TASC List: Focus on the audit process

The last column continued some long-term advocacy for improved controls and auditability within Wilton in order to turn certain challenges into strengths. We enumerated some items on both sides of that ledger. It is encouraging that there is now consideration for moving ahead on an independent internal auditor, perhaps initially on a part-time basis.

Let’s supply some perspective and balance on the process itself. Reaching back into the base of actual experience, here are some examples of the tricky nature behind determining what is possible wrongdoing, and what might be reasonable behavior under certain circumstances. As institutional experience grows, an internal auditor learns how to make these distinctions.

A thread running through the cases that follow is that they came to light from the whistleblower population rather than from the formal flow of the audit process steps and procedures. Often an aggrieved set of employees detects and reports on perceived out-of-line activities. Sometimes because they were not invited to participate in the schemes; sometimes through plain jealousy; sometimes because they truly sense the organization is being harmed. One hopes and expects that most out-of-tolerance experiences in Wilton will be discovered by examination rather than by anonymous calls. What then follows will be an atmosphere and environment of reasonable deterrence and scrupulous follow-up when red flags are raised by deviations from standards.

Example one. Local company management was planning a new building to meet business expansion needs. While searching for a suitable site, they found an attractively priced piece of land of required size. However, to act quickly they circumvented the normal bid-and-proposal review portion of the procurement process, and went directly to buy it. It was soon discovered that the landowner was related to the current company chief executive. However sensible the transaction might appear, it was in fact a clear case of conflict of interest. Discovered after the fact, and too late to turn back; damage was done to reputations and enterprise confidence.

Next case. International country subsidiary remits monthly revenue from customers on first Monday after month end to bank depository specified by corporate headquarters via wire transfer. Some employees in treasury operations discover that they can transfer the funds to another bank on a prior Friday, say, that will then forward it to the depository as required. The otherwise unearned interest over the weekend can then be credited to their own personal account. This is a sizeable amount. It’s discovered after another employee, excluded from the highly profitable scheme, blows the whistle.

The interesting outcome of course finds the schemers dismissed. Then the treasurer gets the ax for: 1) allowing such a lapse in controls within his own domain, and 2) not being sufficiently creative himself to have captured the opportunity for additional income existing under his very nose through the power of online real-time transaction management.

Finally, a local country administrator was found to be paying as justified expense the cost of releasing internationally received products destined for customer installation, from a bonded warehouse in the nation’s port city. This kind of facilitation fee is sometimes referred to as “grease money” in certain Central American countries. Because the employee was perceived to be spending on personal items amounts of money beyond his own income level, a whistle blower suggested to authorities that he must be connected to some illegal operators. He was terminated.

The facilitation fees were stopped. And the products demanding short stays in poorly maintained warehouse holding conditions were left to rust and decay prior to installation. Without his fairly standard but unofficially recognized payments there would be no early release. Thus the payments were of necessity reinstituted and authorized under a revised accounting standard.

So, tricky the audit process can be. Responsive to the realities of the business world it must become. Aware that its deterrence role must be effective and precede any necessity for employees themselves to believe that they must report apparent control lapses or deficiencies is a clear requirement. Otherwise, the organization loses confidence, trust, and unit efficiency.


TASC stands for Toward A Stronger Community. Contact: [email protected]

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