Financial Forensics and Investigation Report: Regulatory Compliance

This report provides a comprehensive analysis of financial forensics and investigation, emphasizing the critical need for regulatory compliance within companies. It critically assesses the significance of adhering to laws, regulations, and internal policies, highlighting the role of internal control assessment services. The report evaluates regulatory and crime control approaches, such as deterrence and compliance schools, to enforce company compliance. It underscores the importance of compliance in forensic investigations, detailing the types of investigations and services a forensic practice can undertake. The report also discusses the benefits of compliance within the context of a forensic investigation, including various tests and monitoring processes. It concludes by emphasizing the value of forensic investigation in the realm of accounting and finance and the need for continuous monitoring and quick responses to prevent fraudulent activities.

FINANCIAL FORENSICS AND INVESTIGATION
Financial Forensics and Investigation
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Contents
Introduction............................................................................................................................3
A. A critical assessment of the need for regulation of, and compliance by, companies with
laws, regulations, and internal policies..................................................................................4
B. An appraisal of the regulatory and crime control approaches to enforcement of company
compliance.............................................................................................................................6
C. An evaluation of the importance of compliance within the context of a forensic
investigation...........................................................................................................................8
D. An indication of the types of investigation, compliance, and internal control services
that a Forensic practice can undertake.................................................................................10
Conclusion............................................................................................................................12
Bibliography.........................................................................................................................13
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Introduction
Compliances mean the act of complying with the order, rules, and regulations under
which the entity or corporation exists (Saita, 2017). It is necessary for the organization to
follow the rules and regulations in order to save itself from the severe repercussions of
nonfulfilment of regulatory provisions. The company can fulfill all the compliances when it
has strong internal control assessment practices managed by the professionals. The changes
in the market have also made it compulsory for the organization to follow the compliance,
procedures, and legislation. Role of internal control assessment services will be highlighted in
this report.
This report will highlight the implications of the forensic investigation and the types
of auditing required by the company under forensic investigation. This paper will also
highlight the benefits and needs of compliance and internal control assessment services in
detail. Beside this, this paper will also shed light on the benefits of forensic investigation in
the world of accounting and finance.
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A. A critical assessment of the need for regulation of, and compliance
by, companies with laws, regulations, and internal policies.
The changing pace and advancement pushed the company to follow the proper legal
compliance. It is due to the fact that adherence of law and compliance make the company to
gain the competitive as well as a strategic advantage in the market. Hence, there is a need for
compliance and internal control assessment services for the organization to perform
effectively and efficiently.
It can be said that companies need to check up on any failure in following the
compliances regularly. So for this, the organization should establish internal control
management which on a regular basis assess the compliances on the company in relation to
the act, regulations, and procedures. Internal control assessment services are designed in
order to ensure that all process from operations to financial reporting and compliances are
operating efficiently and effectively (Sultana & Mitchell, 2015).
The internal and external environment of the business such as policy and procedures,
industry trends are continuously changing, and hence it has become important for the
organization to cope with the changes in the business environment. For this, the organizations
take the services of internal control assessment companies to fulfill their compliances
according to set procedures. According to Kim et al., 2014 management does not have full
knowledge about the various compliances applicable to the company, and also they do not
have time and energy to look upon the laws and legislation regularly. So, it becomes a need
for the organization to take help of services provider. Service provider and cost control
assessment center help the organization in marinating compliance by keeping updated
regarding laws and reregulation (Kim et al., 2014). Therefore there is a high need for the
companies to outsource the services in order to fulfill the compliances within the time-bound
duration. The service provider continuously checks upon the working of the organization and
communicate with the management on the various compliances need to be fulfilled by them.
The organization should focus on various provisions, laws, regulations, guidelines, and due
date on a regular basis of filling various returns. If the organization missed the deadline of
filing the returns, the organization would have to bear penalties.
