Open Recommendations for better Audit of Sierra Leone Government Financial Statements
As an advocate of accountability and transparency in Sierra Leone, I found it imperative to present a number of findings noted during my review and analysis of the Sierra Leone Audit Services’ audit reports on the 2008 and 2009 Sierra Leone Government-Wide Financial Statements. Specifically noting the difficult audit working environment in Sierra Leone, I must emphasize my recognition of the commitment of the hard working professionals of the Sierra Leone Audit Services. This analysis is intended to present an objective set of recommendations for improvement to the management of the supreme audit Institution of the land. The 2008 qualified and 2009 unqualified (clean) opinions on Sierra Leone Government financial statements in spite of the numerous reported findings of weak internal controls call into question the reliability of the reports. In the United States, for example, where robust internal controls–processes implemented by government agencies to safeguard asset; ensure effectiveness and efficiency of operations, compliance with laws and regulations, and the reliability of financial reporting– are in place , the Government Accountability Office (GAO) has continued to issue a disclaimer of opinion on the United States Government-wide financial statements since the inception of the Chief Financial Officer (CFO) Act in 1990, a law that requires government agencies to prepare audited financial statements. The GAO’s disclaimers largely stem from noted financial management internal control weaknesses due primarily to the complexity of operating environment at a few large U.S agencies. (Photo: Mustapha S. Wai, author)
In comparison, Sierra Leone Audit Services has issued qualified and unqualified opinions on the 2008 and 2009 Sierra Leone Government financial statements respectively even though a large number internal control weakness, most of which are fraud indicators, continued to be identified and reported. My reference to the U.S. Government-wide financial statement audit opinion is intended to highlight my concerns that law makers, the president, and the public could be intentionally or unintentionally misled by the Sierra Leone Audit Services’ continued issuance of favorable opinions on the Sierra Leone Government-Wide Financial Statements. While the reports cite numerous internal control weaknesses at government agencies in Sierra Leone in comparison to that of the U.S, I wonder how Audit Services can justify a better audit opinion based on similar generally accepted auditing standards. This disparity triggered my skepticism and led to my review and analysis of the Sierra Leone Audit Services’ audit reports on Sierra Leone’s 2008 and 2009 financial statements.
According to the Sierra Leone Audit Services’ 2008 and 2009 reports, the audits were performed in accordance with International Organization of Supreme Auditing Institutions (INTOSAI) auditing standards. Accordingly, my analysis here is to determine based on INTOSAI standards –the International Standards of Supreme Audit Institutions (ISSAI’s) and International Standards on Auditing (ISA’s) — whether the basis for the Sierra Leone Audit Services’ opinions as evidenced in its 2008 and 2009 reports are reasonable and reliable; and whether the audits were, in fact, performed in accordance with INTOSAI auditing standards. In summary, INTOSAI audit standards require that:
- auditors must state whether or not the subject financial statements (listed by individual statement) present fairly the financial position and results of operation of the audited entity in accordance with an identified accounting framework
- auditors must obtain sufficient understanding of the audited entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud;
- auditors must obtain sufficient and appropriate audit evidence as the basis of an opinion;
- an unqualified (or clean) audit opinion must be issued if the financial statements present fairly in all material respect, i.e., free from material misstatement whether due to error or fraud; in accordance with applicable financial reporting framework;
- a qualified audit opinion must be issued if the financial statements presents fairly in all material respect, except for instances of clearly noted departures from the identified financial reporting framework, whereas the rest of the financial statements conforms to the applicable financial reporting framework;
- a qualified opinion must include an explanatory paragraph explaining the qualification and describing the departure;
- an adverse opinion must be issued if the financial statements are materially misstated and, when considered as a whole, do not conform to applicable financial reporting framework;
- a disclaimer of opinion must be issued if the auditor could not form, and consequently refuses to present, an opinion on the financial statements because auditor could not complete the audit due to several reasons including lack of independence and significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing audit procedures; and
- audit findings must contain adequate description of the required elements ( i.e., condition, criteria, cause, effect and recommendation.
Given that the underlying audit work papers were not subject to my review, my analysis was limited in scope and therefore does not address all the requirements of INTOSAI auditing standards, particularly those related to audit documentation. However, with the limited review of the reports, I noted the following observations which appear to represent departures from INTOSAI auditing standards:
1. individual financial statements subject to the audit and the audited entity were not described in the audit reports
The audit reports state that “I have audited the attached Financial Statements and Cash Flow Statement for the year ended 31st December 2008/2009.” With the exception of cash flow statement, other applicable principal financial statements such as balance sheet, income statement, statement of net cost, statement of budgetary resources, statement of net position, etc., were not described in the report as required. Also, the audited entity was not specified in the paragraph. INTOSAI auditing standards (specifically ISSAI 1700, ISA 700) require that the introductory paragraph of an audit opinion must identify the financial statements audited as well as the audited entity. Also, given that each of the individual financial statements present different views about the financial position and results of operation of the audited entity, the sufficiency of audit scope depends largely on the extent to which audit procedures were performed on each financial statement and related account activities and balances for the purposes of issuing an opinion on the financial statements taken as a whole.
