Lifestyle audits are used to determine if an employee's lifestyle is commensurate with known income. The employer has detailed knowledge of remuneration but limited knowledge of the employee's lifestyle.
Fraud and corruption are usually committed by 'off book' transactions or manipulated accounting. It is very difficult to detect and dishonest professionals can conceal fraud with disturbing alacrity and ease, particularly where controls are weak.
Sometimes the only clue to illicit activities is a sudden unexplained lifestyle change. The audit is a critical tool to identify employees who may potentially be engaging in illicit activity.
It is a first step in discreetly determining whether a 'tip-off' of suspected fraudulent activity potentially has merit or not.
A detailed lifestyle audit of a an employee implicated in corrupt activity is described as suspect profiling.
The results are a clue that something may be amiss, but can never, without further evidence, be conclusive proof. There may be a perfectly reasonable explanation for an extravagant lifestyle. These include an inheritance or a wealthy partner or family member providing financial support, unknown to the employer. Audit results must be approached with caution.
A basic audit includes properties, motor vehicles, company registrar information and credit histories. The first three are publicly available.
Personal financial information and cellular telephone information cannot be accessed without a subpoena or court order; or the employee can give consent. The same applies to prior criminal history.
Where fraud is suspected, the company must register a criminal case based upon reasonable suspicion, usually entailing prima facie evidence, to convince a judge or magistrate to authorise the subpoena.
Forensic auditors look, for example, for properties or motor vehicles whose monthly repayment exceeds what would be reasonably affordable. Often the properties are bond free, which begs the question how capital was raised for acquisition.
Many fraudsters accumulate portfolios of properties and launder stolen funds by purchasing properties and renting these out, thereby generating 'clean' money.
Lifestyle audits are an excellent barometer of the fraud risk within an organisation.
Director of South Africa's ENS, head of Forensic Services, spoke to the Star