Dear Editor,
Over the past three years there have been lots of writings and discussions on 50 plus forensic audits which were done by reputable Accounting/Auditing Firms and Individual Auditors. What has motivated me to write this letter is whether forensic audits were actually done on all those organisations. Did we started this audit process on the ‘right track’? It is my view that we must be careful with the use of our existing accounting and auditing terminologies, especially ‘forensic audit’ Further, the purpose of this letter is not to criticize those forensic audits but to put forward my understanding of a forensic audit.
I have seen some audit reports on line and in my opinion they can be classified to a large extent as operational and financial audits in nature.
Operational Audit focuses on how an organisation conducts its business, with the objective of recommending improvements which will increase its economy, efficiency and effectiveness. Economy relates to using the least expensive resources. Efficiency relates to comparisons of input and output. Effectiveness, however, is different and more difficult to assess, it basically implies meeting a goal or an objective.
A financial audit focuses on the organisation’s financial statements and the accompanying notes in support of the financial statements. The purpose of this type of audit is to add creditability to the reported financial position, performance and cash flows of the organisation. The financial statements give reasonable assurance not absolute assurance to the users which include regulatory agencies of these statements.
Arising from the findings in those two types of audits it is now left to forensic auditors to determine whether such an audit is required to be undertaken. Generally, a forensic audit is focused on a wide range of investigative work such as the financial affairs of the organisation and is often associated with investigations into fraudulent activity. By and large, investigations are probes, seeking to prove improprieties, that arise out of suspicions and the potential for wrong doing. The types of fraud are normally grouped into three categories, viz. corruption, asset(s) misappropriation and fraudulent financial reporting.
There are three types of corruption fraud: conflicts of interest, bribery and extortion. The most common frauds on asset(s) misappropriation(s) are cash theft, fraudulent disbursement, inventory frauds, and misuse of assets by employees for their own personal interest. Fraudu-lent financial reporting will cause material misstatements on the financial statements. It can include deliberate falsification of accounting records and non compliance of the Financial Reporting Standards such as the International Financial Reporting Standards.
So far I have attempted to show how a forensic audit originates. Yes the Government has fifty plus operational and financial audit reports (perhaps some forensic audit reports), and it is possible that those audits will lead to forensic auditing which apparently are now underway. The audit techniques should be centred on identifying and gathering the evidence to prove, for example, how long the fraud has been carried out, how it was conducted and conceded by the perpetrators. Evidence may also be gathered to support other issues which would be relevant in the event of a court case. On the court proceedings, it is imperative that forensic auditors who are called to court are required to present their evidence clearly and professionally, since they may have to simplify complex accounting issues so that non-accountants involved in the court case can understand the evidence and its implications.
Having said that, a forensic investigation is a very specialised type of audit engagement which certainly requires highly skilled auditors who have experience not only in accounting and auditing techniques, but last but by no means least, in the relevant legal framework. An investigation is likely to ultimately lead to legal proceedings, hence the auditors must be comfortable with appearing in court to explain, among others, how the investigation was conducted and evidence gathered.
With regards to the Guyana situation, I leave my readers to judge whether we have an adequate quota of auditors who are highly trained in forensic investigation to do those audits. I should mention that there are specialised forensic audit/ accounting firms available globally. If Guyana is short of such qualified and experienced auditors, then they can be of some assistance not only in conducting audits, but also in providing this much needed specialised training for both our accountants and auditors. Such training should include, among others, on interviewing and interrogation techniques, and on how to maintain the safe custody of evidence gathered.
I close by stating that forensic auditing covers a broad spectrum of activities and is a highly specialised area.
Yours faithfully,
John Seeram
