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Lifestyle audits are a critical management tool to identify fraud

A lifestyle audit is the term commonly used by forensic auditors and management in companies to describe the tests that are performed to determine if the lifestyle of an employee is commensurate with that person’s known income stream. The employer has detailed knowledge of the remuneration which they pay to the employee, but often management will only have rudimentary knowledge of the staff member’s lifestyle.

Fraud and corruption is usually committed by means of “off book” transactions or manipulated accounting records. It is very difficult to detect and dishonestly inclined professionals are able to conceal their frauds with disturbing alacrity and ease, particular in work environments with weak controls or limited segregation of duty. Sometimes the only clue to the illicit activities is a sudden unexplained change in an employee’s lifestyle. The lifestyle audit is therefore a critical management tool to identify staff members who, based on an extravagant lifestyle, may potentially be engaging in illicit activity. It is also one of the few mechanisms that organisations may utilise as a first step towards discreetly determining whether a “tip-off” of suspected fraudulent activity, potentially has merit or not.

When a detailed lifestyle audit is performed on an employee implicated in fraudulent or corrupt activity, it is often also described as suspect profiling or business intelligence.

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