The following are needs for following the compliance;
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1. Knowledge: Changes within the market are taking place very rapidly and hence
compliance also changes. It has been found that sometimes, the management of the
organization does not have knowledge about the recent changes in compliance. Also, the
management does not have time apart from managing the affairs of the company to look upon
the matter related to compliances. So in order to regulate the affairs of the company in an
effective and efficient manner company need internal control assessment services
(Bell&Knechel, 2015).
2. Experience: The internal control assessment services providers are having enough
experience regarding the compliance requirement of the related industries. They know what
and how the compliances to be followed by the company and other requirement and
regulations applicable to the organization in the changing environment (Ozili, 2015). They
determine the management that whether the management is following the applicable laws and
regulations or not.
3. Regulations: In the business environment in which industry trends, market
demands are changing continuously, the government is coming up with more regulations in
order to curb and eliminate the fraudulent activities of the organization. By this, the
government wants a transparent environment (Pedneault et al., 2012). This has led the
organization to fulfill all the compliances in a much-standardized manner, making no chances
of mistakes and delays. Hence the services providers provide risk advisory services and help
the company to avoid fraud.
4. Cost beneficence: The organization can hire services from their own organizations
instead of hiring professional. This will lead to reducing in cost as the services will be used
when necessary by them internally. The management can reduce cost by saving the hiring
cost and salary to the professional on a regular basis. Instead, they will use the services of a
more experienced professional through these organizations when they feel necessary (Zakaria
et al. 2016).
The above points explain that there is a need to take the services of the internal
control assessment services provider. It is because it will lead the organization to perform
more transparently and ethically and save extra cost.
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B. An appraisal of the regulatory and crime control approaches to
enforcement of company compliance.
A company needs to continuously appraise the regulatory framework in which the
company is working. It is because it will help the company to check fraudulent, crime and
other dishonest activities and to set the approaches to control the same in an effective and
efficient manner.
Appraisal means to continuously keep a check upon the environment in which the
company is working. Hence, the company needs to accept the change in the way to stay in the
market for a longer period of time. A timely appraisal of the system will help the company to
get updated regarding the law and regulation which in return help the company to gain
competitive advantage through following the compliance (Ramamoorti et al., 2013). One of
the important reason for appraisal is to bring changes in the working pattern to coincide itself
with profit maximization.
Deterrence approach and compliance approach are the two approaches that are
determined by companies to appraise the regulatory and crime controls. These approaches
can be used by the company in order to appraise regulatory and crime control effectively and
efficiently in a way to maintain and adhere to legal compliance. Deterrence approach is
followed by those organization who are willing to comply with the laws and regulation which
are obligatory in nature and help the organization to earn a maximum profit (Reddy and
Sebastin, 2012). This approach regulates the company in inducing compliance through
punishing the persons in case of misconduct. This approach is very strict for professionals
who are not performing their duties well. It enables punishment by imposing a sanction for
regulatory violations. This approach also leads to a change in the expected payoff on the basis
of behavior decisions (Flores et al., 2013). The payoffs are fluctuating on the basis of the
working of the professional according to the framework adopted by the company. This leads
to induced compliance in the professional, and he is working and providing services to the
company.
Another alternative approach offered by the company is Compliance School.
Compliance School uses behavioral studies to tackle the regulatory framework of the
company and its implications on the personnel hired by them. It stands on the belief that
compliance can be achieved by persuasion rather than by the threat of sanctions. It is apart
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from the principal of misconduct to honest mistakes, misinterpretation of the law and
accidents (Bell et al., 2015). This approach considers that there is always a reason behind a
mistake that cannot be misconduct or simply profit maximization. Therefore it is based on the
principle of behavioural studies. This approach is based on the principle of mutual
understanding and ascertaining the reason behind the mistake rather than confrontation and
on conciliation rather than coercion.
These two approaches are altogether different from each other in order to approach
the regulatory framework adopted by the company. Both are different from each other, but
both have their own benefits and disadvantages. The organization should analyze its working
environment, and then accordingly organization need to plan to adopt a particular approach.
