Forensic audits serve a critical function in modern corporate governance, offering a structured mechanism to uncover financial irregularities and support legal proceedings with credible, admissible evidence
Forensic audits, though crucial in uncovering financial wrongdoing, can also be misused by management for political, retaliatory, or self-serving purposes. At its core, a forensic audit is a specialised examination of financial records, combining accounting expertise with investigative techniques. Its goal is to uncover evidence that can be presented in legal proceedings — be it fraud, embezzlement, money laundering, or other financial crimes. These audits aim to produce legally admissible evidence to support civil or criminal cases.
Despite the utility of forensic audits in detecting fraud or financial misstatements and providing evidence in legal disputes, forensic audits can also be strategically misused against an individual manager. They might be manipulated to shift blame for larger organisational issues onto someone, often to deflect attention from systemic failures. In some cases, they are weaponised as retaliation against whistle-blowers or dissenters.
Management may use audits to intimidate or discredit employees or executives they wish to remove. Sometimes, they are launched as “fishing expeditions”— lacking specific allegations but hoping to uncover something incriminating or punish the auditee through just the process.
There are several malafide motives behind such misuse. One is deflection — shifting attention away from the management’s misconduct by scapegoating a subordinate. Another is the pursuit of vendetta, where a forensic audit becomes a tool to settle personal or professional grudges. In organisations plagued by internal power struggles, audits are sometimes commissioned to eliminate rivals in leadership roles. Faced with public scandals or investor scrutiny, companies may resort to scapegoating through audits to appear proactive while protecting influential individuals. A particularly disturbing tactic is the suppression of whistle-blowers, wherein the audit becomes a tool to isolate or silence someone who dared to question malpractice.
A compelling example is the Ranbaxy case. An irreproachable employee who revealed corporate wrongdoing was subjected to a forensic audit and forced to resign. Years later, vindication came when Ranbaxy was penalised with a $500 million criminal fine for selling adulterated drugs and making false claims. The whistle-blower received $48.6 million from the federal share. Ultimately, Ranbaxy collapsed under the weight of its unethical practices.
In another case involving a multinational subsidiary in India, the company’s management launched a forensic audit as it was certain that the upright Indian leadership would not endorse malpractice or miscreants that had or may have — come to its notice. The leader and his entire team, however, were exonerated entirely, emerging from the audit with a formal certificate of exemplary conduct. While most board members urged the leader to stay, one warned him that pursuing legal action would be futile since the company could “buy the judges.” Choosing integrity over confrontation, the employee left with the commendation in hand.
What followed was remarkable: sixteen top-performing managers resigned soon after (all on the same day in solidarity), triggering a mass exodus. In response, the management falsely claimed that all of them, including the leader, had been found guilty, despite documented evidence of their exoneration. This fabricated narrative was seemingly crafted to mislead remaining employees — lest they leave too — and justify the audit to higher authorities within the company. Management even rewarded those who supported this misleading version of events, thereby creating a culture of fear and false consensus.
Such incidents provoke crucial questions: What should management do when a forensic audit clears an employee and affirms their leadership? Is a certificate of honour enough to undo the emotional and reputational damage inflicted?
When an employee chooses to leave after being exonerated, is maligning them not a short-sighted strategy with long-term adverse consequences — both for the company’s image and for those who engage in it?
And what of those who initiated the audit and now manipulate public opinion within the organisation to shield themselves from internal accountability? These are not rhetorical questions. They require serious introspection by regulators, HR heads, audit firms, courts, and the media. Every corporate manager with integrity should reflect on these situations and choose their associations wisely.
For upright employees targeted by a malicious forensic audit, the path forward demands resilience and strategy. First, it is essential to cooperate fully and transparently with the audit team. Any attempt to withhold information may raise doubts. Keeping thorough documentation — emails, reports, transaction records — can prove invaluable. Seeking legal counsel at the earliest stage is critical; an attorney can protect one’s rights and challenge the audit’s legitimacy if needed. Being proactive by providing evidence of compliance can further strengthen one’s position. If retaliation is suspected, whistle-blower protections should be explored under applicable laws.
Legal recourse for the auditee
Legal recourse is available for auditees subjected to malicious audits. If the audit results in defamation, harassment, or wrongful termination, one can approach the courts — of course, after finding a way. If the judiciary is corrupt, how can attempts to influence judges be thwarted? Before, during, and after an audit, the auditee has rights that must be upheld. These include the right to know the audit’s scope and purpose, the right to legal representation, and the right to understand the audit procedures. During the process, the auditee must be treated fairly and allowed to present their side. Confidentiality must be maintained until the audit concludes.
At the closure of an audit, the auditee has the right to access the findings and respond before they are finalised. If the conclusions are unfair, there should be a mechanism for appeal — internally or legally. In cases where the audit clears the individual, their reputation must be restored formally and unequivocally.
It is common for exonerated individuals to leave their organisation. Reasons range from loss of trust and the emotional fatigue which ensues, even after a clear investigation. Often, the organisational culture shifts in such a way that it no longer feels supportive. Ironically, well-led organisations that allow such audits to be misused often suffer lasting damage — losing both credibility and talent.
When misused, forensic audits leave behind scars — emotional, professional, and sometimes legal. For the auditee, seeking fairness often becomes a lonely battle.
The answers lie not just in individual resilience but in systemic reforms. Strengthening whistle-blower protections, redefining audit ethics, and holding abusers of the process accountable is imperative. This is not just a legal necessity — it is a moral crusade. One that we hope gains momentum.
(The writer is the former HR Head of Vygon India and a recognised thought leader in compliance. Views are Personal)
