A hybrid electric vehicle (HEV) has an algorithm for executing a method for diagnosing a high-voltage (HV) fault condition aboard the HEV. The HEV includes a high-voltage (HV) battery, an auxiliary power module (APM), a power inverter module (PIM), and a three-phase motor/generator unit (MGU). A controller executes the method to thereby measure a DC output current from the HV battery, a DC inlet current into the APM, and a pair of AC phase currents in the MGU. The method further includes calculating a DC inlet current into the PIM using the AC phase currents, diagnosing the HV fault condition using the DC output currents and the DC inlet currents, and executing a control action in response to the diagnosed condition. The method can include shutting off the APM to determine whether the APM is the root cause of the HV fault condition.