElement External Audit Forensic auditObjective • Provision of an opinion on
whether the financial statement give true and fair view
• Prevention, investigation and detection of fraud
Guidance • Limited by professionalstandards
• Not limited by external audit standards and can perform professional activities outside the standards
Materiality • Very important • Look at total value of the damage of the fraud, regardless of materiality.
11© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Forensic audit Vs Normal auditElement External Audit Forensic auditPeriod of activity
• Expression of opinion on the financial statement for one business year
• No specific timeline. Activity lasts until the fraud is discovered
Reporting • Provides independent,professional and competent opinion in line with International Accounting Standards
• Specialized report containing the elements of the offense of fraud and is intended for legal proceedings.
Obligation • Mandatory • It is not a legal obligation
12© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Regulation• Unlike normal audits, there are no standards that govern the
performance of a forensic audit such as ISA/IFRS
• Regulation for forensic audits stems from professional regulatorybodies where the auditors are registered such as Association ofCertified Fraud Examiners (ACFE) in US.
• Laws within the jurisdiction also govern the execution of forensicaudits. This occurs where government passes law governingsecurity services bodies or elements of fraud such as handling ofevidence
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
When to involve Forensic auditor
14© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
When to involve a forensic auditorOften, clients request forensic audits in varying situations depending onthe needs of the organisation. Some of these are:
A whistle-blower reports the occurrence of fraud;
A manager suspects occurrence of fraud due to red flags viewed in the course of their work;
On discovery of loss/mismanagement of assets;
The nature of fraud occurring requires specialised skills, e.g. a system is illegally accessed - the need for IT experts
Assessment of utilisation of funds is necessary especially for donor funded organisations; and
Sometimes, when internal investigations have not borne the results required.
15© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
When to involve a forensic auditor
A need to thoroughly assess the Company procedures required to enable fully compliance with Anti Money Laundering requirement
A need to determine whether Anti-fraud programs and Controls are actually effective
When there is a dispute e.g. Breach of contract, shareholders disputes, Contentious valuations, Damage assess
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Methodology and process
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Overview• Consider whether your firm/the accountant has the necessary
skills and experience prior to accepting the work/engaging theaccountant
• Forensic investigations are specialist in nature and the workrequires detailed knowledge of fraud investigation techniques andthe legal framework
• Whether the investigation involve and audit client
18© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Knowledge and skillsForensic auditor
Education
- At least a Bachelors Degree
- Professional certification e.g. by Association of Certified Fraud Examiner
- Continuous on the job and other training
Practical skills
- Easily understands internal control systems
- Analytical skills
- Detail oriented
- Professional scepticism
Interpersonal skills
- Integrity
- Communication skills
- Interviewing skills
- Listening skills
Specialised skills
- Digital evidence recovery
- Dispute resolution
- Testifying/expert witness
- Asset recovery
19© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Forensic knowledgeEach experienced forensic team should comprise of individuals whoare multi skilled. Knowledge relevant for the successful execution ofall engagements includes:
Professional responsibility and project management
Laws and regulations (sector/jurisdiction of practice)
Planning and preparation
Information sourcing and preservation (electronic data, documents, interview notes)
Analysis and synthesising information
Reporting including expert witness
20© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
MethodologyA forensic audit is similar to a project management assignment. Inensuring all risks are considered and delivery, the methodologyfocuses on 5 element:
Preliminary considerations
Planning and Management
Gathering of information
Analysis of information
Reporting
21© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
ProcessDuring a forensic audit, the general processes performed are:
Planning and agreement with the client
System walkthroughs conducted with process owners Document request/ electronic data requests made
Analysis of information obtained
Further inquiries on exceptions noted in reviewed informationConduct admission seeking interviews based on findings/leadsDocumentation of findings and collation of exhibits supporting the findings
Communication with client and amongst team throughout the engagement
22© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Techniques and toolsSampling
Forensic audits require 100% sampling of information because forensic auditors present their investigation findings in court proceedings.
By reviewing all documentation available, the forensic auditor is capable of presenting losses or issues without doubt on existence of information that would negate the findings.
Analysis tools
Forensic auditors can use data analysis tools for varying data structures such as:
Use of IDEA software tool in analysis of structured data to identify anomalies; and
Use of document search tools under forensic technology such as NUIX or Dtsearch for the review of unstructured data, for example emails, excel and word documents retrieved from a suspect’s computer.
23© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Techniques and toolsEvidence recovery tools
Evidence can be recovered from suspect laptops, desktops and phones through imaging. This is where the team uses specialised tools and software to duplicate the hard drive of a machine.
Deleted items are recoverable in this case.
