Audit: The devil is in the details

Source: Audit: The devil is in the details | The Sunday Mail July 17, 2016

Taurai Changwa : Business Forum

Discovering the rot and not taking action or implementing the recommendations of the auditors will surely be a waste of time and resources.

It is not only the private sector that has commissioned various audits but public entities as well.

There are so many irregularities and anomalies that are affecting companies to the extent that experts have to be brought in to uncover the same.

However, such audits often don’t necessarily result in the successful prosecution of those who might be considered to be systematically looting organisations.

Usually, those entrusted with fiduciary responsibilities are the ones that are often accused of such crimes.

But it is not difficult to surmise why some of these individuals are not brought to book.

White collar crime is perpetrated by some of the leading brains in industry who know how to sail close to the wind.

It is, therefore, unsurprising that while their actions can be regarded as unethical, it is very difficult to raise criminal charges that can really stick.

There are fundamental questions that should be considered. Does knowingly negating one’s fiduciary duties amount to a criminal offence?

Clearly, it is a fine line, and canny executives usually go away with it.

And it is precisely for this reason that auditors have to be called in: To try to sift through the data and uncover some of the criminal elements that are inherent in the actions of unscrupulous executives and directors.

But first, auditors need to help the business understand whether there is a prima facie case that can be further pursued.

Also, when the recommendations are made, there is also need to ensure that there are implemented.

So, it is the duty of the auditors to provide compelling data that can be used in the courts of law, if need be.

Discovering the rot and not taking action or implementing the recommendations of the auditors will surely be a waste of time and resources.

If fraud is discovered, the culprits should be relieved of their duties and prosecuted. If weaknesses are discovered, they should be quickly fixed.

Auditors are engaged to give an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with financial reporting framework.

The audit provides users such as lenders and investors with an enhanced degree of confidence in the financial statements.

But forensic audits are quite different since forensic accountants represent an area of finance that combines detective skills and financial acuity.

These accountants dig into financial reports, locate financial transactions and figure out what really happened at a given company.

They cover areas such as fraud; fraud detection and prevention techniques; fraud related auditing, investigation and analysis of financial evidence; development of computerised applications to assist in the analysis and presentation of financial evidence; communication of findings in the form of reports, exhibits and collections of documents; and assistance in legal proceedings, including testifying in court as expert witness and preparing visual aids to support trial evidence.

With all the work that forensic auditors do, their work should be taken seriously as they are experts. If their findings are swept under the carpet, then the rot will surely continue. It’s about time that evidence compiled by auditors is taken seriously.

An organisation in the midst of reorganisation and restructuring following a major fraud would hardly have the resources to handle a broad-based exhaustive investigation.

It is in these circumstances that the forensic accountants provide the much-needed experienced resources, thereby freeing the organisation’s staff for other more immediate management demands.

This is all the more critical when the nature of the fraud calls for management to move quickly to contain the problem and when resources cannot be mobilised in time.

Managers who do not implement agreed actions arising from audit findings expose the organisation to risk.

Serious corporate governance deficiencies that are affected most local companies cannot obviously be ignored. It is about time companies own these problems.

They must admit that the risk is real and it must be prioritised.

In companies where compliance is not seen as a “check the box” exercise, boards and senior management acknowledge the risk is real for them and their business.

That also means boards challenge management to ensure risk is prioritised and issues are dealt with effectively. Directors and senior management should leave no stone unturned even though they might find hidden problems.

Companies that do a good job protecting themselves against fraud, bribery and corruption risks exercise their audit rights on third parties and insist that suppliers regularly answer requests for information.

Every problem should be thoroughly scrutinised and addressed by management.

Employees should understand compliance programmes. Companies with such employees are relevant and effective regardless of what their jobs are. They don’t bend or dilute the rules.

Instead, they make sure their approach is robust and consistent by engaging with local teams to manage specific requirements.

However, there are increased cases of collusion between some board members and management in circumvent systems that are meant to cushion the company from abuse.

Companies that have a strong ethics code consistently punish unethical behaviour, which communicates to employees the risks of non-compliance and helps control employee behaviour.

Also, companies with effective compliance programmes have a common culture that guides ethical behaviour.

Local companies have been negligent for a long time and so many mistakes were made. Some mistakes are still being made and auditors are highlighting these issues.

Management should not ignore but instead implement these findings.

In many cases, directors implicated in some of the scandals are only made to resign. They are even given a golden parachute for their troubles.

Such has to stop.

Taurai Changwa is an articled accountant with vast experience in tax, accounting, audit and corporate governance issues. He is MD of Safic Consultancy and writes in his personal capacity. Feedback: tauraichangwa1@gmail.com, Facebook page SAFIC Consultancy and WhatsApp +263772374784