Recommendation: Sierra Leone Audit Services should identify the audited entity (in this case Sierra Leone Government) in the opening paragraph of the audit report as required by ISSAI 1700 and ISA 700. Furthermore, the individual financial statements subject to the audit should be listed in the opening paragraph of the audit report so that users can ascertain the scope of the audit with respect to the financial position and results of operation of the Sierra Leone Government.
2. financial reporting framework applicable to the subject financial statements referred to in the audit reports were not documented in the reports
The audit reports state that “In my opinion, except for the effects of matters highlighted below, the Financial Statements referred to above present fairly, in all material respects, the financial position of the Accounts of the Government of Sierra Leone as at 31st December 2008/2009 and its financial performance for the year then ended “. The above statement does not state which financial reporting framework the financial statements were presented in accordance. INTOSAI auditing standard (specifically ISA 200) states that “The auditor’s judgment regarding whether the financial statements give a true and fair view of (or are presented fairly, in all material respects) is made in the context of the applicable financial reporting framework.” Accordingly, without an identified framework, the auditor does not have a set of criteria for evaluating the audited entity’s financial statements. Furthermore, given that there are a couple of financial reporting framework including the U.S Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), and Other Comprehensive Basis of Accounting (OCBOA), identification of applicable financial reporting framework is relevant to the public and other users in establishing the measurement yardstick for the purpose of comparability.
Recommendation: Sierra Leone Audit Services should state explicitly which financial reporting framework the financial statements are presented in accordance as required by ISA 200.
3. reports do not include a title clearly indicating that the subject reports are reports of the independent auditor
INTOSAI auditing standards (specifically ISA 700) states that an independent audit report must contain “a title indicating the report is the report of an independent auditor, for example, “Independent Auditor’s Report,” affirms that the auditor has met all of the ethical requirements, including that of independence and, therefore, distinguishes the auditor’s report from reports issued by others.” In the absence of a title stating independence, users may be unable to differentiate reports issued by independent auditors from those issued by non-independent or internal auditors. In the absence of such distinction, the public and other users are unable to establish the true independence of the Sierra Leone Audit Services as required by law and INTOSAI.
Recommendation: Sierra Leone Audit Services should state explicitly in the title of the report that the report is that of an independent auditor.
4. basis for the 2008 qualified and 2009 unqualified opinions issued does not appear to be substantially appropriate
Based on my review of the contents of the reports including careful analysis of the findings reported, I am unable to establish whether there was an appropriate basis for issuing qualified and unqualified opinions on the 2008 and 2009 Sierra Leone Government financial statements respectively. INTOSAI auditing standards (ISSAI 1330, ISA 330) require that the auditor’s conclusion should determine whether sufficient and appropriate audit evidence has been obtained to serve as a basis for an opinion. Furthermore, INTOSAI auditing standards (ISSAI 1450, ISA 450) require that the auditor evaluate misstatements to determine whether uncorrected misstatements are material, individually or in aggregate. The explanatory paragraphs citing the basis for the opinions in the reports highlight several significant audit matters while the rest of the reports enumerate a large number of related findings affecting almost every component entity (ministries, departments and agencies). Accordingly, the number of findings and the related number of component entities affected in my judgment highlights the pervasiveness of the exceptions and deviations. Among these are missing cash confirmation and payment vouchers, losses of cash, omission of donor funds from the financial statements, lack of reconciliations, inadequate disclosure, etc. The above coupled with the lack of evaluation of the exceptions and deviations in terms of materiality, both from quantitative and qualitative points of view, in reaching the ultimate opinion on the financial statements taken as a whole, calls into question the appropriateness of the audit opinions. For example, the 2008 report cited that 41% of sampled cash confirmations sent to banks were not received. This appears to be a significant scope limitation since it is evident audit procedures were not completed on those cash balances. With questionable cash confirmation, there is an inherent risk of misappropriation of funds and therefore a possible indicator of fraud in the handling of cash–the most liquid and susceptible to theft of all assets. The nature of the findings reported and the pervasiveness of the exceptions and deviations noted throughout the reports, present significant doubt about whether adequate audit procedures were performed for which opinions could be reached.
