Irregularities in auditing process
Audit results are corrupted when biased by personal interests.
Risk type: Practice
Risk driver: Internal
An audit is meant to evaluate sector organizations, including their (financial) system, processes, projects, and services. It is a control mechanism that can help to unveil illicit practices (such as false certification, cost misallocations, duplicate invoicing, etc.), corruption , or weaknesses in the system. Nevertheless, the audit itself can be vulnerable to corruption. Individuals who are engaged in corrupt practices or who simply performed below expectations may seek to influence the results of the audit to their benefit. This can result in collusion between supervisors, accountants, or BoD members with the auditor. Or it can lead to the selection of an auditor who is known to turn a blind eye to certain issues when being offered a ‘favour’. Other means of influencing audit results may be to withhold information or to limit the auditor’s mandate.
Also, certain illicit practices (e.g. ghost workers or procurement corruption) can only be detected in a targeted forensic audit.
- Audit report is positive despite obvious shortcomings
- No clear audit guidelines in place
- Insufficient documentation of auditing process
- Auditor is not independent from the audited parties (conflict of interest etc.)
- Insufficient controls on audit reports
- No actions derived from audit reports
KEY GUIDING DOCUMENTS
Factory hires consultant to bribe auditors1
In 2007, a BV [Bureau Veritas] auditor accompanied by two others (possible other auditors or friends of the auditor) conducted an audit at Teng Da Factory in Chang’An Town, Dongguan City, Guangdong Province. During the audit, the factory did not offer a bribe to the auditors but hired the firm Dongguan Baifen Bai Consulting (“Dongguan 100 Percent Consulting”) to offer 10,000 RMB to each auditor. In the end, the factory’s audit was successful enough [to] continue receiving orders from international brands. The factory hired the consulting firm already in its preparation for the COC [Code of Conduct ] audit. The firm’s contract contained a guarantee that the factory would pass, or else the firm would pay damages to the factory (limited to the consulting fees paid by the factory). In this arrangement, the factory did not offer a bribe to auditors directly, but the consulting firm actively used bribery to guarantee that the factory passed its audit. Of course, the amount of the bribe was, in turn, limited by the fees paid by the factory to the firm.
- CLW, 2009, Corrupt audits damage worker rights, A China Labor Watch Investigation, http://www.chinalaborwatch.org/upfile/2009_12_9/2009bvcorruption1209.pdf, accessed 12.11.2015