The new Administration has announced that it is reviewing the performance and efficiency of publicly owned entities, statutory bodies, projects and activities financed by or through public funds. Accordingly, it has identified some 30 entities for such review and has commissioned forensic audits of a number of these entities. A key aspect of the review relates to an assessment of the entity’s adherence to and fulfillment of the principles of corporate governance in all aspects, including its interpretation of its mission, adherence to legal or statutory and policy instruments and good practices. A number of Chartered Accountants have been engaged to carry out some of these assignments.
The announcement attracted much media attention, and the views of several stakeholder groups and individuals were highlighted. In an article appearing in the Kaieteur News of 17 June, the British High Commissioner is reported to have stated that the Government’s initiation of forensic audits is “the right way to go”. He spoke of the importance of governments demonstrating fiscal accountability and transparency and considered it perfectly legitimate for an incoming government to examine what the previous government has done.
The Government has publicly expressed the desire of having an economy, as well as sound and robust systems and procedures, that are transparent, fair and equitable, uncontaminated by drug trafficking, corruption and money laundering. In this regard, the High Commissioner expressed the view that the audits will help to lend much more credence to the viability of the Guyanese economy and to attract more foreign investors, as their faith and confidence in the economy will be enhanced. He further stated that the launch of the forensic audits sends a very clear signal of the kind of investment climate the new government wants.
The Procurement Act and the
selection of forensic auditors
The Procurement Act 2003 is the legal and institutional framework for the procurement of goods and services and the execution of works. Part IV of the Act provides for five methods of procurement, namely, open tendering, restricted tendering, request for quotations, single source, and procurement through community participation. In accordance with Section 26, restricted tendering is used where the goods, works or services are of a highly complex or specialized nature and are available only from a limited number of suppliers or contractors. In such a case, all such suppliers or contractors are invited to submit tenders.
There are a limited number of Chartered Accounting firms in the country, and not all of them offer forensic auditing services. In addition, forensic auditing does not require one to be in possession of a practicing certificate from the Institute of Chartered Accountants of Guyana since the results of such audits do not require the expression of an opinion on the financial statements of an entity. Only the external auditors of an entity require such a practising certificate. Further, a number of retirees from the Audit Office with specialized training and experience in forensic auditing can be conveniently used for the exercise.
Time is of essence, since the new Administration is eager to have the results in as quickly as possible so as to bring a closure to many of the issues that are in the public domain relating to some of the entities in question. If the open tender process is used, it will take approximately two months for the exercise to commence since there is a minimum time period that must be allowed for advertising, the receipt and opening of bids, and their assessment before the contracts are awarded. Apart from the delays that this may entail, as well as the cost implications involved, the results are unlikely to be significantly different from the restricted tender approach. It is also important to note that a key outcome of the forensic audit exercise is an assessment of the extent to which there have been deviations from established criteria, the implications of such deviations, and what needs to be done to remedy the situation. It is a kind of stocktaking exercise to enable the new Administration to move forward as quickly as possible.
On the question of having international firms to undertake the forensic audits, the President has made it clear that we have local resources to undertake the assignments. In addition, there is a distinct advantage in the use of local firms/individuals since they are in varying degrees aware of the problems facing many of the entities selected for review. In the circumstances, it is more advantageous for these firms/individuals to be involved since they can quickly zero in on these problems, resulting in an earlier completion of the exercise. Further, the engagement of international firms, apart from being a significantly more costly affair, will result in the exercise taking much longer because knowledge and understanding the entity take time.
In view of the above considerations as well as the fact that the Government has decided to replace the current members of the National Procurement and Tender Administration Board (NPTAB), the Ministry of Finance has decided to request several Chartered Accounting firms and individuals with training in forensic auditing to submit proposals to undertake the audits, using the selective tendering approach provided for under the Procurement Act. At the time of writing, about ten such assignments have begun. It is understood that selection process is continuing in order to ensure full coverage of the 30 entities selected for review.
Concerns have been expressed that, by virtue of the fact that some of the persons selected have been critical of the operations of a number of entities being reviewed, there may be a conflict of interest. This is a misplaced belief, and perhaps one can argue about an element of bias that can creep into the review. However, these are professionals, some with international standing, who are trained to put aside any bias they may have, and be as objective as possible. They are also required to follow the International Standards on Auditing (ISAs) and other related standards. In addition, the audit process does not allow for any bias to take precedence for the following reasons:
- The forensic auditor is provided with an agreed set of terms of reference which have to be discussed, along with the audit approach, in an entry conference with the senior management of entity concerned;
- The findings and conclusions have to be supported by adequate audit evidence;
- Proper working papers have to be maintained in support of the findings, conclusions and recommendations. They are to be prepared in a manner so as to facilitate an independent review of them, if necessary;
- The results of the audit have to be discussed with senior management in an exit conference;
- A draft report is prepared, incorporating as many of the explanations as possible from the management. This draft is then submitted to the entity for its official comments;
- The entity has 14 working days to respond to the draft report; and
- The final report is issued one week later after taken in account the entity’s official comments.
Forensic audits and the Audit Office
Section 8 of the Regulations made under the Audit Act age 2004 provides for the Auditor General to establish a Forensic Audit Unit. This is an internal arrangement whereby, during the course of a normal audit, an irregularity has been uncovered, the matter is referred to the Unit for further investigation. Where it is established that a criminal offence has been committed, the Auditor General must refer the matter to the Director of Public Prosecutions, copied to the Commissioner of Police for appropriate action. It is, however, not known what level of staffing exists in this unit, its technical and professional competence, and how effective it has been over the years.
The work of the Audit Office’s Forensic Audit Unit is not the same as the forensic audits currently being undertaken. The Minister of Finance explained that he had discussions with Auditor General, and they both agreed that the Audit Office should not be burdened with this exercise so as to enable it to concentrate on its core mandate of auditing of the public accounts and reporting to the Legislature. It is public knowledge that the Audit Office has been struggling to deliver on this mandate.
A concern that has been raised relates to the arrangement whereby the Auditor General can contract the services of Chartered Accountants in public practice to audit the accounts of an entity on his behalf. Section 18 of the Audit Act states that in the discharge of his functions, the Auditor General may engage the services of technical experts and Chartered Accountants in public practice to serve on a contract basis for limited audit engagements.
The Auditor General is the external auditor of the public sector and his functions relate mainly to the audit of the public accounts of Guyana and reporting to the Legislature. The forensic audits initiated by the Government in no way impinges on the Auditor General’s mandate as they do not relate to examining a set of financial statements and expressing an opinion on them. Rather, these audits are managerial in nature and the related reports are to be submitted to the Minister of Finance, and not the Legislature. That apart, the contracting out arrangements also takes time since the procedures are the same as open tendering, a luxury which the new Administration cannot afford.
