Auditing has its limits

Aug 15, 2016 Features / Columnists, Peeping Tom

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The ‘forensic’ audits were launched by the government, at selective agencies, with the intention of uncovering fraud and corruption. It was intended, no matter what other explanations were given, to prove that the former administration used those agencies to steal a great deal of money.
In the eyes of the public the ‘forensic’ audits were intended to prove a political point that the now government, when it was in opposition was making: that the PPP turned Guyana into the corruption headquarters of the West Indies.
The ‘forensic’ audits have not established that case. Nothing to near the degree of fraud that was being claimed has been found. There have been a few cases found, here and there, but nothing to get excited about.
‘Forensic’ audits distinguish themselves from other audits by not only identifying the commission of a fraud. They also implicate those accused, trace the money and are able, in many instances, to lead to recovery.
The public is interested in knowing which law was broken and who was involved in the theft of government resources.
The public is interested in knowing who stole, how much was stolen and where is the money that was stolen. They are not that keen on opinions about what should have been done by management and how many millions would have been saved by fixing minor defects.
Financial management, like economics, is often about allocating scarce resources to multiple demands.   Managers have to forego doing certain things which would cost more in the long term simply because there were other priorities. It is not for accountants to deliberate on those decisions. It is for management audits to do this.
Management audits are different from accounting audits. Management audits usually are undertaken from within organizations to ensure that agreed on managerial policies are in accordance with what was agreed upon by the organization.
Two weaknesses have been identified about the forensic audits. The first has been the expressions of opinions on managerial decisions. This weakness has been increased by the second one: the failure in many instances to grant to the agencies being audited the right to a respose to the preliminary findings of the audits and to record these within the final reports.
Forensic audits should not get involved in questioning managerial decisions, except where fraud and theft are involved. The decision of a management to do X rather than Y is one that is for management to determine. If management decides, for example, to buy a new vehicle instead of repairing an old one, there may have been good reason for this.
Once it does not involve corruption and fraud it is not for accounting auditors to question this. They may call attention to the fact that there was excessive spending on new purchases but it is not for them to express an opinion that this was a bad decision as long as there is no theft or corruption involved.
The principal function of the accounting auditor is to pronounce on the health of the accounts of a company to determine whether these reflect the true state of the organization. It is not for them to determine that if management had done this and done that millions would have been saved. This is not their role and they are expressing an opinion on a managerial decision which has often not benefitted from knowing the reasons why the agency being audited made that decision.
The expressions on opinions of managerial decisions should be left for others, not auditors. The Stabroek News, for example, is up in arms over the decision of the government to relocate the Walter Roth Museum of Anthropology.
The Stabroek News is within its right to question this decision but not for an auditor. This is a political decision which has been made and it is not for accounting auditors to question that, even though it has financial implications.
The decision will cost the government millions. It will upset a lot of people and may not even be the best option for the government. But this is an opinion and it is not for auditors to question that opinion because it is not their jurisdiction.
The government would have had its reasons. Unless, the auditors asked, they cannot know what influenced that choice and since it is not within their jurisdiction to ask, it is always best that accountants stay clear to questioning the wisdom of managerial decisions. They may assume that a decision will result in misallocation of funds but perhaps there was a larger social objective involved. Perhaps, also, the decision makers did not have all the facts at hand.
Many corporations have made bad choices. One company in Guyana made major investments, all of which did not yield financial returns. Those decisions were questioned on the grounds that the management ought to have predicted those losses. But as it turned out, the decision was not one about making money. It was about positioning the company within the market.
An auditor would not be privileged to know that fact. The forensic auditors should stay clear of deciding on the rightness of managerial decisions and what could have been saved if this and that were done.
Public entities are not always about maximizing profits. They are principally about delivering a service and sometimes in delivering that service decisions have to be made that are not about financial efficiency.

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