Forensic Audit

An examination of financial records with the specific purpose of detecting fraud, misrepresentation, or financial crime. RBI guidelines require banks to conduct forensic audits in all cases where fraud is suspected. Forensic audit reports are used as evidence in FIRs and DRT proceedings. The SFIO (Serious Fraud Investigation Office) conducts forensic audits in cases involving company law violations.

In practice, a forensic audit is the evidentiary backbone of a fraud-tagged NPA, because it converts suspicion of diversion or misrepresentation into a documented finding a bank can act on. RBI guidance expects banks to commission a forensic audit where fraud is suspected, and the report then feeds multiple proceedings at once: it supports the FIR, anchors the bank's case before the DRT, underpins fraud classification of the account, and informs any reference to investigative agencies, with the SFIO handling matters touching company-law violations. The audit's quality is decisive. A report that traces fund flows, related-party transfers, and falsified records gives counsel a concrete narrative; a thin or procedurally flawed audit, or one where the borrower was denied a hearing before fraud classification, becomes the very ground on which the borrower challenges the tag. For the defence, the audit's methodology and the natural-justice trail are the first targets. Well-advised banks ensure the borrower is heard before the account is classified as fraud.