Within a company, there are often cases that require an investigative audit. Such as embezzlement of funds by one of the employees or internally, misuse of assets, and others.
An investigative audit is an in-depth examination to prove whether or not fraud (fraud) occurred in an organization, while also calculating the loss it caused. Unlike a routine audit, which assesses the fairness of the financial statements as a whole, an investigative audit starts from one specific suspicion and traces it through to completion.
An investigative audit enables an institution to maintain business integrity and transparency, and also helps in reviewing the possible causes of financial loss.
What Is An Investigative Audit?
An investigative Audit is a method of Investigation used to uncover indications of fraud or suspicious situations in an organization.
It aims to disclose evidence and facts that cause harm to related parties, both agencies and individuals.
As part of the activities internal audit, the evidence found must necessarily refer to the rules of procedural law and applicable law.
In terms of examination, investigative audit can be referred to as fraud audit which is a combination of forensic audit which allows the examination of the entire document and not just sampling combined with internal control procedures that include identification processes within the company.
In this audit process, an auditor must have sufficient knowledge so that he can carry out his work professionally and optimally.
Among those that need to be mastered are disguise and wiretapping techniques, interview techniques, persuasive techniques and easy to take heart to get information, being able to understand body language, and the ability to identify lies.
In addition to these capabilities, auditors can also utilize software CAAT (computer assisted audit tools) in the implementation of this audit.
Audit Investigasi or Audit Investigatif?
Both refer to the same thing. The difference is only in word form: investigasi is a noun, while investigatif is an adjective. That's why both are equally valid to use — “audit investigasi” means an audit that takes the form of an investigation, while “audit investigatif” means an audit that is investigative in nature.
In practice in Indonesia, the term audit investigatif is more often used in state examiner circles such as BPK and BPKP, while investigative audit is more common in the private sector and corporate internal audit. Its English equivalent is investigative audit, which in much literature is used interchangeably with fraud audit.
Who Conducts an Investigative Audit?
The party who carries it out differs depending on who is harmed. In the public sector, an investigative audit is carried out by BPK to calculate state losses, by BPKP at the request of law enforcement officials, and by APIP such as regional and ministerial inspectorates for suspected irregularities within their own environment.
In the private sector, an investigative audit is generally carried out by the company's internal audit team — see the scope of internal audit for its limits of authority — a public accounting firm, or a certified forensic accountant such as a CFE (Certified Fraud Examiner). The greater the likelihood a case will proceed to the legal realm, the more important it is that the party carrying it out be independent from the party being examined.
Difference Between an Investigative Audit and a Regular Audit
Many people equate an investigative audit with a regular financial statement audit. In fact, the starting point, scope of examination, and end result are very different:
| Aspect | Regular audit (financial statements) | Investigative audit |
|---|---|---|
| Trigger | Scheduled, routine every period | A suspicion or report of fraud |
| Purpose | Assessing the fairness of the financial statements | Proving whether or not fraud occurred and calculating the loss |
| Scope of evidence | Sampling of the transaction population | All documents related to the suspicion, without sampling |
| Reference standard | Audit standards (SA) | Auditing standards plus rules of legal procedure |
| End result | Audit opinion | An investigation report that can serve as legal evidence |
As a consequence, the results of an investigative audit must be able to withstand scrutiny in court. That's why audit working papers and evidence storage in an investigative audit are kept far stricter than in a routine audit.
Investigative Audit Techniques
In addition to maintaining the company's reputation, this audit is also used to ensure its compliance with the law. In carrying out the process to the maximum, investigative audits generally go through the procedures of Investigation, confirmation, observation, and others.
Here are some technical audit investigation and explanation:
1. Request for information and confirmation
Formal and informal inquiry by the auditor to auditee and these other parties are generally carried out to collect evidence orally and in writing.
In addition, this confirmation step to other parties also allows auditors to corroborate the truth and error of information obtained about transactions of an agency.
A number of third parties who are questioned certainly have an interest in this audit process, such as suppliers, customers and others, because their recognition can reinforce existing data.
And the information can also be corroborated by third parties or other external sources, so the information obtained will certainly be more credible.
2. Physical examination and observation
In this case, the auditor will equate the view of direct process inspection and physical observation by using all his senses to receive information.
Physical observation is done by examining cash, property, important documents, and other tangible materials to serve as evidence.
This allows the auditor to identify possible fraud or abuse as well as ascertain whether the asset is impaired in use, damaged, or otherwise.
This observation itself becomes a procedure used to ascertain every aspect of the business, starting from the mechanism of internal activities and how these processes affect the course of business.
3. Analytical Review
Is a method used by auditors in reviewing data from possible discrepancies. This certainly begins with understanding the picture that has been obtained from the audit process.
This reasonable conclusion will be obtained after conducting an analysis based on comparative benchmarks such as the existence of error reports or errors in formulating fraud.
The comparison is reviewed by tracing the relationship of one data with another data, both from financial data and non-financial data.
4. Back Document Check
In this case, the investigative audit will cover the entire document, ranging from physical documents to documents stored by relying on technology.
That is why the examination of documents also relies on Computer Forensics in its application, so that the information processed and stored in the device can be observed optimally.
Document inspection is done by the process vouching and tracing in collecting and checking transactions through written data.
Vouching is an examination of the details of the document to prove the correctness of the transaction records manually. While tracing is a transaction check of the connection of documents related to the source.
5. Recalculation and Reperformance
The audit process in rechecking allows auditors to recalculate and compare the company's initial financial statements.
