Home Develop VIEWPOINT: Forensic audits: Better avoided than experienced

VIEWPOINT: Forensic audits: Better avoided than experienced

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Ordering a forensic audit is like going to court to enforce a contract – both are last-resort actions when something has already gone very badly wrong. The horse is long gone over the hills, and there is bitterness and recrimination as everyone goes about fixing the stable doors.

Understanding what, where, when and how things went wrong is important – but only to the extent that it can prevent anything similar from happening ever again.

If you’d rather avoid the need ever to experience a forensic audit – those school fees are expensive – the systems you need to put in place are all about creating maximum transparency of information.

I emphasise transparency because it is a necessary precondition of accountability. Systems work when named individuals are responsible for making sure that they work, and are held accountable for that responsibility. And responsibility is only meaningful when it comes with the information, the knowledge and the power to exercise it.

We all know that the more opportunities there are for fraud and corruption, the more likely they are to happen. And nothing creates opportunities for fraud like information that is concentrated in too few hands.

Transparency keeps people honest. When business unit managers have easy access to financial information about their domain of control, and that information is presented in a way that’s easy to understand, nobody is able to hide behind obscurity or lack of financial knowledge. Anomalies will be spotted more quickly, and questions will be asked.

There are other advantages too. The more eyes there are on the information, the more knowledge and experience are brought to bear in interpreting that information, and the more likely you are to spot trends, threats and opportunities.

There was some news coverage recently of a forensic audit which uncovered a petty cash slip for R5 000, annotated bribe money – municipality. There was much outrage about the corrupt attitudes this exposed – but in fact, it was a great example of an accounting system working the way it should.

Think about it: If your employees feel the need to be bribing municipal officials to get things done, it’s probably something the business really needs to know about at senior levels. Is this one bad apple that you need to discipline? A company culture you condone? A common practice that’s normally disguised as “travel expenses”?

Good information is the only way to make good decisions, whether you’re the CEO, a sales manager or a production supervisor. So good systems need to be designed to spread that information everywhere it needs to be. If you get that right, you may never need to endure the hard lesson of a forensic audit.