Data Sleuth

Chapter 7Risk-Based Analysis

BEFORE PREPARING A CASE plan, evaluating the most vulnerable areas of fraud, hidden assets, understated income, or any other client concern is important in a forensic accounting engagement or fraud investigation. This evaluation is especially important when a client does not know where the issues originate within the organization. A risk-based analysis helps an investigator prioritize the areas to examine, addressing the client's concerns while making the best use of their time and financial resources. It also serves as a guide for the investigator and prevents them from jumping to conclusions and making claims not supported by evidence. A similar analysis is performed in engagements involving individuals, such as divorce or estate and trust disputes, as discussed at the end of this chapter.

Such an analysis should begin by focusing on the sources and uses of cash as further described in Chapter 9 and the procedures associated with the collection and distributions of cash. It can be tempting to start with accounting records and journal entries, but these are not the primary data sources that will identify missing money, though they can be useful as a secondary source to understand how an event occurred and provide evidence of the context or intent behind the potential diversion of funds.

With cash sources and uses as the primary focus, the investigator should next consider the internal controls surrounding how funds are received into the organization ...