INVESTIGATION - DEFINITION
Investigation refers to a systemic and in-depth examination or inquiry to establish a fact or evaluate a particular situation (such as whistle-blower complaints and so on). The Investigation covers core areas of financing decisions, investment decisions, fraud or profitability or cost determination, conflict of interests, etc.
DIFFERENCE BETWEEN AN AUDIT AND INVESTIGATION
What are the key differences between an investigation and an audit?
STEPS IN INVESTIGATION
Given below are the key steps involved in investigation:
Determination of objectives and establishment of scope
When the assignment is accepted, the investigator should be clear about the objective of the investigation. The scope of documentation review should also be clearly established and to be aligned with the objective.
Formulation of Investigation Program
There is no standard program or procedures for investigations. The investigation program should be prepared keeping in mind the fact or situation under question, the objectives and scope of review, nature of client’s business, personnel involved, etc. The program should be flexible to incorporate the changes that happen during the investigation.
Collection of Evidence
Through detailed examination, the investigator should gather relevant evidences (which should be conclusive, clinching and should stand the test of law) to establish facts or the situation under question. In case, clinching evidences are not available, adequate corroborative evidences should be available to establish the facts.
Analysis and interpretation of findings
With the evidences collected, the investigator should perform an objective analysis of the facts.
Reporting of Findings
The investigation report should be submitted to the authority who appointed the investigators (usually Board of Directors etc). The following should be adhered to in the report
The report should contain information which is only relevant to the fact under question.
The contents of the report should be appropriately worded which will not be open for multiple interpretations.
The report should appropriately link relevant facts and evidences.
Assumptions, if any made, should be called out in the report appropriately.
The report should contain the nature and objective, scope and limitations of the assignment.
The opinion of the investigator along with the facts and remedial actions should be clearly written
KEY CONSIDERATIONS IN INVESTIGATIONS
Type of review (100% verification or sample checks) to be performed
The investigator should make this decision based on the circumstances of the case. There could be certain instances such as quantification of the bribe paid, confiscation / misappropriation of assets, falsification of expenses, etc., which would require complete verification of data. In cases such as due diligences of third parties, accounting errors, etc., sample checks could be performed.
Reliance of work done by third parties
The investigator should be aware of the risks and objective of the case before deciding to place reliance on the work done by third parties such audited financial statements, internal audit reports, due diligence reports, management representation letters etc. The report should contain in clear terms, the scope of reliance on the work done by others.
Requirement of an expert in the investigation
The investigator may involve subject matter experts such as forensic accountants, legal professionals, tax consultants, etc., depending on the nature of the case under review. However, the report should contain the details of reliance on the work done by the experts and their findings.
Basis of opinion
The investigator should refrain from issuing a speculative or vague opinion. The opinion should be confined to the facts under review. If a conclusion cannot be arrived appropriately on the facts reported, the justifications for the same should be called out in the report.
Whether futuristic statements can be made in the report
The statements made in the report should be strictly restricted to the case / facts under review. The report should not contain any futuristic statements / trend analysis unless otherwise called for by the appointing authority, which should also contain adequate disclaimers.
Whether to retain working papers / evidences
All evidences, working papers, documentations should be retained as per the terms and conditions of the engagement agreement with the appointing authority. In case of any legal requirements in the court of law, the evidences would be required to substantiate the facts established by the investigator.
To be continued in Part 2…