Forensic in Business

In modern business, where assets and other financial resources have become targets for unscrupulous employees, state organizations and large companies face the necessity of ensuring financial security and identifying potential threats to asset loss.

Forensic is a relatively new concept for business but is widely used in developed countries. Forensic refers to expertise aimed at identifying the risk of financial losses in an organization, detecting corporate fraud, and preventing it.

The word “Forensic” comes from the Latin forēnsis, literally meaning “before the forum.” It refers to Ancient Rome, where disputes or crimes were presented before a public forum. Both the accused and the accuser had to present their arguments and evidence, and the most convincing party usually won the case.

In English-speaking countries, “Forensic” is often synonymous with criminology, the science of investigating crimes. However, while criminology primarily focuses on criminal offenses, forensic focuses on financial and economic matters. Some methods overlap, and professional forensic experts are sometimes hired to assist law enforcement, which helps developed countries optimize government spending by reducing staff.

Given that there is no single definition of forensic practice globally, based on practical experience and international literature, we present two key concepts that capture the essence of this procedure:

1. Forensic is a form of expert analysis initiated by executives, investors, or shareholders to uncover fraud within an organization and identify the risk of financial loss.

2. Forensic is used not only to detect already committed financial violations and fraud but also to develop effective measures to prevent financial misconduct in the future.

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Why Forensic Matters for Business

Every organization cares about its reputation and the confidentiality of internal processes. Forensic procedures are valuable because all work is conducted confidentially, and decisions based on the report are always at the discretion of the business owners.

Forensic procedures can be tailored to internal corporate interests. Often, it is enough for a business to discreetly detect fraud internally and limit measures to voluntary compensation or dismissal. In contrast, a criminal process could lead to legal liability with all its consequences.

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Conducting a Forensic Procedure

Forensic analysis is a comprehensive expert review of all processes within an organization. The scope of this analysis may vary depending on the purpose of the investigation. Other factors, such as company size or industry, also influence the scope.

Forensic specialists first focus on:

• Completeness and accuracy of financial reporting;

• Existence of an internal control system;

• Corporate policies and regulations (procurement, HR, accounting, etc.);

• Potential conflicts of interest within the company;

• Audit reports from previous years.

They also analyze company profitability, potential information distortions provided to management or owners, and the risk of asset misappropriation.

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HUMINT (Human Source Intelligence)

Alongside document analysis, staff interviews (HUMINT) are conducted. These interviews can cover the entire workforce or selected employees. The collected information is used to create a Risk Matrix by functional areas.

Importantly, forensic is not only conducted when financial threats are suspected. It serves as a test of the effectiveness of internal teams and business processes, allowing organizations to assess current and potential future risks.

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Experts and Tools

The process uses financial, accounting, legal expertise, analytical skills, and attention to detail, as fraud schemes often hide in small nuances. Forensic teams typically include accountants, certified auditors, lawyers, and analysts, led by an expert with over 15 years of external audit experience.

Unlike compliance or audit departments, forensic specialists employ advanced tools when needed: 3D laser scanning, GPS, drones for measuring, polygraph tests, OSINT analysis, and other internationally accepted legal methods.

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Financial Audit vs. Forensic Analysis

• Audit: verifies the accuracy and compliance of financial statements with accounting laws.

• Forensic: seeks evidence of fraud and misconduct across all business processes, not just financial reporting.

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Benefits of Forensic for Business

• Ensures stability by preventing financial losses;

• Strengthens internal control systems for legal compliance;

• Reduces costs and optimizes business processes;

• Independent forensic experts identify strengths and weaknesses, evaluate financial risks, and suggest ways to increase revenue;

• Can detect illegal activities and assist in holding perpetrators accountable while recovering losses.

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Recommendations for Business Owners and Executives

1. Trust, but verify — perform forensic checks a few times a year, including on partners, contractors, teams, and internal controls;

2. Handing over operations to “trusted” people without oversight can result in loss of business;

3. Avoid family members in business — 90% of cases lead to inefficiency or fraud;

4. Observe lifestyle discrepancies to detect fraud;

5. Theft exists in 99.9% of companies worldwide;

6. While improving controls, fraudsters try to bypass them; internal control systems are often “toothless”;

7. Reliance on personal connections in crises often fails — properly documented evidence is far more effective;

8. Reduce cash circulation;

9. Remember the three main risks in every company: illegal asset disposal, financial statement distortion, and corruption;

10. Understand the Fraud Triangle: opportunity, motive, and rationalization.