These approaches help the organization in achieving its goals and objectives in a
better manner. Sometimes it is found that enforcement is governed by regulatory tolerance: If
misconduct goes beyond tolerance level then the management take necessary steps to bring
the working of the organization on track, and if it is beyond tolerance level it is overlooked to
a certain level. Thus both appraisal activities are different from each other but help the
organization in regulating the organization and its internal control assessment and compliance
effectively (Elgammal et al., 2016)
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C. An evaluation of the importance of compliance within the context
of a forensic investigation.
Forensic investigation is the scientific process. The forensic investigation includes a
collection of structured and unstructured data mainly to identify misconduct and improper
payments pattern going in the company. Forensic investigation is conducted by a group of
people in order to check whether the company is performing as per the norms and procedures
laid down by the government. Through investigation, if any misconduct practiced by the
organization is found then the people of forensic investigation help to resolve the same
effectively (Bhasin, 2015).
The professional conducting forensic investigation investigates the environment of the
company, its accountability, its professional data and so on. This will help the people of
forensic investigation to ensure that no fraud is there and the company adheres the
compliance. With the changing pattern of working and advancement in technology there are
more chances of fraudulent activities; therefore, it is necessary to have continuous monitoring
on the working of the company and analysis of data in real time and needs a quick response
to prevent these activities (Smith, 2015).
Under forensic investigation, it is very important for the company that no misconduct
should be found as it can hamper the Goodwill of the company. Therefore it is very crucial
that the compliance level should be achieved by the company at all levels (Ehioghiren &Atu,
2016). Is the compliance level will be high and clean; it will increase the reputation of the
company in the market as the report of forensic investigation is published worldwide.
Companies should evaluate the compliance level and internal control assessment at regular
intervals.
Forensic investigator focuses on the compliance level of the company, and for that,
they have established various standards on which day count the scale of compliance level.
Some of the common test years of Investigation and compliance monitoring include:
 Payment stream
 Payroll
 Financial misstatement
 Bribery and corruption
 Capital projects
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 Employee’s expenses and traveling.
The above-mentioned activities involve misconduct which is harmful for the
organization. Forensic investigator focuses on these areas to ascertain the compliance level
and the areas in which the company is weak and is not performing well. There is a time gap
between the commitment of fraud and the detection of fraud (Elgammal et al., 2016). This
has increased the strength of the lawbreakers to commit a high level of fraud and crime in the
company. Forensic investigation is a process under which the working of the company is
continuous monitors and any gap between the required level of commitment, and the actual
level of commitment is focused and worked upon.
Companies need to perform activities on such note that compliance level is achieved
and there is no internal control risk. Regular monitoring is important to inculcate best
practices by the company and profit maximization.
Various areas in which forensic investigation is conducted includes investigation are
preservation Collection of data processing of emails and documents, management of
documents, data disposition, and analysis of portfolio and governance policies. Forensic
investigator performers report in which the compliance level is indicated and areas which are
weak and need continuous assessment and improvement are pinpointed (Smith, 2015).
Therefore it can be said that it is very important to have a compliance level under forensic
investigation as it can improve or reduce the reputation and Goodwill of the company. Under
the advancement of Technology, there is high time that the company should maintain the
compliance level up to date and should make a regular assessment of the changes brought by
the government policies. Thus government policy has the ability to alter the compliance level
or enhance the compliance level adopted by the company (Ozili, 2015).
Advancement in technology forensic investigation has also increased the level of
investigation by adopting systems and procedures which calculate the compliance level and
misconduct or fraudulent activities conducted by the company. Therefore it can be said that a
company should maintain its compliance level to such a high level to save itself from Penal
repercussions and an increase in profit maximization.
Forensic investigation has taken the compliance level to one step forward in the field
of assurance and internal control assessment by the companies. This has benefited not only
the company but also the society in which the company is working by giving an assurance to
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them which will go far and increase the reputation of the company in the market (Ehioghiren
& Atu, 2016).