Recommendation: Sierra Leone Audit Services should state clearly the basis for its opinions on the Sierra Leone Government financial statements. Such conclusion must take into consideration the materiality of the misstatements in the financial statements both individually and in the aggregate, as well as from both quantitative and qualitative points of view. A materiality threshold for misstatements as established by INTOSAI standards must be used in reaching conclusions as to the materiality of the noted misstatements in the Sierra Leone Government financial statements and such determination must be considered in reaching an opinion or lack thereof.
5. elements of audit findings including recommendations and related management responses were not documented in the reports or other applicable supplemental reports, if any, does not appear to have accompanied the audit reports
The Lima Declaration (ISSAI 1) states “Audit is not an end in itself but an indispensable part of a regulatory system whose aim is to reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy on financial management early enough to make it possible to take corrective action in individual cases, to make those accountable accept responsibility, to obtain compensation, or to take steps to prevent – or at least render more difficult – such breaches.” While this is much broader than providing opinions on financial statements in accordance with INTOSAI financial audit guidelines, the broader INTOSAI auditing standards require that the auditor should design audit procedures to provide reasonable assurance of detecting errors, irregularities, and illegal acts that could have a direct and material effect on the financial statement amounts. While the 2008 and 2009 audit reports enumerate a significant number of findings, they fell short of describing related elements such as what caused the findings, their effect on the financial statements, applicable recommendations, and related management’s response establishing concurrence or non-concurrence along with management’s planned corrective actions as applicable. In the absence of a description of the elements of findings, users of the reports, including law makers and the public will be unable to hold those charged with governance accountable. In the absence of documented elements of findings, the public will be unable to determine whether officers of the respective government entities are held accountable and whether corrective actions have been put in place to prevent the observed conditions from reoccurring.
For example; the following findings as described in the 2008 report require additional elements:
- National Commission for Privatization: National Commission for Privatization’s “holding of Le 159, 965,450 by NCP was in contravention of Section 11 (5) of the Government Budgeting and Accountability Act 2005.”
- Government-wide findings: “Thirty-two (32) Payment Vouchers, with amounts totalling Le1,014,773,987, were not supported by the relevant supporting documents.” and “Out of a total of 1959 Payment Vouchers (PV) requested, 805 (i.e., 41% of the total PVs requested) with amounts totalling Le 82,274,779,736.00, were not submitted for audit inspection.”
- Ministry of Finance: “Payment Vouchers, totalling Le 286,661,760, were not supported by Local Purchase Orders.”
- Ministry of Education: “Various documents and stores records in respect of procurement, totaling Le 1,019,661,205, for the period under review were not available for inspection.”
- Ministry of Agriculture: “Despite repeated requests, the Ministry failed to submit vital documents in respect of expenditure, totaling Le 1,689,731,858, incurred in 2006/07 Financial Years.”
In the absence of documented elements of findings, the public will be unable to determine whether officers of the respective government entities are held accountable and whether corrective actions have been put in place to prevent the observed conditions from reoccurring.
Recommendation: Sierra Leone Audit Services should include in their reports or supplemental reports on internal controls a description of elements of the respective findings including the cause of the findings, effect on the financial statements, related recommendations. Such reports must also include narratives of management’s response establishing concurrence or non-concurrence with the reported findings along with management’s planned corrective actions as applicable. Furthermore, instances indicating potential fraud should be referred to the Anti-Corruption Commission and the Ministry of Justice for further investigation and prosecution.
As the Supreme Auditing Institution for Sierra Leone, Audit Services stands in the forefront of the government’s fight against corruption and the president’s efforts toward transparency and accountability. Accordingly, the reliability of the audit reports presented to the president, law makers, and the public stands to be the yardstick for measuring the competence, integrity, and objectivity of the auditing institution. While I personally commend the professionals of the Sierra Leone Audit Services for their continued commitment to their civil service duty, their attention needs to be drawn to the observations and related recommendations outlined above. As President Obama made clear in his July 2009 speech in Ghana, “In the 21st Century, capable, reliable, and transparent institutions are the key to success”. Therefore, our commitment as advocates is to engage our governments in ways that strengthen their capability to address our demand for good governance, accountability, and transparency. Fiscal accountability and transparency happens to stand at the center of this effort.
By Mustapha S. Wai, CPA
Mustapha Wai is a Certified Public Accountant with background in accounting, auditing, and financial management in both public and private sectors in United States. Mr. Wai’s professional experience includes serving as Senior Auditor at Deloitte and U.S Government Office of Inspector General Audit Manager and Deputy Director for Internal Audit at NASA.
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