A FORENSIC AUDIT IS NEEDED

Jul 17, 2011 Features / Columnists, Peeping Tom

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A major fraud has reportedly taken place at the Ministry of Finance. The sum believed to have been fraudulently paid out to undeserving persons is said to be nearing the $200 million mark – quite a staggering amount to have been defrauded, and therefore raising serious questions about the level of financial oversight within that ministry.
The ministry called a press conference recently in which it indicated that condign action would be taken against those persons involved, including the possibility of asset forfeiture.
It would be helpful, though, if the ministry can indicate just how and under what provisions of the law, it intends to recover what it believes it lost through asset forfeiture.
It should in so doing, explain also, a little more as to how its control systems could have been so blatantly and consistently circumvented over a long period of time without the necessary red flags being thrown up.
While it is true, as the ministry has indicated, that no system is perfect, and that having systems in place does not mean that they would not be violated, there is certainly some concern that a fraud of this magnitude could have been perpetuated for such a long time without coming to the attention of the authorities.
You can set up the best of systems and yet dishonest persons will circumvent those systems. However, there should always be controls in place to ensure that such attempts are detected.
Were such controls in place? And, if so, how effectively were they being manned? In order to answer these questions, the ministry needs to undertake a forensic audit to determine just where the breakdown occurred.
If as it is being speculated, the sums involved are nearing the G$200M mark, the fraud should have been detected earlier. Provision would have had to have been made for these additional payments.
And close monitoring of just what the ministry was spending should have shown that in certain areas, the total sums being paid out were unusually high, and this should have raised some red flags leading to an early intervention.
The point is that there had to have been more than just a breakdown of normal supervisory controls. Even at higher levels, given the amount of additional sums that had to have been allocated to pensions, this should have led to some queries. If the unusual increase in allotments went undetected, then it means that there is a need to determine just how effective were higher levels of financial monitoring.
If on the other hand, there was no increase in the allotments but this sum was creamed off from what was due to legitimate pensioners, then it begs to be asked just how the short payments were not detected. Here again, this suggests a serious breakdown of controls and oversight.
The ministry has so far not indicated just how many of its senior officers have been sent home pending the probe, but it was reported that some junior employees are no longer on the job.
But what about those under whose watch all of this took place? Should they still be on the job? Or should they be asked to step aside until a detailed forensic audit takes place?
If the ministry is concerned enough about what took place and about recouping the sums that it believes it has lost, it would most certainly also be interested in ensuring that such financial irregularities do not recur. As such, it should concurrent with the investigation taking place conduct a forensic audit, inclusive of an audit of supervisory and management functions, since at the end of everything, the public expects that not just those who are fingered in financial malpractice should face the brunt of the law, but also those who were negligent and failed to detect fraud occurring right under their noses should face the consequences of these actions.
There is always a risk of fraud in any organization. Almost every week there are stories, not all of which are made public, about some person engaging in fraudulent actions. This is not confined to the public sector but also occurs in the private sector. What is important is that persons are held accountable, including those who may not have benefited at all or were in no way implicated in any illegal act, but who must also be held responsible for things which happened under their watch.
A forensic audit is needed in tandem with the investigation that is taking place. That audit must address where systems were weak, controls absent and supervisory and managerial oversight lacking.
In other parts of the world, a fraud of this magnitude would have seen senior personnel resign even though they may not have been directly responsible or involved.
The fact that a fraud of this magnitude could have taken place under their watch would have led them to do the right thing and submit their resignations.
That sort of culture does not exist in Guyana. Persons have to be pushed out of the door and even when they are, they go kicking and screaming about their innocence. The issue here is not about innocence. It is about assuming responsiblity. Only through a detailed systems and forensic audit can it be effectively determined, the extent of any negligence or lack of effective supervisory or managerial oversight.
The ministry must try to recoup the sum of which it was defrauded. If needs be, and if the law provides for such action, it should go after the assets of those found guilty.
But it should first ensure that persons who ought to have been in position to detect and prevent such fraud occuring are held accountable and be sent on leave pending that detailed forensic audit, conducted by a comptent auditing firm.

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