As a long-time Director of Internal Audit for a decade, I have come across my share of staff who lie to me and my team in the course of our audits.
One of the more interesting audits that I have carried out with my team was spot check on inventory of valuable items such as vouchers. This audit was carried out many years ago when the Ministry of Home Affairs had suffered a fraud from one of their officers involving shopping vouchers.
At that time, the public sector Finance and Internal Audit heads were on “high alert” due to the recent (then) discovery that a junior staff was able to defraud MHA for close to $600,000 worth of shopping vouchers by forging email authorizations to purchase such items which were subsequently misappropriated and misused for personal gain.
Arising from that incident, I initiated an audit of all the purchase and custody of vouchers for by various schools and departments within the entity. After running data analytics to reveal which schools and departments had purchased vouchers in the past financial year, we proceeded to identify departments that had high holdings of such valuable items.
As part of our audit procedures, we conducted an audit on the control, use and custody of the vouchers purchased by a particular department named, “A”.
Department “A” was known to be less than ideal in adhering to corporate policies partly because they were staffed by folks whose nature of work was sales and marketing. Not that sales and marketing folks are more susceptible to fraud, but they tend to focus on “selling” and compliance typically was an after-thought.
So I got my team to visit department “A” and go through their inventory of movie vouchers, as they purchased “Golden Village” cinema movie ticket vouchers for their outreach activities to promote the entity’s service offerings. After my staff had conducted the checks, she reported back to me on the progress.
One of the interesting observations I noted based on my staff’s report was that department “A” had a number of expired vouchers. This indicated that the department was not careful in monitoring and managing their vouchers to make sure they were utilized before the expiry date. But what caught my attention was the fact that my staff reported that she was not able to sight the expired vouchers because the staff of department “A” had thrown them away.
WHAT?!!!
That fact triggered alarm bells in my head.
I thought.. how could you “forget” about the vouchers that you had bought and not used resulting in them expiring, and yet “remember” to discard them?
That logical inconsistency triggered my audit sense that something was not right. In addition, she shared that the manager in charge was quite hostile after I asked her to double-check if the vouchers were still available so that we could sight the “expired’ vouchers.
My hypothesis then was that the staff of department “A” could have misused the vouchers for themselves (before they expired) and lied about throwing them away when the auditors wanted to sight the expired vouchers.
As we were unable to establish if the vouchers were misused at that point in time, we could only raise the audit observation that the department staff had wasted the organization’s resources by purchasing movie ticket vouchers for use in marketing and promotions but due their oversight, did not maintain adequate control and allowed them to lapse leading to a loss to the organization.
At that time, I felt that the manager in charge of not being truthful although I was unable to prove it through evidence. I proceeded to then report it to the Chief Financial Officer and was able to tag the loss to the negligence of the manager and the staff involved were surcharged for the loss.
Dealing with all types of people has over close to three decades honed my ability to sense that people were being evasive and had something to hide. This “sixth sense” is not foolproof but has allowed me to be more skeptical when half-truths are presented to me in the course of audits and fraud examinations.’
What secrets and lies have you encountered in your own journey in governance, audit and compliance?
I would love to hear about them and I would share more in future posts.
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