With The 2012 Elections Behind Us, Let Us ...

Turn Our Attention To The Evil Duet: Fraud And Corruption

The Vote is in !!! Ghana has made its choice of which political dispensation will govern its people for the next four years. The real choice however remains unmade – it’s the choice of whether Ghana as a country will continue to live with fraud and corruption or take a bold stand to confront it and eliminate it. Are we as a country going to continue to treat corruption as the big elephant in the room – that everybody is afraid to talk about. Like the proverbial naked chief – everybody is aware but everybody is afraid to confront him just because ‘he is the chief’


This article is being presented by the Corruption and Fraud Audit Consortium of Ghana (known simply as CAFAC ) to announce a new paradym being introduced into the arsenal to fight the evil cancer of widespread corruption which is the true and most enduring enemy of economic and social development in our beloved country Ghana. This new paradym uses fraud and corruption auditing. So what is fraud and corruption auditing and what role can it play in the anti-corruption drive in Ghana? Even though ‘corruption’ and ‘fraud’ are often used interchangeably, we have to be careful to distinguish between the two because indeed they are not the same.


‘Corruption’ takes place in the form of bribery, kickbacks, commissions, or other benefits without leaving any trace in the official records. ‘Fraud’ however consists of deriving undue benefit through circumventing some controls or bending some rules. There remains some evidence in the records to trace the fraud. This is the proverbial ‘audit trail’


With this same thinking, ‘corruption auditing’ needs to be distinguished from ‘fraud auditing.’


A fraud audit is a meticulous review of financial documents, while one searches for the point where the numbers and/or financial statements do not mesh. Fraud audits are done when fraud is suspected. Some companies do them as a precaution---to prevent fraud from happening and to catch it before the offender takes too much money.


Because it is a relatively new phenomenon, there isn’t a standard definition for corruption auditing. However by relying extensively on the work of Muhammed Akram Khan, UN resident auditor in Sudan in his book titled “A practitioner’s guide to corruption auditing” we can put forward a description that corruption auditing is similar to fraud auditing in that in both cases, there is noise in the system. Something has gone wrong and we need to find the cause and fix the problem. However from that point on there is a total deviation. Corruption auditing unlike fraud auditing has very little to do with documentation and records because corruption leaves behind little or no audit trail – sometimes it takes place with as much as a smile, a wink or even a handshake – so corruption audit is seriously built on circumstantial evidence, tip offs and whistleblower reports. Investigations and interviews are a mainstay in corruption audits and self confessions play a key role. Soliciting the feedback of the recipients of services with suspected corruption also helps. This is known as participatory auditing.

There is a considerable volume of literature on the role of auditors in detecting, preventing and investigating fraud. Almost all professional bodies of auditors have published standards and techniques about fraud auditing. There are training courses being offered by a large number of organizations on fraud auditing. There is also an Association of Certified Fraud Examiners who awards certificates to those who qualify their examination. (CAFAC offers specialized training to students who desire to become Certified Fraud Examiners). The Internal Auditor, journal of the Institute of Internal Auditors, USA, has devoted a regular feature to fraud auditing.


Corruption auditing on the other hand is a relatively new phenomenon and therefore has not been given any considerable exposure in the intellectual and professional landscape. Some genesis of work has already been done but it has not gathered sufficient momentum. For example the United Nations Office of Drug Control and Crime Prevention, Vienna, is spearheading the campaign against corruption. It has published a wealth of literature on corruption, including an Anti-Corruption Tool-Kit in its Manual on Anti-Corruption Policy. It has identified thirty tools for fighting corruption. However, auditing is not even part of this list. The Manual does devote, though, one page to auditing at a later stage.


The INTOSAI Journal of Government Auditing, the most prestigious publication of the world government auditors, has so far published very few if any articles on corruption auditing.


There seems to be a general neglect of corruption auditing in the methodology tool-kit of the auditing profession and that is something CAFAC intends to change in Ghana.


We at CAFAC believe that the auditor has a tremendous role to play in the fight against fraud and corruption in Ghana hence our name Corruption and Fraud Audit Consortium and mission which is to strategically place auditors as a mainstay in the fight against the evil duet(fraud and corruption) using three critical vehicles – professional training, education and research..


