Unaccounted funds – really?

The National People's Cooperative Bank of Jamaica's (NPCB) debacle is the latest source of a feeling of annoyance that this writer usually suffer when media houses report on questionable transactions of organisations when audits reveal unacceptable practices, euphemistically referred to as "unaccounted funds".

Although it is a popular term used even by auditors, I do not know of any formal accounting categorisation called "unaccounted funds" nor can I grasp this esoteric concept, when real monies have been spent on improper activities.

The more established lexicons define "unaccounted" with terms such as "not explained, understood, or taken into account;" "Missing or absent without explanation;" "not accounted;" "unexplained;" "not explained adequately" and so on. In every occasion of these scandalous scenarios, there is discernible clarity (or ought to be) regarding whose job it is to explain, account for or clarify these matters not only adequately, but in a clear unambiguous manner.

Every cheque drawn is preceded by (or ought to be) some procurement activity, an invoice/bill presented, cheque voucher approved, cheque signed, and dispatching/ disbursement record maintained. If the payment was made electronically, as is popular these days, the audit trail still exist with the relevant approval documents that authorise funds to be remitted to the bank, such as the relevant transfer forms, oftentimes with a cover letter to the bank. Every accounting officer in the accounting cycle, from source document to financial statement, from accounting clerk to chief financial officer is aware of (or ought to be), his/her responsibility, in the process, and most are aware of the resulting sanction in the event of their negligence and/or other failure in their duties.

However, we must understand that internal controls must not be misguidedly seen as a cure all panacea for real and potential business ills. No matter how well they are designed and operated, they can provide only reasonable assurance to management and the board of directors regarding the achievement of an entity's objectives. The likelihood of achievement is affected by

limitations inherent in all control systems and these may include faulty human judgement in decision-making causing breakdowns such as simple error or mistake, or circumvention of controls by the collusion of two or more people. Management override of control system is another frequent and most egregious reason why scandals occur.

Conflict of interest situations also may not only adversely affect an organisation's internal control mechanisms, but also make it extremely vulnerable to the increased possibilities of loss by despicable acts such as abuse, favouritism, cronyism, nepotism, misappropriation and other forms of corruption.

Accountability vs culpability

Failure therefore to adequately account for questionable transactions should be sanctioned with appropriate action depending on the identifiable level of the responsible officer's accountability or culpability. This is important as acts can be wrongful, but the employee, not accountable, or the act justified and lawful, and the employee, accountable. Culpability, in contrast, is limited to wrongful acts. A justified act is not wrongful, and the employee not culpable. Further, the degree of culpability is linked to the degree of wrongdoing.

More specifically, accountability can be defined as the obligation of an individual or organisation to account for its activities, accept responsibility for them, and to disclose the results in a transparent manner.

Culpability, or being culpable, is a measure of the degree to which any agent of the organisation, whether chief executive officer, chief financial officer or accounting clerk can be held morally or legally responsible for action and inaction. Generally speaking, a person is culpable if they cause a negative event, the act was intentional, the act and its consequences could have been controlled (i.e., the agent knew the likely consequences, the agent was not coerced, and the agent overcame hurdles to make the event happen), and the person provided no excuse or justification for the actions.

Officers of our courts advise that from a legal perspective, culpability describes the degree of one's blameworthiness in the commission of a crime or offence. Except for strict liability crimes, the type and severity of punishment often follow the degree of culpability. Culpability means, first and foremost, direct involvement in the wrongdoing, such as through participation or instruction, as compared with responsibility merely arising from "failure to supervise or to maintain adequate controls or ethical culture." Many jurisdictions usually make distinct multiple degrees of culpability in determining the extent of sanctions to be applied.

Let us therefore eschew this euphemistic description of "unaccounted" monies and concentrate more on the accountability, and or culpability of persons charged with running our organisations, or handling our hard earned money.

- Collin Greenland is a Forensic Accountant.

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