Auditors tell study commission ‘forensic audit’ is targeted and costly; technology can surface anomalies

Butte-Silver Bow finance staff and an auditing instructor told the study commission on Oct. 28 that a forensic audit is a targeted, legally-oriented examination typically used when there are allegations of fraud, and that such audits are narrow and expensive.

Karen Hasler, who described the county’s audit processes, said the county signs an engagement letter with its independent auditor (currently Newland and Company), begins audit planning in the fall, and compiles documentation for the annual comprehensive financial report (ACFR). She said federal single-audit procedures apply when federal award spending exceeds $1 million and that auditors request samples of payroll and high-dollar claims (claims over $50,000) during testing. Hasler noted that weekly expenditure lists and the annual ACFR are publicly available on the county website and recommended those as a starting point for citizens seeking financial information.

A retired CPA and auditing instructor who addressed the commission explained that forensic audits focus on evidence collection that could be used in legal proceedings and are generally undertaken only when there is a specific allegation or whistleblower concern. The presenter said modern audit software and artificial-intelligence-assisted tools can rapidly analyze large data sets, identify anomalies and produce exception reports much more quickly than manual review; those tools can help find areas worthy of deeper review without initiating a full forensic engagement.

Commissioners asked about cost and scope. Hasler and other staff said a full forensic review of all county operations would be time-consuming and expensive, and that forensic audits are usually limited in scope to the area of concern. Hasler reiterated that the county’s financial statements received an unmodified opinion and that internal-control reviews and single-audit compliance testing are included in the regular audit process.

Several commissioners suggested the commission could include a recommendation to the council of commissioners that it study or pilot the use of data-audit tools or automated review software to increase transparency and make financial information more accessible to residents. Hasler said staff could estimate the fiscal implications of proposed structural changes (for example, moving from part-time to full-time commissioners) by calculating salary and benefit impacts; she said identifying where funding would come from would be the council’s responsibility.

No formal action was taken to request a forensic audit; the county attorney previously told the commission that the study commission lacks statutory authority to order a forensic audit but can place a charter question before voters regarding audit requirements.