Dissecting the programme forensically

Collin Greenland, GUEST COLUMNIST

The national outcry after the auditor general's report on the management of the Jamaica Development Infrastructure Programme (JDIP) has culminated in Prime Minister Andrew Holness' decision to conduct a forensic audit. Despite the proficient work done by the auditor general and her team, the traditional audit methodologies and techniques utilised in reviews of these kind are, by their nature, fairly limited, compared to the possible unsavoury entrails that oftentimes are unearthed by forensic audits.

Although the need to ascertain the fullness of any JDIP-related corruption is made more urgent in this electrifying silly season, this writer has been among the group of Jamaicans who have longed cried out from the wilderness that too many of our major construction-type contracts have been fraught with corruption.

Jamaicans are not unique in these matters. Research worldwide on construction-type programmes like JDIP revealed that they are fraught with sloppy bookkeeping, negligence, overbillings, worksite theft, fiscal irresponsibility, scams, kickbacks and other types of fraudulent misappropriations.

In a worldwide survey on fraud and its effects on business during 2008, commissioned by one of the world's leading investigative and forensic organisations, KROLL, The Economist Intelligence Unit Ltd found that the average loss per construction company more than tripled, moving from $4.5 million to $14.2 million, making this the second worst-off sector after natural resources.

They also pointed out that the number of construction companies where fraud has taken place increased from 77 per cent to 95 per cent, the highest prevalence in the survey. This trend was supported by international forensic accountants Kessler International, which point out that many owners and contractors accept construction fraud as an inevitable cost of doing business, viewing it as unwanted expenditure that simply comes with the territory.

What Can The Forensic Audit Do?

The work of the government internal auditors, and the proficient auditor general and her team, consists primarily of traditional financial or operational audits. They typically result in highlighting mainly accounting, efficiency and effectiveness issues. The probing, 'dissecting' nature of a forensic audit can do much more, especially if the professionals undertaking it are qualified and experienced.

Even projects smaller than the US$400-million JDIP can lose a vast amount of money to unknown factors, and a forensic audit can not only assist in recovering lost funds, but it may also help to prevent future losses, as well as analyse the internal controls and accounting methods of a project/organisation - big or small, private or public.

Experts like Kessler readily acknowledge that conducting an audit on a project like JDIP is no simple task. It requires a strong understanding of the intricacies of the construction industry, general accounting practices, white-collar crimes and even local politics. In addition, it requires a team of experts who know exactly which issues to address, ideally possess expertise in forensic accounting, construction project management and other applicable areas.

Critical Issues to Unearth

Included in the critical issues that Jamaicans are now clamouring to unearth about JDIP are the details of who were the subcontractors, and if there was any conflict of interest or act of nepotism. A well-conducted forensic audit, however, may reveal far more! An effective team will attempt to make sure that these and other pressing questions are answered completely and with total accuracy, as well as some or all of the following:

Was the project on sound constitutional/legal/regulatory 'footing'?

Did the project proceed according to plan?

Have any original and escalation costs, reported by vendors been properly classified, accurately summarised, consistently treated and directly attributable to a specific asset?

Are escalations reasonable, allowable and allocable under contract guidelines?

Is all expenditure accounted for and were there any symptoms and/or red flags of corruption, such as conflict of interest (purchase schemes, sales schemes, etc.), bribery (invoice kickback, bid-rigging, etc.); illegal gratuities or economic extortion?

Has financial mismanagement led to significant depletion of assets or other negative issues during the project? For example, were there any symptoms and/or red flags of asset misappropriation of cash (larceny, billing schemes, shell companies, payroll schemes, expense reimbursement schemes, cheque tampering, skimming, etc.); or inventory (misuse, larceny, etc.).

Is the process for procuring contractors, architects and other vendors competitive and fair?

Is the project organised in a fashion that will ensure financial responsibility, adequate communications and dependable record-keeping?

Did the project adhere to original design plans and contract requirements?

All Jamaicans await these results of this forensic audit and, as they say, let the chips fall where they may!

Collin Greenland is a forensic accountant. Email feedback to columns@gleanerjm.com and cgreeny.collin@gmail.com.