OpenCDA

September 13, 2016

‘Forensic’ Misunderstanding

Filed under: Probable Cause — Bill @ 1:18 pm

KC Int Audit Cover for OCdA Post

 

On Monday, September 12, ,2016, the Kootenai County Board of Commissioners (BOCC) unanimously agreed to engage the nationally-recognized CPA firm of Eide Bailly to conduct a forensic audit of the North Idaho State Fair Board’s financial records.  Eide Bailly specifically lists Forensic Accounting and Valuation among of its services.

BOCC Commissioner Green and a member of the Fair Board expressed their concern that the term ‘forensic audit’ implies criminal misconduct.  Their concern is understandable given the focus of ‘Forensic This-and-That’ programming on television to exploit the entertainment value of criminal investigation and prosecution.  But ‘forensic’ is not exclusively the dominion of criminal law.

Generally, applying the term ‘forensic’ to any of the arts and sciences suggests that practitioners adhere to rigorous and defensible standards of recovery, examination, preservation, and analysis of information which may need to be admissible in some civil, criminal, or administrative legal proceeding.

For example, if you’ve ever had to challenge the authenticity or authorship of a contract, a last will and testament, a deed of trust, or some other writing of legal importance, your attorney may have engaged a forensic document examiner to offer a professional opinion to be admitted as evidence (expert opinion) in court.   Here are some examples of the application of forensic document examinations.

In some instances the authorship of a writing is determined not by the physical properties of a writing but by an analysis of the structure and wording of the writing’s sentences.  That is forensic linguistics.  Here is an example of the application of forensic linguistics in a non-criminal setting.

The request by the Kootenai County Clerk’s Office that the County should engage Eide Bailly to conduct a forensic audit did not allege or even suggest criminal misconduct.  Such allegations or suggestions would have been premature and inconsistent with the Kootenai County Internal Audit Final Report June & July, 2016 (see page 12).

Instead, what the Clerk’s Office was recommending was an even more focused and rigorous impartial examination of the Fair’s financial records that would yield information and possibly recommendations which both the County and the Fair Board could use to improve the Fair.   The Clerk’s Office did use some examples (the Fraud Triangle, the Sioux Falls embezzlement) to reinforce the value of a forensic accounting in selected cases where there are already identified indicators of mishandling of funds.

Readers will note that in the link to Eide Bailly’s Forensic Accounting and Valuation webpage, that page includes Human Resources practices analysis.   In her presentation about The Fraud Triangle, CPA and Finance Director Dena Darrow spoke succinctly but eloquently about Motive, one of the three legs of the Triangle.   A motive to mishandle or steal public money (among other unsuitability factors including willingness to betray confidential information) is something that may be revealed by a thorough background investigation during the pre-employment screening process.  On page 7 of the Kootenai County Internal Audit Final Report, June & July, 2016, the County’s audit team reported that the Fair staff “Conducts no due diligence of financial or criminal background before hiring new employees.”

There was a suggestion by a Fair Board supporter that the County and the Fair Board ought to form a committee to  discuss the scope of the audit to be performed and then provide that to Eide Bailly.  That sounds reasonable, but it was a bad idea.  One critical value the forensic audit must demonstrate is objectivity.  Eide Bailly may well want to meet with the County or the Fair Board or both to discuss the scope of the forensic audit, however the conduct of any such meeting must be rigorously controlled by Eide Bailly to preclude injecting interested party biases into the forensic audit process.

OpenCdA agrees with the Kootenai County Clerk’s recommendation for the forensic audit, and we also commend the BOCC for being willing to hear all sides in the discussion before arriving at its decision.  It was the right decision to make based on the information presented to the BOCC by both sides.

2 Comments

  1. Mr. Brannon is to be commended for pursuing the forensic audit and the County Commissioners are to be commended for voting to have it performed. Now all the questions will be answered. Hopefully the audit will reveal a reasonably clean and straightforward operation.

    Comment by Tributary — September 15, 2016 @ 9:14 am

  2. Tributary,

    The entire County audit team (Dena Darrow, CPA, Finance Director; Nancy Curotto, CPA, Certified Fraud Examiner, Internal Auditor; Melissa Merrifield, Internal Auditor; Pat Raffee, Chief Deputy Clerk; and Jim Brannon, Clerk) are to be commended.

    Commissioners Green, Eberlein, and Stewart are equally deserving of commendation. They listened to the County audit team’s presentation and gave Fair Board representatives every opportunity to respond. Clearly the Fair Board has already begun taking steps they believe will ensure the integrity and accuracy of the Fair’s finances and financial records. I believe the County Commissioners, the County audit team, and the Fair Board all want that. The results of the forensic audit will contribute more useful information to achieve that goal.

    Comment by Bill — September 15, 2016 @ 9:45 am

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