By Sophia H Pretrick, CFE, Program Director, PASAI
Investigations is a new and developing target area here at PASAI. This is mainly to support our member audit offices in training staff to conduct thorough and effective investigations. Our planned outcomes for investigations include the following:
enhanced investigative skills and capabilities through shared training and continuous learning opportunities
the development and adoption of standardised investigative processes and protocols ensuring consistency and quality in investigations
strengthened relationship and teamwork between SAIs’ investigative units, fostering a collaborative environment for sharing best practices and resources.
Audit vs investigation
While both audits and investigations examine financial and operational data, audits seek to provide assurance, whereas investigations [1] aim to detect and resolve misconduct and fraud. The key differences are as follows:
| Audits | Investigations | |
|---|---|---|
| Purpose | Are conducted to assess effectiveness of internal controls, compliance with the law, regulations and financial reporting standards. They aim to ensure accuracy and fairness in financial statements. | Focus on specific allegations or suspicions of fraud, misconduct or other irregularities. They aim to uncover evidence of wrongdoing. |
| Scope |
Are broad examinations and follow a structured and predefined scope based on regulatory requirements or company policies and are mandatory and recurring. | Focus on a specific incident or set circumstances, are more flexible, often expanding based on discovered evidence and are non-recurring. |
| Approach | Have a routine, systematic and risk-based approach to examine records and controls. | Are reactive and rely on interviews and evidence collection to determine if fraud or misconduct has occurred. |
| Outcome | Result in reports that provide assurance on financial statements or compliance based on the type of audit. | Aim to establish whether fraud occurred and identify those responsible. |
| Independence and confidentiality | Usually have public or semi-public processes with formal reporting to management or stakeholder. | Are often confidential to prevent evidence tampering and to protect the integrity of the process. |
SAI investigations
Most north Pacific audit offices have specialised internal investigative units. They conduct either administrative or criminal investigations depending on their mandate. These units review or investigate instances of fraud, waste and mismanagement of government funds and resources.
Fraud is any activity that relies on deception to achieve a gain. Fraud becomes a crime when it is a, “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” [2]
In these SAIs, specialised staff conduct reviews or investigations of specific allegations when auditors detect suspicious activities during their work. If an investigation reveals sufficient evidence of a crime, the report is referred to the Office of the Attorney General for potential prosecution. Investigators can be called in as expert witnesses in court. In other jurisdictions, it is often the police or the Office of the Attorney General that conducts such investigations after referral from the audit office.
In addition to audit referrals, SAI investigation units also manage fraud hotlines which allow individuals to submit their suspicions of fraud online or by phone. Allegations or other concerns are usually received from:
government agency management and other employees
the Legislature
the public
other parties, such as contractors.
The investigation functions are not only responsible for investigating fraud. They also identify internal control systems and accountability weaknesses in the government’s financial administration and gather evidence of non-compliant activities. Administrative investigations focus on breaches of the financial management regulations, policies and issues such as misuse of government resources, preferential treatment, abuse of authority and nepotism.
Investigators issue reports to management recommending corrective measures to prevent fraudulent activity from happening again. This can involve disciplinary actions such as suspension, termination and restitution of those involved in addition to improvements in internal control processes.
Fraud awareness
Another activity under these investigation functions is the promotion of ethical and lawful conduct within the government through fraud awareness and education outreach programs. These activities involve workshops with government officials, employees, faith-based organisations and schools on the values and benefits of SAIs and their role in combating fraud and corruption.
A new approach
SAIs are watchdogs of government entities and having these anti-fraud investigation functions in place complements audit work.
Recognising the existence of this specialised function in many of our member offices, we aim to support capacity building through training to enhance their skills and knowledge in the areas of detection, prevention and investigation of fraud and corruption.
References
[1] As defined by the Association of Certified Fraud Examiners
[2] Black’s Law Dictionary
