Audit stinks!
I feel like writing about my profession today. I am an auditor.....
To give you a general background on audit - it is mandatory for most firms to be audited annually by a registered auditor which basically involves getting a high level view of a firm’s affairs and opining whether a firm’s financial statements give a true and fair view of its affairs. At the end of an audit process the auditor issues an audit report that may be qualified or unqualified. In simple terms auditors may issue a qualified report if the profit and loss statement is showing a profit but the state of the firm reflects that it is on the verge of a closedown! Mind you it is not our responsibility to detect fraud.
I think most fellow auditors would agree when I say that we do not grow up wanting to be auditors…it just happens! I am not going to dwell on why I chose this profession instead I want to talk about some realities of this profession back in Kenya.
I joined an audit firm as a trainee in Kenya. It was a small set-up – two partners, one manager and some five more staff that was a mix of seniors, semi-seniors and trainees. Most of our clients were medium sized companies and retail shops.
The first couple of months were pretty smooth. My work mostly involved ticking and bashing, nothing mind-bending I would say. At some stage I was given the responsibility to perform audit of a medium sized company that was one of our major clients.
My team and I carried out the relevant audit procedures and did not find any irregularities to report. When my audit partner and I had a final meeting with our client to discuss the financial statements, I was amazed to find out that the client had a different set of accounts for discussion. These accounts included undisclosed income that ran in millions! Discussions ensued for a couple of hours between my audit partner and the client on ways to combine this undisclosed income with audited accounts without arising suspicion of the tax department. In the end it was decided to pass entries in the audited accounts worth Kshs14m to have the desired effect. The fact that I was a part of this process disgusted me. But it also made me think why I never suspected the possibility of undisclosed income of such magnitude. It made me question my abilities as an auditor. I thought in time I would improve and use the audit techniques more intelligently!
A few weeks later a client came to our office looking quite frantic. Apparently, tax officers had paid him a visit that morning and discovered that our client was not remitting GST to the tax department. Our audit partner spent the next few minutes on the phone with tax officers. I was not a party to this conversation but later found out that we had mediated a bribe amount agreed to by both parties – our client and the tax officers. Basically the tax officers decided to look the other way.
This was the last straw. I thought things might be different in a larger professional set-up. Perhaps I could move away from a core audit environment to a consulting environment. So I joined another firm, which was relatively larger than my previous employer and had a good reputation in the market.
In this firm I had the opportunity to audit the second largest telecommunications company in Kenya. The telecommunications market had just been deregulated and this company had just started its operations in Kenya and had chosen us as their auditors. Our firm’s consulting arm had implemented Oracle financial and logistics systems for this company and had made millions in the process.
Basically, for the first few years the systems were in a complete mess because our consulting division implemented the system poorly. We never quite got the reports that were necessary for our audit. Yet we were not in a position to issue a qualified audit report, as this would have affected our consulting arm dearly. So we issued a clean bill of health.
Almost two years after I joined this firm I was transferred to our consulting division where I received training in implementing an accounting software called ACCPAC. My first assignment was in an organization that provided ferry services and was owned by the Government. We were charging them pretty high rates by the hour. I soon realized that the partner-in-charge of this job was forcing me to spend more hours at this client than was necessary. To my surprise the IT Manager of this organization and his superiors were not closely monitoring the implementation of ACCPAC.
I was not sure what was going on but I continued doing what I was told to do; finished this assignment and moved on to others. Three years later our Managing Director asked me to review the accounts of our firm as we were about to be audited by the tax department. It was during this audit that I came across kickbacks to the managing director of the government organization where I had implemented ACCPAC. These amounts were camouflaged as miscellaneous transactions. In return we had billed them for computers that we never really provided them with. I also realized that by charging higher rates and spending more time at that job than was necessary we were trying to recover the kickbacks. Anyway, we could not have the tax officers discovering these transactions so we gave them an incentive to look the other way....by now you must know what I mean!
So what is the moral of this story - audit stinks in a country that is rampant with corruption. As the old adage goes - if you cannot join them, beat them! Therefore I have decided to jump the fence and become a fraud investigator. In this role I will be auditing the auditor....watch this space on what I discover as a fraud investigator!