First, auditors review accounting an operational records to ensure that transactions are valid, at arms-length, captured, and properly recorded according to established standards. Secondly, “as professionals with a duty to protect the public interest, they are bound by rigorous codes of professional and personal ethics calling for the highest levels of integrity and objectivity.” Thirdly, “their key strategic positions within an enterprise or organization – whether in an internal position or as an external auditor or adviser – mean that they very often have access to highly privileged and confidential information.” (Frank Harding: “Corruption: Rising to the Challenge”, IFAC, May 1999.)

Auditors perform their respective functions on the bases of national and international standards of practice which have clear guidelines in identifying, for instance, indicators of fraud and other irregularities, and reporting these to the highest levels of authority.


The scope of internal auditing is even wider and more encompassing as it covers every aspect of a business. Even the revised definition of internal auditing which came out in 1999, places more responsibility on internal auditors in helping to fight corruption. After all, as the eyes and ears of management, they are there year-round, understand the operations of a business, and are bound by even more in-depth standards of performance and conduct. Moreover, their work is often relied upon by the independent external auditors and other outside parties and therefore subject to more stringent requirements. Consequently, they are in a very unique position to influence management and the board on risks and good corporate governance. By ensuring there are proactive, preventive, detective and combative measures, internal auditors, through their very training, have a greater role to play in the anticorruption effort.


CAFAC’s AGENDA – A PEAK PREVIEW


We at CAFAC urge all accounting and auditing organizations in Ghana (ISACA,, IIA, ACFE, CA GHANA ETC) to take the lead in anticorruption and came out with a white paper which will give a systematic detail of their modus operandi in the fight against corruption.


Taking a cue from the work of Lal Balkara a Guyanese certified internal auditor and writer, we also urge Ghanaian accountancy and auditing bodies to unite with various professions, the business community, governments, regulators and other organizations to wipe out corruption.


One poignant proposal is for auditors and accountants to develop outlets for building relationships with legislative and regulatory authorities, the legal profession and other groups interested in improving the framework for good governance, transparency and accountability.

We want audit committees to consider the propriety of anti-corruption policies in place and insist that corrupt acts be reported. Auditors are advised to promote codes of conduct among practicing firms, their clients and governments that expressly prohibit corrupt activity.


We at CAFAC wish to remind auditors of their individual role in curbing corrupt practices using the well known concept of ‘professional skepticism’ when establishing business relationships and in reviewing transactions between related parties.


The Internal Auditors role in anti-corruption – a special mention


For too long, organizations have not recognized the important role of an internal audit department – especially its role in anti corruption endeavors. Some internal auditors have not been helpful in this regard as their suspect integrity and compromised professional practices often have often led to ridicule of the profession. We at CAFAC believe this has to stop.


An internal auditor’s knowledge of the operations of a business is vital in helping management identify risks and control weaknesses of which fraud and corruption is central.


The excellent value of internal audit comes in the assurance it gives to stakeholders on the effectiveness of both risk management processes and the ways in which risks are managed and controlled in a business. This entails assisting management and at the same time objectively assuring the board in thinking proactively and put in place anticorruption mechanisms. This is an era when more focus is being placed on good governance practices and sound risk management.

From the cumulative force of the above discussion, It is clear that both the external and internal audit professions have an important role to play now and in the future in preventing, detecting and reporting on corruption in Ghana. After all, stakeholders place a considerable amount of trust on these highly trained professionals to do so.


This in a nutshell is the thinking behind CAFAC – the Corruption and Fraud Audit Consortium.


The writer is Hector O. Boham (President and Co-Founder of CAFAC GHANA LIMITED) You can write to him at 25 Dogwood Court, Cliffwood, New Jersey, 07721 USA Or reach him by email at hectoroboham@outlook.com or cafactraining@gmail.com CAFAC GHANA LIMITED WILL BE INAUGURATED IN GHANA ON JANUARY 19, 2013 ATTENDANCE IS FREE. FOR MORE DETAILS CONTACT HECTOR O. BOHAM