We've heard it many times in the past three years. Every time there are questions about how money is being spent by government, someone mentions doing a "forensic audit." Does anyone except lawyers and certified public accountants know what that means?
A forensic audit is different from a financial or internal audit. Financial audits are done to evaluate the financial health of a company or agency. Internal audits are done by companies themselves to find financial issues/problems.
Forensic audits are special audits done to determine if any financial fraud, misappropriation, or embezzlement has occurred. The forensic audit is done in order to support a court case not only for crimes but in financial disputes as well. Usually, a forensic audit is chosen instead of a regular audit if there's a chance that the evidence collected could be used in court. The problems that trigger a forensic audit may not be major crimes but could be as little as padding expense reports, misusing public funds or conflict of interest. Forensic audits are done by specially trained auditors.
For example, if a manager allows and approves inaccurate expenses of an employee with whom they have a personal relationship that could be discovered and noted in a forensic audit.
Forensic auditors have skills that help them perform an audit so that facts can be presented in court.
Forensic audits are often expensive and time consuming as every detail must be investigated; all income, disbursements, contracts, payments, bills, etc. are examined to see if there is any wrongdoing. A forensic auditor can cost anywhere from $300 to $500 an hour.3 Financial audits either confirm illegal actions or confirm that no illegal actions occurred so they are well worth it.
Here are examples of problems that could be discovered in a forensic audit: (These are posted for informational purposes only and are NOT implying misdeeds by any Oxford town employee and/or official.)
1.If an employee is alleged to have misused their position for personal gains and caused the organization to incur a loss, a forensic audit comes into the picture. For instance, a manager who approves an employee’s excess/unwanted expenses due to a personal relationship may have some leverage over that employee. The manager will not benefit financially from this activity but could gain favor with the employee personally and professionally.
2. The head of the purchasing department approves purchases from a vendor that will supply material at a higher or lower cost than other vendors. Although the quality of the product is not good, the purchaser is getting some personal compensation (could be "in kind") from that vendor.
3. An employee submits a fake bill using the company stationery or to show damaged or expired inventory and receives funds for or use of that inventory.2
Forensic audits are not always conducted because one is suspicious of crimes or dishonesty. Forensic accounting can be used to assess the work of professionals, including accountants themselves. The findings from this assessment can determine who has made critical errors (whether intentionally or not). Of course, if the need occurs, forensic audits can be used in court.
The initial question is if the Town of Oxford needs a forensic audit.
Every year for seven years, auditors paid to look over Oxford's accounts have cited the need to prevent internal conflicts or other issues with accounts by splitting financial duties between two people in the town's office. Every year, the Commissioners have said they can't afford to do that even though staff was available to do the job in the town office and the fact that the Commissioners hired an additional staff person as a town "planner" during the same time period. The person hired is the daughter of the current town manager.
Auditor's reports: Oxford Financial Reports | Town Of Oxford, Maryland (oxfordmd.net)
The need presented by the auditors was ignored. The Commissioners' assertion that the town couldn't afford an additional position isn't true. Our current town planner makes upwards of $80,000 a year. And, in years past, the financial duties had been split between the Town Manager and another employee who still works in the town office. Why did that end?
Noting those facts, many in town find it troubling that the Commissioners, past and some present, have resisted fixing the problem. Leaving financial matters to ONE person in an organization, public or private, is an invitation for public mistrust and possible employee misdeeds.
The Commissioners' resistance should trigger a forensic audit. For one thing, if there is no wrongdoing, a forensic audit could put people's minds at ease a bit. It might also spur the Commissioners to implement a simple solution to the problem; reassign some of the responsibilities of staff in the town's office. Certainly, the Town Manager and her daughter cannot be assigned to split financial duties. But Town Office duties could be changed to go back to the way things were run before the current Town Manager was hired. These are simple solutions and resisting them seems odd at best.
If there are problems, a forensic audit of the town's books for the past decade would certainly find them. These might be issues that wouldn't be discovered by regular auditors and finding these issues would help the town be more fiscally responsible and accountable.
Additionally, with all the millions of dollars from grants being managed in the Town's accounts, a forensic audit would prove to those funding the grants that Oxford is serious about ethically managing funds.
If presented correctly, those who work in public office positions might welcome the chance to show how well and ethically they do their jobs! A clean forensic audit would do a lot to quiet rumors, innuendo, and allegations of unethical practices. It would also spur the Town Commissioners to adhere more to the guidelines, policies, and procedures of the town, something they have become reluctant to do lately.
So, should Oxford do a forensic audit? Yes. It needs to be done now, before it's too late.
Previous articles on this topic:
Town Of Oxford Ignores Seven Years Of Financial Auditor's Concerns - Easton Gazette
Sources:
1.Forensic Audit - Meaning, Checklist, Importance, Examples, Types (wallstreetmojo.com)
2.7 Advantages and Disadvantages of Forensic Accounting – ConnectUS (connectusfund.org)
3.How Much Does a Forensic Accountant Cost? | HowMuchIsIt.org
This certainly provides lots of food for thought. If the town commissioners were to actively consider this, they’d need evidence why it needs to be done now, what it would cost, how long it would take and, perhaps most important, how disruptive it would be, not only for employees but also residents. Thus far, there’s been no publicly presented evidence of a serious problem. That said, Oxford, like other communities, needs systems in place to sound an alarm—a task for the town-hired auditors.