The private sector and the unofficial bar have observed that money laundering in the private sector escaped unreported to the Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka (CBSL).
There are various types of audits such as statutory audits conducted based on the Companies Act, financial audits in the Government and value for money audits.
Theoretically, forensic auditing looks at aspects such as fraud and misappropriation. Basically, forensic auditing looks at things which have already taken place. It is the day-to-day job of the internal audit divisions within the various private sector entities to conduct forensic audits.
The management or director board or shareholders of private sector entities, for example with that of a marketing company, however would also engage an external party to conduct a forensic audit. There are two parties involved. This is a privately agreed upon affair. The forensic auditor has to look at a specific area. The scope is defined in such a case by the assignment giver, that is the management or the director board or the shareholders along with the forensic auditor.
The forensic auditor will look at the relevant financial regulations, relevant standard operating procedures, relevant procedural manuals, the Banking Act, exchange control laws and other regulations like governing a municipal council or the Sri Lanka Tourist Board, if any such party is also involved.
If there is a violation detected during the forensic audit, to what extent certain regulations of the Prevention of Money Laundering Act would apply is also looked at. As per the money laundering laws, if an allegation is levelled against someone, one is assumed guilty until proven innocent. Whereas, this is not the case in common law. Money laundering laws also override all secrecy clauses. The Computer Crime Act may also be applicable.
Which aspects to be placed emphasis on is decided next, whereby the forensic auditor using his or her skills and experience, judges the amount of time allocated per aspect.
The audit procedures and steps followed in conducting the audit are upon the guidelines laid down by the Institute of Chartered Accountants of Sri Lanka and agreed upon procedural engagements based on Sri Lanka Standards on Review Engagements (SLSRE).
Then a multidisciplinary team composed of legal experts (attorneys who are specialized in looking at aspects concerning the relevant law), financial experts (to look at aspects concerning finance) including accountants, information technology experts and in the case of the Police Financial Crimes Investigation Division (FCID) conducting investigations, law enforcement officers to look into the criminal aspects, should be deployed to engage in field work.
Attorney-at-Law at Sudath Perera Associates, Laknath Jayawickrama said that there were no guidelines laid down by the legal profession for the conducting of forensic audits, adding that lawyers could also be held liable for not conducting a proper forensic audit.
Yet it is mostly accountants who are thus engaged and employed to purely look into the financial aspects, he pointed out, adding that the multidisciplinary approach is never practised in reality.
There is today a need for an overall holistic approach to be taken and for this a competent multidisciplinary team and approach is required and essential, he noted.
The outcomes and findings are then compiled as a report.
There could be cover-ups of various malpractices committed by the internal audit divisions of the companies, Jayawickrama further added.
The forensic auditor engaged then reports back to the management or the director board or the shareholders who commissioned his services and the report.
However, if in the conducting of the audit, the forensic auditor uncovers problems in the company in relation to the laws governing money laundering, he or she should report it to the FIU of the CBSL.
“The forensic auditor’s job is a risky one. At this juncture, the forensic auditor faces a dilemma, which is whether to report only to those who commissioned the report along with his or her services or to the FIU of the CBSL. If he or she reports to the FIU of the CBSL, he or she is then guaranteed to never again receive a job from the said company plus the fact that he or she reported the matter to the FIU of the CBSL will be no secret in the industry and job market. It will lead to him or her being blacklisted. It then becomes a question of keeping one’s career intact,” Jayawickrama explained.
He also noted that the issue has to be addressed.
“A new authority and regulatory mechanism could be set up to look into these matters. Forensic auditors and accountants should be given the necessary protection. They must be encouraged to report money laundering to the FIU of the CBSL. They should be allowed to give evidence by way of signing a sworn affidavit instead of being hassled by having to wait at the FCID or the Commission to Investigate Allegations of Bribery or Corruption or the Anti-Corruption Secretariat or the Presidential Commission of Inquiry to Investigate and Inquire into Serious Acts of Fraud, Corruption and Abuse of Power, State Resources and Privileges for eight hours or to appear in Courts, three to four times a month. As when certain matters are heard in a judge’s chamber, confidentiality must be guaranteed,” he said.
Partner – Head of Forensic Service at KPMG, Sri Lanka, Jagath Perera, Deputy Inspector General of Police (DIG), Priyantha Jayakody, former Deputy Governor of the CBSL, W.A. Wijewardena, and Sri Lanka Insurance Ombudsman, Attorney-at-Law Dr. Wickrema Weerasooria were not available for comment.