To give you a general background on audit - it is mandatory for most firms to be audited annually by a registered auditor which basically involves getting a high level view of a firm’s affairs and opining whether a firm’s financial statements give a true and fair view of its affairs. At the end of an audit process the auditor issues an audit report that may be qualified or unqualified. In simple terms auditors may issue a qualified report if the profit and loss statement is showing a profit but the state of the firm reflects that it is on the verge of a closedown! Mind you it is not our responsibility to detect fraud.
I think most fellow auditors would agree when I say that we do not grow up wanting to be auditors…it just happens! I am not going to dwell on why I chose this profession instead I want to talk about some realities of this profession back in Kenya.
I joined an audit firm as a trainee in Kenya. It was a small set-up – two partners, one manager and some five more staff that was a mix of seniors, semi-seniors and trainees. Most of our clients were medium sized companies and retail shops.
The first couple of months were pretty smooth. My work mostly involved ticking and bashing, nothing mind-bending I would say. At some stage I was given the responsibility to perform audit of a medium sized company that was one of our major clients.
My team and I carried out the relevant audit procedures and did not find any irregularities to report. When my audit partner and I had a final meeting with our client to discuss the financial statements, I was amazed to find out that the client had a different set of accounts for discussion. These accounts included undisclosed income that ran in millions! Discussions ensued for a couple of hours between my audit partner and the client on ways to combine this undisclosed income with audited accounts without arising suspicion of the tax department. In the end it was decided to pass entries in the audited accounts worth Kshs14m to have the desired effect. The fact that I was a part of this process disgusted me. But it also made me think why I never suspected the possibility of undisclosed income of such magnitude. It made me question my abilities as an auditor. I thought in time I would improve and use the audit techniques more intelligently!
A few weeks later a client came to our office looking quite frantic. Apparently, tax officers had paid him a visit that morning and discovered that our client was not remitting GST to the tax department. Our audit partner spent the next few minutes on the phone with tax officers. I was not a party to this conversation but later found out that we had mediated a bribe amount agreed to by both parties – our client and the tax officers. Basically the tax officers decided to look the other way.
This was the last straw. I thought things might be different in a larger professional set-up. Perhaps I could move away from a core audit environment to a consulting environment. So I joined another firm, which was relatively larger than my previous employer and had a good reputation in the market.
In this firm I had the opportunity to audit the second largest telecommunications company in Kenya. The telecommunications market had just been deregulated and this company had just started its operations in Kenya and had chosen us as their auditors. Our firm’s consulting arm had implemented Oracle financial and logistics systems for this company and had made millions in the process.
Basically, for the first few years the systems were in a complete mess because our consulting division implemented the system poorly. We never quite got the reports that were necessary for our audit. Yet we were not in a position to issue a qualified audit report, as this would have affected our consulting arm dearly. So we issued a clean bill of health.
Almost two years after I joined this firm I was transferred to our consulting division where I received training in implementing an accounting software called ACCPAC. My first assignment was in an organization that provided ferry services and was owned by the Government. We were charging them pretty high rates by the hour. I soon realized that the partner-in-charge of this job was forcing me to spend more hours at this client than was necessary. To my surprise the IT Manager of this organization and his superiors were not closely monitoring the implementation of ACCPAC.
I was not sure what was going on but I continued doing what I was told to do; finished this assignment and moved on to others. Three years later our Managing Director asked me to review the accounts of our firm as we were about to be audited by the tax department. It was during this audit that I came across kickbacks to the managing director of the government organization where I had implemented ACCPAC. These amounts were camouflaged as miscellaneous transactions. In return we had billed them for computers that we never really provided them with. I also realized that by charging higher rates and spending more time at that job than was necessary we were trying to recover the kickbacks. Anyway, we could not have the tax officers discovering these transactions so we gave them an incentive to look the other way....by now you must know what I mean!
So what is the moral of this story - audit stinks in a country that is rampant with corruption. As the old adage goes - if you cannot join them, beat them! Therefore I have decided to jump the fence and become a fraud investigator. In this role I will be auditing the auditor....watch this space on what I discover as a fraud investigator!