The Sunday Mail
Robert Mandeya
DESPITE growing corruption in various quarters, Zimbabwe remains mired in this abhorrent practice. The nation continues to be prejudiced of funds that could otherwise be channelled to public and social amenities. Arguably, there haven’t been any high-profile convictions in the courts despite various “forensic audits”.
Such exercises are very costly and this strains already strained organisations. But are we really doing forensic audits in Zimbabwe or we are conflating real forensic audit with the usual accounting audit meant to ascertain corporate governance compliance practices?
The reported cases of alleged malpractices at Fidelity Life Assurance have brought to the fore issues of transparency and accountability vis-a-vis internal control systems.
Perhaps it is important to ask if those tasked with carrying out investigations have the necessary qualifications and/or competencies to carry out such specialised tasks.
If reports produced by these professionals are failing in court, what is it they could be missing?
William Pirraglia of “Small Business by Demand Media” defines forensic audit as “an examination and evaluation of a firm’s or individual’s financial information for use as evidence in court”.
A forensic audit can be conducted to prosecute a party for fraud, embezzlement or other financial claims. Forensic accountants are experienced auditors, accountants, and investigators of legal and financial documents, hired to look into possible fraudulent activity; or are hired by a company that may want to prevent fraud.
It involves investigative skills to conduct an examination into a company’s financial statements. This exercise must lead to the production of an accounting analysis that is suitable for a court.
Owing to rampant corruption and criminal conduct in many Zimbabwean companies, the phrase “forensic audit” has become a buzz word. However in Zimbabwe’s Criminal Law (Codification and Reform) Act (Chapter 9:23), forensic audit does not exist.
Given this scenario, how then can the term be used in our courts of law?
Recently, there have been many reports about companies (State-owned or otherwise) calling for forensic audits after corruption has been detected or suspected.
Sadly, after the so-called forensic report has been produced, there has not been any substantiated claim in courts to bring culprits to book.
In Zimbabwe we have licensed private investigators under the Ministry of Home Affairs; are these people used in fraud examination and forensic auditing?
There are certified forensic examiners in Zimbabwe. Are these experts consulted to offer training to qualified accountants? What could be the missing link here?
I would start by interrogating the qualification required for somebody to be a registered forensic auditor.
Whilst a Bachelor’s in Accountancy is the basic requirement, one is supposed to also have Certified Public Accountancy, Bachelor’s or Certified Forensic professional qualifications, especially in forensic accounting, internal auditing, fraud detection, white-collar crime investigations, and other relevant areas.
Until recently, detecting fraud or white collar crime was thought to be part of the accounting function.
Fraud was something internal or external auditors were supposed to guard against. However, we now know auditors can only check for compliance of a company’s books to generally accepted accounting principles and company policy.
Thus, a new category of accounting is needed to substantiate fraud for companies that identify fraudulent transactions.
This area of accounting is known as forensic accounting.
Forensic accountants use accounting, auditing and investigative skills when conducting an investigation. Equally critical is their ability to respond immediately and to communicate financial information clearly and concisely in a court.
Forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation.
Forensic accountants are multi-disciplinary and have a wide range of experience in the forensic and investigative field.
What is obtaining in Zimbabwe is the situation where a normal audit is conducted, a registered public accountant and registered public auditors are given a license to practice verification or certification of financial transactions, accounts or records without interrogative, investigative and expert witness skills or qualifications.
Forensic accounting procedures
World-over, forensic accounting has taken an important role in both private and public companies in the 21st century.
The failure by some formerly prominent public companies such as Enron and Tyco in the late 1990s fuelled the prominence of forensic accounting, creating a new, important and lucrative specialty.
Forensic accounting procedures target financial and operational fraud, discovery of hidden assets, and adherence to statutory provisions.
All public and private enterprises must adhere to governance and state regulations that apply to their industries.
Forensic auditors examine detailed financial records and compare company procedures with those regulations that directly pertain to their operations.
Forensic investigators note any apparent exceptions to regulations and recommend improvements.
Should they determine that wilful deviations occurred, they then notify both the company and the appropriate regulatory agency.
Company must comply or else they face legal consequences.
Forensic accounting procedures vary depending on the client and specific reason for the audit.
For example, to ensure all company sales dollars are legitimate, auditors strategically examine individual receipts to verify reported gross sales.
Over-statement of income becomes the subject of a report stating the methodology of the strategic sample tests performed, the client/customer contact results, an estimation of the sales levels, verification of cash received and outstanding accounts receivable, and conclusions about the actions resulting in the discrepancy. These reports are structured in such a way as to be used as evidence in a civil or criminal proceeding.
While critically important for public companies, smaller, private businesses are responsible for protecting their investors as well.
In addition to verifying bank account balances, assets, sales recordings, cash flow and all other paper trails, forensic auditors are able to read between the lines by examining individual original source documents and questioning their validity to learn whether the company’s financial statements are fairly presented for informed investor decisions.
Auditors examine discrepancies by interviewing company personnel and executives to learn about material differences in company valuations.
While courts, not auditors, determine the existence or absence of fraud, forensic accounting procedures attempt to uncover irregularities that indicate the presence of wilful misleading activities. Forensic auditors track some transactions from inception to completion, including verifying each step with the individuals (customers and employees) involved. Should they find some company policies and procedures that might permit future fraudulent activities to go unnoticed; they will recommend specific, tightened controls to lessen the risk in the coming fiscal period.
Unlike standard CPA audits, forensic accounting examinations require the use of language and structure that detail auditor findings acceptable to the court system.
Just as the police and legal community build their cases in a commonly accepted series of forensic accounting report procedures follow similar techniques.
Whether intended for use in civil or criminal litigation, forensic accounting reports contain all the pertinent details that prove the auditors conclusions.
Is Zimbabwe compliant with procedures and best practices for forensic auditing?
Given the foregoing, the situation in Zimbabwe with regard to forensic auditing, seems to negate the best practices and standard procedures obtaining world over.
There are so many questions that vindicate my assertion which are as follows: Why are we conducting forensic audit whilst the internal controls of most organisations in Zimbabwe are poor? Why can’t we develop the internal control systems first? Since forensic audit started here in Zimbabwe, how many have been convicted? How much has been used as payment for the various forensic audit exercises conducted in Zimbabwe?
Who should appoint forensic auditors to conduct forensic audit, forensic investigation and fraud examination? Who is doing forensic audit in Zimbabwe? Does forensic audit team exist in our criminal law documents in Zimbabwe?
What qualifications must someone have to be called forensic auditor?
Robert Mandeya is with Shareholder Activism Zimbabwe (ShAZ) and the views above are purely personal. Feedback: [email protected]
