Quick answer
What is a forensic audit and when do you need one?
A forensic audit is a targeted investigation of financial records to detect and prove fraud, misappropriation or diversion of funds. You need one when you suspect theft by staff or partners, when a bank red-flags your loan account, during a shareholder or partnership dispute, or when an insolvency professional reviews past transactions.
- Investigative, not a routine yearly audit
- ICAI FAIS standards mandatory since 1 July 2023
- Report built to work as evidence
- No government fee: fixed professional quote per case
What is a forensic audit, and who needs one?
A forensic audit starts from a suspicion and works backwards: who moved the money, when, through which accounts, and what documents prove it. Unlike a yearly audit that samples transactions to give an opinion, it reads every relevant entry in the period under review and ends with findings tied to evidence.
The people who order one are usually owners, boards, lenders and courts. A SEBI board paper on listed companies noted that forensic audits are generally started by lenders, by management or by regulators and enforcement agencies, and that pattern holds for private businesses too.
- Owners and directors who see cash, stock or margins that do not add up.
- Partners and shareholders in a dispute over profits, drawings or related-party payments.
- Borrowers whose account has been red-flagged and who need their own review before replying to the bank.
- Buyers and investors going beyond routine due diligence.
Forensic audit vs statutory audit vs internal audit
A statutory audit gives an opinion on whether the accounts are true and fair; an internal audit tests whether controls work; a forensic audit asks whether a specific wrong happened and who did it.
Your yearly statutory audit is not designed to catch a well-hidden fraud, and a clean audit report does not prove there was none. A regular internal audit reduces the chance of fraud, but once you suspect one, you need an investigation with a clear question and a chain of evidence.
| Point | Forensic audit | Statutory audit | Internal audit |
|---|---|---|---|
| Starts from | A specific suspicion or allegation | A legal requirement every year | Management's control programme |
| Coverage | Every relevant transaction in the period | Samples, based on risk and materiality | Selected processes on a rolling plan |
| Output | Findings of fact with evidence and amounts | An opinion on the financial statements | Control gaps and agreed fixes |
| Who reads it | Owners, board, lenders, lawyers, tribunals, police | Shareholders and the ROC | Owners, board or audit committee |
| Standards for ICAI members | Forensic Accounting and Investigation Standards (FAIS) | Standards on Auditing | Standards on Internal Audit |
FAIS: ICAI notice that the standards became mandatory for engagements on or after 1 July 2023, icai.org, checked November 2026.
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When do Delhi businesses order a forensic audit?
Most forensic audits in Delhi begin with one of six triggers: missing cash or stock, unexplained vendor payments, a partner or shareholder dispute, a bank red flag on a loan account, an insolvency transaction review, or a pre-deal check. Each one sets a different question and period for the review.
| Trigger | Typical signs | What the review tests |
|---|---|---|
| Employee or manager fraud | Falling margins, cash shortfalls, unusual refunds or credit notes | Cash book against bank, sales returns, payroll ghosts, bank login use |
| Vendor or purchase fraud | New suppliers with no history, rates above market, split bills | Vendor master, GST numbers of suppliers, goods receipts against payments |
| Stock leakage in a factory or warehouse | Physical count below books, scrap sales without records | Issue slips against output, job-work stock, e-way bills against dispatches |
| Partner or shareholder dispute | Disagreement over profits, drawings or related-party deals | Capital accounts, related-party payments, diversion to group entities |
| Bank red flag on a loan account | Bank asks about end use of funds or circular transactions | Fund flow from loan disbursal, inter-company transfers, stock statements |
| Insolvency review | Resolution professional examines past deals | Preferential, undervalued, extortionate and fraudulent transactions under the Insolvency and Bankruptcy Code |
Insolvency categories: sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code 2016, as summarised in practitioner commentary such as Mondaq; check the Code text before relying on look-back periods.
What documents does a forensic auditor need?
A forensic auditor needs full data, not summaries: accounting software backups, every bank statement, the vendor and customer masters, GST and e-way bill data, and the emails or chats behind disputed payments. Original records matter because the report may later be tested by the other side.