From this step, the auditor can review the data and can be immediately identified when discrepancies are found in it.
As of reperformance conducted by an experienced external auditor. In this case, the audit procedures that have been carried out by the company will be re-reviewed by the independent auditor.
The Auditor will collect evidence with various techniques to corroborate the results of the investigative audit carried out in order to identify possible errors.
6. Net Worth Method
This is an examination technique for verifying the truth of possibly unlawful or non-compliant income. The logic is simple: if a person's increase in wealth far exceeds their legitimate income for the same period, that difference is what deserves to be traced to its origin.
This examination is carried out by identifying the tax results reported and paid annually, such as in a report on official property that includes assets, income, financial resources, and others.
In that case, the auditor can review if financial developments are found that are not in accordance with the law. For this reason, the examined party needs to prove the validity of its wealth and the auditor will identify the truth.
7. Follow The Money
This technique enables the auditor to identify potential perpetrators of fraud by following the flow of money from its origin to where that flow finally stops.
That way gradually the auditor can find out where the last position of the fund is located. This will effectively prevent audit cycle from the irresponsible party.
Purpose Of Investigative Audit
The existence of investigative audits is very important in identifying ethical violations, fraud, misappropriation of funds, violation of the law, and other situations that harm the company.
However, what is the purpose of an investigative audit is also explained in the following points:
- Avoiding financial losses, which allows companies to uncover possible irregularities by identifying them early.
- Maintain agency reputation, by imposing transparency on problem solving that can reduce the potential for good name and trust to be maintained.
- Avoiding cheating, which allows the investigation to prevent the occurrence of internal discrepancies in the company that are detrimental.
- Ensuring legal compliance, which makes the company able to take measures to conduct business in accordance with applicable laws and legislation.
Examples Of Investigative Audits
Reporting from the Bengkulu provincial BPK on the Mukomuko hospital corruption case, it is said that to uncover the case, a criminal law Observer Ari Elcaputera SH, MH will ask the relevant institutions to use investigative audits in calculating state losses.
In the process of auditing cases that are carried out over a long period of time, this investigative audit passes through the process of examining documents and investigating a large number of witnesses.
Thus, it is expected that in the disclosure of the case, an investigative audit will be carried out with three items, thus allowing transparency in each aspect.
Among the witnesses who were questioned were the head of the hospital, the treasurer of the incoming money and the treasurer of the outgoing money, the head of the expenditure supplier, the head of the drug supplier, and the BPJS leader who was also in the financial report document.
The documents reviewed include financial accountability documents for hospitals followed by investigation of requests for information and confirmation from various parties.
Because the alleged corruption case in this hospital occurred in 2015-2021, the investigation process also took a long time.
The investigation into this case covers every aspect of the money being used, whether for drug procurement, debt needs, and others that have been listed in the documents being examined.
After the examination of witnesses and review of documents is completed, only then will the Public Prosecutor's office ask the institution in charge to calculate the state's losses from the case with the investigative audit system.
FAQ About Investigative Audits
What is an investigative audit?
An investigative audit is an investigation method for uncovering indications of fraud or suspicious situations in an organization. Its aim is to find evidence and facts of losses suffered by the parties involved, with evidence that must refer to procedural law and applicable legislation.
What is the difference between audit investigasi and audit investigatif?
There is no difference in meaning — both are terms for the same thing, only differing in word form. Investigasi is a noun, while investigatif is an adjective. The term “audit investigatif” is more commonly used by BPK, BPKP, and inspectorates, while “audit investigasi” is more common in the private sector. Its English equivalent is investigative audit.
What is the difference between an investigative audit and a regular audit?
A regular audit runs routinely and assesses the fairness of the financial statements through sampling, with the result being an audit opinion. An investigative audit is only carried out when there is a suspicion of fraud, examines all related documents without sampling, and its result is an investigation report that can serve as legal evidence.
Who is authorized to conduct an investigative audit?
In the public sector: BPK to calculate state losses, BPKP at the request of law enforcement officials, and APIP such as regional and ministerial inspectorates. In the private sector: internal audit teams, public accounting firms, or certified forensic accountants such as a CFE (Certified Fraud Examiner).
What is the purpose of an investigative audit?
Four objectives: avoiding financial losses by identifying irregularities early, safeguarding the institution's reputation through transparent problem resolution, preventing fraud within the company, and ensuring compliance with applicable laws and legislation.
What are the techniques of an investigative audit?
Seven techniques: information requests and confirmation, physical examination and observation, analytical review, document re-examination, recalculation and the reperformance, net worth method, as well as follow the money to trace the flow of funds to its final position.
What is the difference between a vouching and tracing?
Vouching is an examination of document details to prove the correctness of transaction records manually. Tracing is an examination of transactions against the connection of related documents to their source. Both are used during document re-examination.
What skills must an investigative auditor have?
Disguise and interception techniques, interview techniques, persuasion skills for obtaining information, the ability to read body language, and skill in identifying lies. Auditors can also leverage CAAT software (computer assisted audit tools).
What is the relationship between investigative audits, fraud audit and forensic audits?
In terms of the examination, an investigative audit can be called a fraud audit — a combination of forensic audit that examines all documents, not just sampling, blended with internal control procedures covering identification processes within the company.
Conclusion
Such is the explanation of the investigative audit that needs to be known. This process allows the company to mitigate potential fraud.
However, in running it, of course, the agency requires auditors who have mastered this field extensively, so that the results obtained are also maximum.
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