My Civil Beat story this week about the theft of funds from a Waianae condominium drew much more attention, and many more comments, than I expected (“This Waianae Condo Development Has Lost Hundreds Of Thousands Of Dollars To Embezzlement“).
It shouldn’t have been a surprise. About one-third of all residential housing units are in condominiums, which have common problems and management issues.
One of the things that was clarified in the comments received is that the routine annual audit required by state law is not the same as a forensic fraud accounting. They are two different types of examinations, following different rules, have different standards, different goals, and different methodologies.
You can check it yourself. Just do an online search for “audit v forensic accounting” and you’ll find a lot of slightly different explanations of the differences. The bottom line: A routine audit isn’t done to prevent fraud, although it might identify conditions conducive to fraud. An forensic accounting is specifically looking for fraud.
Here’s an example from the CPA Now blog.
Auditing is a process of determining whether a company’s reported financial position and performance are fairly represented and in accordance with certain standards. A forensic investigation is an examination of specific records and information to help determine facts related to a suspicion or allegation of fraud. Audits and forensic investigations are different services that are planned and performed to accomplish unique objectives. While both have a responsibility to detect fraud, the degree of that responsibility is substantially different.
Auditors help provide confidence in the world’s financial system by performing audits of financial statements to provide assurance that company management is presenting a “true and fair” view of a company’s financial position and performance. Forensic accountants assist entities in conducting an investigation by providing their expertise, from the initial allegation or suspicion of fraud to resolution, whether the end result is restitution, litigation, an insurance claim, or a referral to a law enforcement agency.
…The overall objective of an audit is to obtain reasonable assurance about whether financial statements as a whole are free from material misstatement, whether due to fraud or error. This enables the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial statements, and communicate as required by generally accepted auditing standards (GAAS), in accordance with the auditor’s findings.
…An auditor owes primary allegiance to the investing public, and the objective is general in nature. A forensic accountant is not concerned with reaching a general opinion on the financial statements as a whole; his or her objective is more specific in nature as defined by the scope of services in the engagement letter, and the work is typically directed through counsel and, therefore, privileged and confidential. In addition, the forensic accountant may be asked by the company to advise on internal controls that can be implemented to prevent a discovered fraud from happening again.
I also ran into the website of the Association of Certified Fraud Examiners, an international association of anti-fraud professionals, and it’s “Fraud Talk Podcast.”
There are 38 episodes currently available, ranging from 19 minutes to nearly an hour in length. Each is a case study of a different type of fraud that provide “tools to spot, fight and prevent fraud.”
There’s a lot to learn here, and these podcasts appear to all be available for free to the general public.

