Mario

AUDITING, THE PANACEA TO EFFICIENCY AND ANTI CORRUPTION

Corruption can be viewed as an excessive diversion of scarce resources that impedes efficiency, effectiveness and development. Auditing can be described as an independent appraisal of an organisation’s controls (financial or otherwise) with the aim of improving efficiency and effectiveness of risk management, control and governance. There is a direct co-relation between corruption and auditing. Auditing actually seeks to weed out corruption in all of its forms. If applied correctly it can be the panacea to any country’s fight against corruption.

The benefits of auditing are enormous. It identifies key areas for improvement by assessing the risks, economy, efficiency and quality within an organisation. Auditing highlights the weaknesses in systems and provides a platform for discussion to improve same. Auditing uncovers fraudulent or other illegal activities and serves as a deterrent for future occurrences. Auditing therefore eliminates waste and improves efficiency. Resources allocated aren’t syphoned off. Resources aren’t wasted. Resources aren’t used ineffectively. These benefits culminate in an organization ultimate achievement of its objectives unimpeded. Now transcend the benefits of auditing from a single organisation to several organisations. No. Transcend the benefits of auditing to all governmental organisations. What would become of inefficiency, ineffectiveness and corruption? It would become obliterated I tell you. It would become obsolete.

The trick is how to set up an efficient audit mechanism that does not in itself fall victim to the temptations of greed and corruption. A very complicated issue of course. However, best practice dictates that it be done in two stages: internally and externally. This is usually prevalent in many countries where weak and poorly equipped internal audit departments exist whilst external audit activities are performed by a central non-autonomous agency. The internal audit activities are primarily focused on identifying and fixing the problems within the organisation using a magnifying glass whilst external audit activities focus on macro issues such as governance, control systems, reporting mechanisms and actually rechecking the work of the internal audit department. Internal audit would report to the most senior officials of the organisation whilst external audit would report to the executive and legislative branch of government. Some countries go as far as to have anti corruption commissions and other financial commissions implemented to further the cause of auditing by adding to the list of verifiers. These checks and balances that lay one atop the other prevent auditors from engaging in corrupt practices.

Why does auditing fail? The answer lies with the political will to have an effective auditing system. Like the immune system or the body needs resources to function, so does the audit department. If understaffed, poorly staffed with unqualified individuals, lack basic office equipment or other essential funding then how can it work?  Another impediment to effective auditing is the reporting structure. Organisations tend to sideline the function or place it under the purview of an official within the organisation, usually of a financial background. According to the Institute of Internal Auditors, the department should report to an audit committee that consists of members of the Board of Directors with at least one of them from a financial background. Internal auditing is therefore undermined. Dysfunctional external audit agencies manifest in the lack of independence from the executive, receive no budgetary support from the legislature, lack the ability to investigate venal officials, and have no procedures for forwarding cases of corruption for prosecution by the relevant judicial authorities. Herein lays the dilemma for policymakers who want to reduce corruption and improve governance: whereas it may be desirable to enact policies to reduce corruption, a hollow establishment leads to a reputation for token reforms, which undermines the political leadership’s credibility.

A comprehensive approach is needed to enact an effective audit system to improve efficiency and reduce, even eradicate corruption. This would obviously involve granting autonomy and sufficient budgetary allocations to both internal and external audit forces. It would require the legislature criminalize corruption and create channels for prosecution such as an anti-corruption commission, also well funded and autonomous. All of this would depend solely on the political will of the government. If a leader wants to be perceived as credible in his/her talks about fighting corruption then these simple measures can be implemented. If done with the right intention, auditing can be the panacea to efficiency and anti corruption.

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