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Case studies
25© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project A DescriptionProvision of forensic investigation services into allegations of irregularitiesin the finance department. Specifically, the client required an in-depthreview of the finance function over an 18 month period to determine theculpability and involvement of finance personnel in any irregularitiesnoted and a quantification of loss incurred through the irregularities.
Work performed Reconstructed the finance process for funds issued over a 16 month
period through creation of an audit trail;
Performed analysis of information to quantify unaccounted for funds;
Performed third party confirmations to ascertain receipt of issued fundsto suppliers and program beneficiaries through site visits and phonecalls; and
Performed a fraud risk assessment of the key processes involved inmanaging the programs run by the organization.
26© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project A Benefit to client
We quantified the loss incurred by the client .
Our report provided the client legal support to proceed with claimsagainst the culpable persons.
We also identified finance and program fraud risk areas and providedpractical recommendations to address the loopholes.
27© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project BDescriptionA review of a proposed new office construction project among otherprojects which included an analysis of the basis of appointment ofvendors, contract compliance, assessment of work done and relatedreports on the work done, analysis of payments and project governance.
Work performed Gained an understanding of the internal project implementation
procedures, including the expected governance reporting structuresand system controls;
Undertook a review of the project implementation and identifiedareas where the project team did not follow laid down procedures,and key project risks were not escalated within the organization;
Conducted interviews to establish facts and seek explanations fromvarious staff members and third parties; and
Prepared a report that identified the individuals responsible forvarious aspects of loss and negligence.
28© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project BBenefit to client
We identified instances of
procurement flaws,
unmitigated conflicts of interest,
poor governance structure, and
unclear price discovery processes.
We provided the client with recommendations which would greatlyimprove the control environment.
29© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project CDescriptionFollowing review of reports issued and a visit by our client to theirpartner organisation in DRC, discrepancies were noted in the financialreports and red flags at the premises. We were contracted to perform aforensic audit.
Work performed Identified and secured physical evidence relating to suspect
transactions; Conducted background searches on the agents, entities and
individuals involved. Conducted field visits to verify existence of projects and occurrence
of activities Reviewed hard and soft copies of documents related to the
allegations, these included financial statements, and correspondencebetween various parties, procurement documents, finance supportingdocuments and HR records; and
Conducted interviews to establish facts and seek explanations fromvarious staff members and third parties.
30© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Project CBenefit to client We identify instances of irregularities and misconduct that led to a
potential loss of USD 29,500.
These irregularities included abuse of the procurement procedures, falsification of financial supporting documents, financial misreporting and non-adherence with the guidelines
provided by our client.
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Closing
32© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Misconceptions of forensic audit
I can avoid fraud in my organization by letting only a trusted, long-term employees handle the money.
38% of fraudsters in the 2016 KPMG profile of a fraudster have worked for the organisation for more than 6 years.
According to the 2014 Report to the nations by ACFE, 53% of fraudsters had been in the organisation for more than five years.
33© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Misconceptions of forensic audit
My financial statements are audited each year. I do not need a forensic auditor to investigate fraud in
my organisation.
The role of a normal auditor and a forensic auditor is not the same.
From the 2016 Profile of a fraudster survey;
61% of frauds occurred due to weak internal controls whilst
44 % of perpetrators had unlimited authority in their company therefore could override controls.
34© 2017, KPMG Advisory Services Limited, a Limited Liability Company Registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Document Classification: KPMG Public
Misconceptions of forensic audit
A forensic report’s purpose is to tell me which member of staff stole from me.
The purpose of a forensic report is not limited to apportioning culpability for fraud. We use the reports for:
Presenting factual findings; Illustrating what, how and who made the fraud occur; Identifying system weaknesses; Proposing practical mitigation strategies to curb future fraud
from occurring; and Quantification of loss to the client for litigation or insurance
claims.
GO TO INSERT>HEADER & FOOTER TO ENTER YOUR COUNTRY'S COPYRIGHT INFO (PER THE FORMAT SHOWN ON THE THANK YOU SLIDE IN THIS DECK.) THIS IS A GLOBAL KPMG BRANDING REQUIREMENT AND MUST APPEAR ON ALL SLIDES EXCEPT TITLE AND SECTION SLIDES.
Key points to remember
The need to enhance and abide to internal control: 53% of fraudsters had been in the organisation for more than five years.
Be alert of red flags on when to carry out forensic investigations. There has been increasing trend of fraudulent activities
Consider whether you/firm has the necessary skills and experience before accepting forensic assignments 35
© 2017 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Thank you
© 2017 KPMG, a Tanzanian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Genes Inyasi Manager KPMGMobile: +255 714 451727Email: [email protected]
37
Document Classification: KPMG Public
© 2017, KPMG Advisory Services Limited, A Limited Liability Company registered in Kenya and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The KPMG name, logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
kpmg.com/socialmedia kpmg.com/app