Do not edit, delete or tidy anything once you suspect a fraud. Take a dated backup of your Tally or ERP data and export bank statements straight from net banking, so nobody can later argue the records were altered.
| Records | Why they matter |
|---|---|
| Accounting data backup (Tally, Busy, Zoho or ERP) with audit trail | Shows who posted or edited each entry and when |
| Bank statements for every account, including closed ones | Traces each rupee in and out, independent of the books |
| Vendor and customer master lists with bank details | Spots fake vendors and accounts that belong to staff or relatives |
| GST returns, GSTR-2B and e-way bills | Tests whether purchases and dispatches really happened |
| Payroll, attendance and reimbursement records | Finds ghost employees and padded claims |
| Stock registers, job-work records and physical count sheets | Measures stock leakage against output |
| Loan sanction letters and stock statements given to the bank | Needed when the review concerns end use of bank funds |
| Emails, purchase orders and chats linked to disputed payments | Shows intent and approval behind a transaction |
| Partnership deed or shareholders' agreement | Sets the rules a partner or director may have broken |
The list is a starting point; the scope letter fixes exactly what is reviewed.
How a forensic audit works: step by step
A forensic audit runs in five stages: agree the question and scope, secure the data, analyse transactions, interview people where needed, and report findings with evidence. Keeping these stages separate is what makes the final report defensible.
- 1
Confidential first call
You describe what you suspect, the period and who had access. We check that the professional taking it on has no conflict with anyone involved.
- 2
Scope and fixed quote
We write down the questions the review will answer, the period, the records needed and the fee. Work starts only after you accept it in writing.
- 3
Data preservation
Accounting backups, bank statements and other records are collected and logged with dates so their origin can be shown later.
- 4
Analysis and tracing
Every transaction in scope is tested: fund flows are traced, vendor and employee data are matched, and patterns such as round sums or split bills are flagged.
- 5
Interviews and explanations
Where your engagement allows it, staff or the person concerned are asked to explain specific entries, and their answers are recorded.
- 6
Report and discussion
You receive a written report with findings, amounts, supporting evidence and limitations, followed by a meeting to plan your next step.
Forensic audit cost and timeline: what drives them?
There is no government fee for a forensic audit; it is a private engagement, so the cost depends on the period covered, the number of bank accounts and entities, data quality and whether interviews or court support are needed. You get a fixed quote once the scope is written down.
Timelines follow the same drivers. If a bank is involved, its own deadlines matter: RBI's July 2024 fraud directions give a borrower not less than 21 days to reply to a show cause notice, and expect classification as fraud, or removal of the red flag, ordinarily within 180 days of the account first being reported as red-flagged.
| Factor | Smaller job | Larger job |
|---|---|---|
| Period reviewed | A few months or one year | Several years |
| Entities and bank accounts | One business, few accounts | Group companies, many accounts, cash-heavy trade |
| Data quality | Clean software data with audit trail | Missing books, manual records, deleted entries |
| Question asked | One specific allegation | Open-ended review of all dealings |
| People involved | No interviews | Interviews with staff, vendors or partners |
| After the report | Owner decides internally | Support for bank replies, tribunal or court proceedings |
Bank timelines: RBI Master Directions on Fraud Risk Management, 15 July 2024, paras 2.1.1.2 and 4.1.5. RBI issued new Fraud Risk Management Directions for commercial banks on 31 July 2026; check rbi.org.in for the version that applies to your bank. Checked November 2026.
What does the law say about fraud, reporting and investigation?
Company law defines fraud and punishes it under section 447 of the Companies Act 2013, requires statutory auditors to report frauds they find, and lets the government or the tribunal order investigations. Listed companies must also disclose forensic audits to the stock exchanges.
- Punishment for fraud: where the amount involved is at least ₹10 lakh or 1% of turnover, whichever is lower, section 447 provides imprisonment from six months to ten years and a fine from the amount involved up to three times it, with a three-year minimum where public interest is involved. Smaller frauds without public interest carry up to five years or a fine up to ₹50 lakh, or both (India Code, section 447).
- Auditor's duty: under section 143(12), a statutory auditor who finds a fraud of ₹1 crore or more by officers or employees reports it to the Central Government in form ADT-4; smaller frauds go to the audit committee or board (secondary sources; check Rule 13 of the Companies (Audit and Auditors) Rules 2014).
- Investigations: the Serious Fraud Investigation Office includes experts in forensic audit, and the Central Government can assign it a case in the public interest, on a Registrar's report or on a company's own special resolution. Members holding one-tenth of the voting power, or 100 members, can also ask the tribunal to order an investigation under section 213.
