Economic crimes are on the increase in South Africa (the growth of fraud has increased by 31% since 1998 and that only applies to reported cases) and the modus operandi for the commission of these crimes has become increasingly sophisticated. Unfortunately, many investigations do not lead to successful prosecutions as the investigators are often inadequately equipped to prevent exploitation of legal loopholes in definitions, procedure and evidence. Similarly, police officers and other investigators often have limited exposure of the auditing and accounting aspects of the particular crime.
It is therefore of critical importance that the audit is performed by a professional with skillsets in both criminology and accounting who specialize in following a money trail, keeping track of fraudulent and actual balance sheets and checking for inaccuracies in overall and detailed reports of income or expenditures. If they find discrepancies, it must be the auditor's job to investigate and determine the reason for it.
An examination and evaluation of a firm's or individual's financial information is examined for use as evidence in court. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement, tax liability, to investigate allegations of bribery or other financial claims. In addition, an audit may be conducted to determine negligence or even to determine how much spousal or child support an individual will have to pay.
Forensic auditing is a specialization within the field of accounting, and forensic auditors often provide expert testimony during trial proceedings and or internal disciplinary company hearings.
ITS (Indirect Tax Services) was established in 2006 after the Senior Auditor/Accountant decided to start his own practise. Mr JJ Whitehorn was involved in Tax Auditing, Accounting and Forensic Auditing for 18 years. He is a registered member of the South African Institute of Tax Professionals as well as a registered member of the South African Institute of Practising Accountants and compliance exams to accumulate credit points in Taxation, Auditing and Accounting is written on a regular basis and reviewed yearly. Mr Whitehorn is also a registered Tax Practioner with SARS.
After finishing his B Com Accounting Degree at the University of the North-West he joined the South African Revenue Services and after participating in the successful implementation of Value Added Tax in South Africa he joined the Forensic Tax Auditing Division. In 1992 he was promoted to departmental manager and managed five auditing teams. Various exams in Income Tax, Value Added Tax and Customs and Excise were completed. Audits ranged from private individuals to large corporate entities. Presentation were often in court cases on behalf of the Revenue Services. In 1993 he joined an international company as an accountant and by 1999 he was heading up the Forensic and Auditing Division of this company, which had 68 branches within South Africa. Several Forensic Audits involved other African and Eastern Countries.
During the above period Mr Whitehorn have done numerous courses in various computer software packages and is also qualified in Human Resources, which is required for applying the correct disciplinary procedures.
Since ITS inception we have been involved with various Forensic Audits, which ranged from Balance Sheet fraud committed by Auditing Firms to investigating “Ghost Employees”.
We use customised computer software that extracts financial data down to individual line item entries. The software can accommodate any accounting software. The data is then filtered and sorted to provide various scenarios that ranges from entry duplications, transaction value verifications, supplier entry verification, cash sales extractions, asset purchase verification ect.
Once this data has been analysed, will we follow the accounting software audit trails. This is further assisted by finding the actual source, whether it’s a document, asset or person. This can involve employing the services of a Private Investigating Firm, Handwriting Experts ect.
We often work hand in hand with Private Investigating Firms that request our services.
A final report is prepared and presented to the concerned party/s. We then either interact with the local authorities and assist prosecutors in preparing their files and will appear as an expert witness in court or assist in-house human resource departments with their disciplinary procedures, again appearing as expert witnesses. Be assured of our utmost professionalism. We are more than willing to sign a NDA on request.
We can provide contactable references.
Auditing for Quality Control
While many associated auditing with finding flaws, it can be just as important to strengthen a company's already good business practices. Many companies self-audit on a regular basis to make sure that production and workflows are running smoothly without waste. By presenting regular audits of sound financial practices, a company improves its standing for shareholders, clients and customers, and the report generated by the audit gives executives a better sense for the internal finances of the business.
Of course, this can lead to a downside if the auditing company itself is committing fraud or if it is in collusion with the company or its managers to falsify reports. In this case, a forensic audit may be requested by a judge or an outside company to either determine the lost income as a result of a fraudulent report or to determine the damage that falsified reports caused to shareholders, clients or employees.
A forensic auditor examines a company's system of internal controls to identify any weaknesses in the controls designed to safeguard assets and to determine whether anyone in the company has exploited control weaknesses to misappropriate assets for personal gain. The American Institute of Certified Public Accountants classifies forensic accounting into two broad categories: Investigative services involve identifying asset-theft fraud and identifying the perpetrator; litigation services involve gathering evidence and giving testimony leading to the conviction of the perpetrator in a court of law. A forensic auditor will not express an opinion on your company's financial statements.
Asset-theft fraud is using one's position in a company, usually as an employee, to deliberately misuse or steal company resources or assets for personal gain. A financial statement audit will usually not discover asset-theft fraud because the objective of the financial statement audit is to determine whether the financial statements fairly present the company's financial position. For example, if an employee sets up a dummy vendor to siphon off company cash into his own account, the company's books will reflect this cash payment. Even though the transaction is fraudulent, the company's financial statements will accurately reflect this transaction. An auditor conducting a financial statement audit cannot examine every transaction in the company's business records and is not charged with discovering asset-theft fraud. If the financial statements fairly state the company's financial position, the auditor would be justified in issuing an unqualified opinion, even though undetected asset-theft fraud is present. Suspicion of Asset-Theft Fraud
Sometimes a small business owner will mistakenly request an accounting firm to conduct a financial statement audit if he suspects asset-theft fraud. If you tell your audit firm your suspicions or the firm realizes your motivation for requesting the audit is to detect asset-theft fraud, it should recommend a forensic audit instead of, or in addition to, a financial statement audit. Ideally, a forensic audit should be conducted by a certified public accountant.
Financial Statement Fraud
Financial statement fraud is the intentional misrepresentation of a company's financial position through the misstatement or omission of certain transactions or disclosures in the financial statements. Financial statement fraud is designed to deceive financial statement users, such as owners, investors, creditors or others who rely on the financial statements to make financial decisions. This type of fraud is usually perpetrated by company executives whose compensation is tied to the financial performance of the company or whose position is dependent on the company meeting certain financial goals. If you suspect a member of your business's management team is "cooking the books," a financial statement audit is designed to detect financial statement fraud.
Other Services – Due Diligence Exercise
ITS has performed various due diligence exercises on behalf of potential business buyers and or investors.
The reports vary between a general overview, which depending on the company size and availability of information, can be completed within 3 to 5 days.
The more extensive review normally takes 14 days to complete, again depending on the availability of information supplied by the various parties.
Our reports are based on facts and to be fair to all parties concerned. The reports are normally done on behalf the potential buyer to assist in making a final decision on the acquisition.
A General Due Diligence Will Cover:
- Company profile verification (registration, history, reputation, competitors, directors ect)
- Business valuation exercise
- Verification of financial statements or information (eg. Loan accounts, shareholder agreements, issue of shares, cashflow projections ect)
- Fixed Asset verification
- Trading Stock verification, valuation and assisting in “stocktake” at date of takeover
- Current assets and liabilities
- Employee/s and benefit/s verification
- Sustainability of the current business model
- Reasons for selling the business
- Statuary compliance (Taxes and other business related compliance's)
- Interviewing of key staff
- Contract or Tender confirmations where relevant
- Confirmation of any outstanding material legal matters