Writer: Jonathan Cann Managing Consultant at JPCann Associates Ltd, Ghana
Why pre-auditing in this modern day and age of practice of Internal Auditing? A cursory look at the practice of Internal Auditing in Ghana shows that most Internal Audit Departments in both private and public sector organisations are involved in Pre-Auditing, a practice that affects the independence and objectivity of the Internal Auditor.
Pre-Auditing, on one hand, refers to the examination of the underlying documents, policies and procedures supporting transactions before they are paid for and recorded. Post-Auditing, on the other hand, refers to the review of supporting documents, policies and procedures supporting a transaction after such payments are made and recorded.
Several reasons has been assigned for such a need for pre-auditing including rising incidents of illegal acts by those in trust and authority, wasteful dissipation of public funds and outright jettison of established control processes in most organisations.
Do we really need pre-audit exercise by the Internal Auditor to prevent losses and fraud occurring in organisations? Why has Internal Audit function not performed well in preventing all the malfeasance in our public sector institutions? These and other questions begs for soul searching by Internal Auditors and other stakeholders in corporate Ghana.
Well, the IIA defines Internal auditing as ”an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”.
My key word on the above definition from IIA is ”independent”. Independent from who or what? I guess independent from management and the operational activities of an organisation. To be able to give an independent and objective assurance service requires that Internal Auditors are detached from the operational activities of the organisation in all respect including controlling activities in the form of checking payments and contracts before such payments are made.
Though Internal Auditors are part of an organisation, best practices and standards requires that the Internal Auditor report functionally to the Audit Committee or the ARIC (as in public Sector organisations in Ghana) and administratively to the Managing Director, Chief Executive Officer, Minister, Commissioner, DCE, MCE, etc. as in the public sector.
The important role of pre-checking of supporting documents, contracts and other payments are the prerogative of Management which is normally delegated to the Finance Department. For instance in some organisation the role is served by Controlling Unit or any other designated unit which has the training and capacity to offer such services on behalf of management.
Asking Internal Audit to be part of the internal processes of approving and authorising payments and contracts is an attempt to make Internal Auditors part of the operational side of the organisation. This has the tendency to incapacitate the Internal Audit Department to offer an independent and professional assurance service to management on the very activity to which they were a part of its implementation.
Internal Auditor will better serve the interest of Management and the Board through more risk-based and process oriented approach in identifying key risk issues facing the organisation and be able to create value through channeling its resources on risk issues that has the tendency to derail corporate objectives. The days of strict compliance checks by the Internal Auditor are long gone with emphasis now on assurance and consulting services aligned with strategic objectives and business risk of the organisations.