- Listed companies: SEBI's listing rules treat the start of a forensic audit, other than one begun by a regulator, as an event to disclose with the name of whoever started it, and the final report must be disclosed with management's comments (SEBI board memorandum, October 2020).
What happens after the forensic audit report?
The report gives you facts; what you do with them is a business and legal decision. Common next steps are recovering money from the person responsible, tightening controls, replying to the bank with evidence, filing a police complaint or civil suit with a lawyer, or settling a partner dispute on agreed numbers.
- Inside the business: change bank mandates and passwords, remove access, and fix the control that failed.
- With the bank: share your own review when replying to the show cause notice, within the time the bank gives.
- With lawyers: the report supports a criminal complaint, a recovery suit, an arbitration or a tribunal petition. We work alongside your advocate; we do not file cases.
- Tax records: if the fraud distorted GST credit or income, our accounting team can correct the books and returns.
Forensic audit in Delhi: how CA in Delhi handles your case
Forensic audit is not on the published service list of any firm in our directory, so CA in Delhi passes your enquiry to a partner professional who handles forensic investigations, after a conflict check. You confirm the scope and a fixed quote before work starts, and the professional who takes it on follows ICAI's FAIS where they are an ICAI member.
Moneymji lists due diligence among its services and can support a pre-deal review; for the firms and what each one does, see our directory of chartered accountant firms in Delhi. If your suspicion is about stock or job-work in a factory, our notes for owners in Wazirpur describe the local business mix we usually see. For routine audits, start at our auditor near me page.
- What you send us: a short note of what you suspect, the period, the entities and bank accounts involved, and who had access. Do not send the full data until the scope is agreed.
- What you get back: a written scope, a fixed fee, a timeline, and at the end a report with findings, evidence and limitations, plus a meeting to explain it.
- Confidentiality: we deal only with the person who engaged us.
Call or WhatsApp +91 99114 92897, email admin@caindelhi.in, or use the enquiry form. Our office at Netaji Subhash Place is open Monday to Saturday, 10 am to 7 pm.
Frequently asked questions
Is a forensic audit mandatory for any business?
No law requires every business to have one. It becomes necessary in particular situations: a bank investigating a red-flagged loan account, a resolution professional reviewing past transactions in insolvency, a tribunal or court ordering an investigation, or a board responding to a suspected fraud. Listed companies that start one must disclose it to the stock exchanges.
Who can conduct a forensic audit in India?
There is no single licence for forensic audit. Chartered accountants who take such work must follow ICAI's Forensic Accounting and Investigation Standards, mandatory since 1 July 2023. Banks pick external auditors under their own board policy, and RBI's 2024 directions refer to auditors qualified under the relevant statutes.
How long does a forensic audit take?
It depends on the period, the number of entities and accounts, and the state of the records. A focused review of one allegation over a year can be short; tracing funds across group companies over several years takes much longer. The timeline is written into the scope letter before work starts.
How much does a forensic audit cost in Delhi?
There is no government fee. The professional fee depends on scope, data quality, interviews and whether court support is needed, so no honest firm quotes before hearing the facts. Send us a short description and you get a fixed quote before any work starts.
Can a forensic audit report be used in court?
Yes, a forensic audit report is often filed as supporting evidence in criminal complaints, recovery suits, arbitration and tribunal cases. Its weight depends on how the evidence was collected and documented, which is why data preservation and a clear chain of records matter from day one. Your advocate decides how it is used.
My bank has red-flagged our loan account. What should I do?
Act early. Under RBI's July 2024 directions, banks investigate red-flagged accounts through an external or internal audit and must give you a show cause notice with at least 21 days to reply before classifying the account as fraud. An independent review of your own fund flows helps you reply with evidence.
Will the person I suspect find out about the forensic audit?
Not from us. The engagement is confidential and data can be collected from backups and bank portals without alerting staff. At some point you may decide to ask the person for explanations, and that step is planned with you and, where needed, your lawyer.
Can a forensic audit help in a partnership dispute?
Yes. Partners who disagree over profits, drawings or payments to related firms often agree to an independent review of the books against the partnership deed. The report gives both sides one set of numbers, which helps settle the matter or supports arbitration if talks fail.