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Who audits the auditors? [The Fiji Times, 17 June 2005]

28/03/2012

Would you allow a suspected criminal to appoint his own judge?   Would you allow that accused person to change the judge at will?  Something like this happens in the accounting and auditing world.

Annually, accountants prepare accounts. Auditors check and give their judgment. Sometimes, alarm bells do not go off, until too late.   Companies collapse and become bankrupt; suppliers and other creditors lose their money; sometimes, taxpayers have to pay because Government is a guarantor.

And no one audits the auditor’s failure to warn the public in time.

It seems that the Accountants’ Congress has yet to focus on their own profession’s failure in this country’s financial disasters.

And unfortunately,Fiji’s large accounting and auditing companies have every incentive not to rock the boat too much, in case their lucrative contracts dry up.

The auditing process

   Companies’ accounts are prepared by their accountants or accounting companies.  For some, tax-payers are entitled to see meaningful audited accounts.

Most times the audit verifies that, on the basis of the information made available to them, the accounts represent a “true and fair picture” of the financial dealings and the current state of the company.

Sometimes they qualify that they were not able to see all they wanted to see; or that the company did not follow theFIArules.

Hardly ever do they clearly state that the accounts “are hiding things that are going wrong”.

Sometimes, audited accounts come out regularly, no alarm bells are rung, until one day, the whole bubble bursts- like our NBF disaster.

Why need for auditors?

   Why are auditors needed?  A private company hires the accountant, and if the accountant does not work as required, he is sacked. Any auditors serve the private company’s interests.

But with a company owned by distant public taxpayers, there can be many conflicts of interest between the owners and the managers of the company.

Sometimes, management manage in their own personal interest: excessive staff (to make life easier for all staff); excessive fringe benefits; and sometimes, just plain stealing of company money.   Often, there is no financial incentive to look after tax-payer’s interests.

Which is why our laws require the annual audit of some companies’ accounts, with full access to internal records, to verify that the accounts present a “true and fair” picture of the company.

The expectation is that they will warn the board and shareholders if “things are going wrong”.

The managers provide the data

   But let us face it: management have the whole year to prepare the accounts.

How can auditors pick up in three weeks of work, what many accountants have spent the whole year to hide?

Auditors’ fees are decided before the audit and usually are not enough to cover detailed investigations – audit fees are not increased just because auditors want to inquire more.

And given that the managers can also change their auditors, which auditor is going to be too diligent in finding what is wrong?

Accounts show less and less

   Sadly, the trend also is that published company accounts show less and less.

Often, tax-payers and consumers pay the costs of protecting some monopoly public enterprise through tariffs or licensing.  They have a right to know whether the profits made are being wasted in perks for senior management such as exorbitant salaries, allowances for overtime, housing, company cars, etc.

But look at audited accounts for any public enterprise – whether it is Telecom or Rewa Dairy.  None of their audited accounts give the public any meaningful information on these kinds of issues.  Often even board members don’t know.

The NBF disaster

   Probably the most interestingFiji example of auditing failure is the collapse of the National Bank ofFiji.

Their accounts were audited year after year, a few qualifications given, but no alarm bells went off.  Sometimes the accounts showed  as revenue what were actually “receivable” but not being received.

Eventually, some $200 millions of public tax-payers funds were lost.

To date, there has been no public investigation by the accounting profession of the evident failures in the accounting and auditing processes (although there is a good book by Professor White).

The accountants?
The accountants and auditors are professionally the most powerful profession inFiji.  They are the first to know when things go wrong –  often years before any inquisitive economist or member of the public finds out.

Yet the annual accountants’ congresses have never focused on the financial scams and disasters that have plagued this country.

Their themes are usually a “bright and prosperous future forFiji” or “re-engineeringFijifor economic growth”.

They fly in the management gurus from abroad; invite the odd local economist, the odd judge, the odd unionist, the odd NGO representative to give a social flavour; the corporate types are in full force; and of course the key Government ministers who have an all-expenses paid weekend.

The annual Accountant’s Congress takes the opposition politicians to task for the political failures; they take the unionists to task for “wrecking” the nation’s economic and political stability; they take the military to task for spending too much, the take the police to task for not doing enough, they even take the economists to task for being too pessimistic about growth prospects.

ButFiji’s leading accountants have seldom personally bothered to give any hard-hitting presentations at their own congresses, analyzing their own profession.

Unfortunately there are significant financial incentives to discourage that.

Government contracts

   Fiji’s large accounting and auditing companies (and their international connections) are making minor fortunes through consultancies and other contracts with government.

The senior partners serve on crucial boards of public enterprises and committees appointed by Government Ministers, with many spin-off financial benefits, such as outsourcing of key functions, hiring of senior staff, restructuring, provision of Information Management services, etc

There is every financial incentive for our senior accounting companies and accountants to not “rock the boat” about things going wrong in Government and public enterprises in case these lucrative contracts dry up.

This is not to say that they should be breaking confidentiality.

Other situations

   InFiji, there are many public entities such as schools, unions, credit associations, even sports clubs (soccer, rugby, golf, netball, social clubs, you name it) which have turnovers of millions of dollars.

Most do not have any audited accounts.  And even if audited, the accounts often do not give a true and fair view of their financial affairs, and are usually years behind.

Most times, the accounts merely present data provided by the management.

There is no check to see whether profits or surplus figures match the prices being charged, in relation to the costs, or the revenues that are received in relation to actual expenditures.

Major scams occur at great public cost.  Without doubt there are many scams continuing today.

Perhaps it is time that the accountants and auditors subjected their own profession to a public scrutiny at their annual Accountants’ Congress talk-fest or their AGMs.

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