Forensic Audit of Stressed Accounts: Why So Late?

Forensic audit is one of the tool with the lenders to use against the borrower once the account gets into the default territory. This is one of the most sought after procedural tool with the lenders which is more blunt than sharp in the current banking procedural system.

Forensic audit is an assignment given to the trained auditors to opine if anything was intentional, fraudulent, manipulative or illegal which resulted into the stress of the account. This is also required to decide if the account can be restructured and revive.

The decision of assigning the forensic audit itself sends shivers to the borrower irrespective to the fact if there is anything wrong or unjustifiable. The signal of appointing forensic auditor divides the borrower and lender because the borrower feels offensive . The mistrust leads to the further deterioration in relationship . In many cases borrower resists such audits as there is definitely something uncomfortable in the past business operations.

Forensic audit is based on various segments of business unit covering all the sectors be it internal or external, visible and non-visible, accounting and non-accounting, numerical and non-numerical. It is in fact much beyond the normal audit without any specific time frame and year limitation. Forensic audit can result into serious expose of the borrower and make him liable for further actions but this is one sided as it focuses only on the borrower entity and its promoters.

Although  the need of forensic audit can not be discarded, the real issues lies in the timings of the audit . By the time account becomes stressed, there are least options to help in revival. The account may have come into stress due to various reasons and fraud can be one of the key factor, but there can not be one side to blame for NPA. I am sure lenders also carry out their own investigation to fix the accountability of the concerned officers who may have favoured the borrower in illegal manner. Such investigations are never known to the outsiders as there are lot of favouritism for the employees responsible for such situations. No fraud can take place unless there is some involvement from both the sides. Even ignoring or avoiding the actions is also part of support.

Forensic audit or Special investigative audits may lead to find the wrongdoings but very difficult to recover the money as these actions are taken too late to cover up the past deeds. Best solution is that lenders should get the forensic audit or Special investigative audit regularly even if the accounts are good. This can be a precautionary tool to help in containing the account to move to NPA. It is beyond my understanding why such tools can not be used as a regular precaution method may be in different name. There should be a threshold limit beyond which such tools should be used compulsorily.