Forensic auditing in Maltese banking and insurance institutions : an analysis

Abstract

The principal aim of this dissertation is to identify and evaluate the necessity and repercussions of the preventive, detective and investigative features of forensic auditing when applied to Maltese banking and insurance institutions. DESIGN: The objectives of the study were achieved through a number of semi-structured interviews with five local credit-licenced bank operators, three non-life insurance firms, two life insurance firms, the Big Four audit firms, the FIAU, four banking experts, the ECU, two MFSA officials and two fraud experts. Secondary research was also conducted in relation to the subject matter. Results indicate that most of the banks and insurance firms interviewed aspire to apply some forensic auditing tools to prevent and deter fraud, and some already do, in preference to a fully-fledged proactive forensic audit. While a reactive forensic audit is carried out whenever the need arises, a proactive forensic audit is usually conducted for non-inherent, unpredictable material risks to prevent and deter fraud, and to increase the likelihood of earlier detection. The banks and insurance firms interviewed prefer forensic audits to be carried out internally. Indeed, forensic auditing procedures are already performed by some Internal Audit departments, but if internal experts are not available within the (global) firm, the forensic audit is outsourced. One of the reasons for the lack of reactive forensic audits outsourced to audit firms concerns the fact that if a case ends up in Court, the latter would appoint its own experts. Hence, audit firms are more involved in providing forensic-related expert witness and litigation support services to clients. Future demand is predicted to be within the field of IT forensics, and in forensic services to medium-to-large firms which lack the necessary internal expertise. Results further indicate that most of the banking and insurance institutions interviewed are keen on the inclusion of some forensic procedures within the statutory audit. In the light of the global financial and credit crises and the move towards risk management, the study brings to light the necessity of forensic audit procedures if pre-defined risk-sensitive and liquidity-based benchmarks are exceeded by banking and insurance institutions.