The detection and interdiction of fraud are ultimately the responsibility of government

Oct 09, 2018 Features / Columnists, Peeping Tom

The Minister of Finance should exercise greater restraint over his public utterances, lest he is subject to embarrassment due to misguided statements such as his most recent diatribe. As reported in yesterday’s edition of the Kaieteur News, and aimed at the Auditor General of Guyana he said some things.
According to that account, the Minister of Finance has questioned the ‘pussyfooting’ by Auditor General Deodat Sharma to pursue the unaccounted hundreds of millions of dollars from the PetroCaribe fund and other projects. He noted that the forensic audits carried out by the Coalition administration revealed questionable transactions which should have been uncovered by the Auditor General.
The Minister is an economist, not an accountant, but he should know that there is a difference between the two fields. Similarly, as someone with considerable experience within the country’s Finance Ministry, the Minister ought to have a better appreciation of the difference between an audit and fraud investigation. The two, while not mutually exclusive, are different.
The purpose of an external audit is to give an opinion on the financial statements of an entity, not to detect fraud or undertake forensic audits. In the course of an audit certain checks are done, which may or may not pick up irregularities. However, fraud detection is not the primary purpose of an audit or the role of an external auditor.
An external audit places emphasis on the integrity of financial statements and financial disclosures, reconciliation and validity of account balances and adherence to financial operational procedures. Obviously these should be scrupulous enough to determine irregularities. But this is a vastly different procedure from that of a fraud audit.
In looking for a scapegoat to blame for its failure to successfully detect massive fraud under the PPPC and to successfully prosecute the alleged instances of fraud it says it found, the government should not confuse or conflate the functions of a forensic fraud audit with that of the audits done by its external auditor, the Audit Office.
The Coalition government launched a series of forensic audits and while irregularities were uncovered, it has not been able to produce the evidence of the billions it said were pilfered from the state under the PPPC.
If the government believes there is fraud in certain areas, it should investigate. Once it has reasonable suspicion, it can even ask the Auditor General to launch a special investigation, as has been done before.
While the Audit Office has its deficiencies, this does not justify the deflection of governmental shortcomings to that office. The notion that billions of dollars may be missing from the PetroCaribe Fund may be a figment of someone’s imagination. But if perchance this is indeed so, then the government should be calling in the police and Interpol, not the Auditor General.
Internal control is ultimately the responsibility of the government. The Auditor General himself has pointed out that it is the government which is responsible for the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
The role of the Audit Office, on the other hand, is to obtain reasonable assurance as to whether the financial statements, as a whole, are free from material misstatement.
The role of detecting fraud within Government agencies and programme is better left to the internal auditors not the external auditors. Every Ministry should have an internal audit department which should be properly staffed and which should go through every financial transaction. That is a much better way to go after fraud than to ask the external auditor to stop ‘pussyfooting’.
The Minister of Finance should therefore put forward to Cabinet a document calling for the establishment and strengthening of internal audit departments within each government agency and ministry so that these can ensure the integrity of each financial transaction.
And while the Minister is at it, he may wish to consider why in his 2016 Audit Report, the Auditor General claimed that for the fiscal year ending December 31, 2016, the Audit Office was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the Receipts and Payments of the Contingencies Fund, the Financial Reports of the Deposit Funds and the Assets and Liabilities of the government which forms part of the Consolidated Financial Statement.

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