D. An indication of the types of investigation, compliance, and internal
control services that a Forensic practice can undertake
Different types of investigations are conducted in order to assess the internal control
assessment compliance level of the company. Each type of situation demands different types
of Investigation. Every company has a different environment which needs a different type of
Investigation (Sultana et al., 2015). Fraudulent Activities are conducted by the company in a
different manner in different companies which requires a special technique to discover them.
The forensic investigation can take different steps and different activities to
investigate the compliance level of internal control of the company. Some of the types of
investigation are an external audit, internal audit, forensic audit, tax audit, information system
audit, environmental and social audit and compliance audit (Vovchenko et al., 2017).
External audit: This is also called a financial audit or a statutory audit which involve
the Examination of the truth and fairness of the financial statements of an entity by an auditor
which is independent of the organization (Ozili, 2015). The auditor audits the financial
statement the company and provides its report which is disclosed before the shareholders of
the company.
Internal audit: it is the type of audit conducted by the company to check the internal
affairs of the company that no activities are conducted against the laws of accountancy and
the company. It provides assurance to the company about the internal controls and
effectiveness of management.
Forensic audit: Forensic investigation is the audit of the situation that involves legal
implications. It is required in the following situation where misappropriation of funds or
money laundering is involved. A forensic audit involves the areas where tax evasion and
insider trading is disclosed (Vovchenko et al., 2017). This audit is undertaken in a situation
where an extraordinary situation happens such as a dispute in the profit share of business
partners’ loss in case of insurance claims.
Tax audit: It is conducted to assess the correctness of the tax returns filed by the
company and the actual tax implication and tax assessment of the company. It provides that
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whether the company has over assessor under assessments actual tax liability. Above certain
level companies are required to compulsory have tax audit.
Information system audit: The information system audit reports to the infrastructure
sector within an organization. Information audit provides the assessment of the controls on
the system accessed by the company and its professionals (Bhasin, 2015). It provides that
whether the system on which the company and its employees are working is providing a true
and fair position to the company and whether appropriate control procedures are being
applied to them.
Environmental and social audit: This audit involves the assessment of various
environmental factors and social factors which affects the organization and its economic
activities. This audit involves the formation of a report which is disclosed before the
shareholders in the company’s Annual General Meeting (Zakaria, et al., 2016). The level of
gases and emissions made by the company in the environment needs to be disclosed in the
report which provides that the company is following the regulations and laws of the
environmental sector.
Compliance audit: This is a type of activity which includes verification of reserves to
be disclosed before the shareholders before the declaration of interim dividend. It also
includes the statement which provides the actual position of Assets and liabilities of a
company at the time of liquidation. Cost audit is also a type of compliance audit which
provides the maximum price to be allowed to be charged by the company to earn a profit.
Above different types of all, it provides the methods in which the investigation can be
undertaken in order to extract the complete information of the company (Bhasin, 2015). This
will provide the compliance level of the company and the level at which the company is
working. It will also help in determining the correction needed any changes to be made by the
company. Thus forensic investigation has been considered boon to the officials in
determining the compliance level of the company.
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Conclusion
From the above report, it can be concluded that compliance and internal control are
essential for the business organization. It is because it will give a strategic and competitive
advantage to the organization in the long run. If the compliance is not maintained by the
company, then the company may face the worst situation, and hence forensic investigation
can be made which will hamper the goodwill as well as productivity of the company at large.
Therefore companies have invested a lot of resources in maintaining compliance by
hiring internal control assessment services. Control assessment services provider helps the
companies in maintaining the required level of compliance as well as provides regular
assistance regarding compliance and maintain ethical conduct.
Hence it can be said that compliance and internal control assessment services have
become the part of the business organization which helps in making the company perform
smoothly and effectively in the competitive environment. At the end to wind up the motion, it
can be argued that it is the need of the hour.
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