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Fighting corruption behind the scenes: The evolving and ever important role of forensic audits in international development

Ryna Ferlatte's picture

Ryna Ferlatte heads the Forensic Services Unit of the World Bank’s Integrity Vice Presidency (INT). She has over 20 years of experience in forensic accounting, audit and corporate financial accounting, and reporting. In this interview, she provides a window into the field of forensic auditing and explains why it's so important to global anti-corruption efforts.

Why do we know so little about forensic auditing?

Big corporate fraud and corruption cases like Enron, Satyam, Siemens and others offer the basis of knowledge for what forensic auditors can contribute, but forensic accountants often work in the background of these large investigations.  These cases show that the standard checks and balances, such as compliance, internal audit and external audit, are not always enough to prevent fraud and corruption.  The role of an independent oversight function such as INT is critical and the World Bank has been a leader in including forensic auditing as part of the exercise of its audit and inspection rights of Bank-funded contracts.  But this is not the only way forensics can add value.

Today, there is more recognition that forensics can be used not only to identify and quantify fraud and corruption losses, but also can serve as a deterrent and help reduce instances of such wrongdoing. And while forensic standards and tools are evolving globally, the results of forensic audits emphasize its value as an effective tool that can be also used proactively to cut financial losses in vulnerable sectors and high-risk projects.

What does a forensic audit entail in terms of process and impact?

A forensic auditor brings a mix of professional accounting skills combined with an investigative mindset and a high level of professional skepticism to identify risk and misconduct. And if you don’t like details, this is not the profession for you! As a forensic auditor, you are often searching for a needle in a haystack. Sifting through hundreds or thousands of documents and large volumes of data, we look for patterns and indicators that can then be further investigated. It takes time, resources, a higher than average curiosity and a deep dive into detail. At the same time, the forensic accountant must also remain pragmatic and understand the big picture in order to focus on what really matters. And finally, you need to be able to distill all of this information and convey it in an understandable manner. Forensic audits may not always have happy endings but using the findings of a forensic audit to develop a forward looking action plan to ensure the experience is effectively internalized can offer a new start and help prevent recurrence.

Any examples?

Some of the forensic audits we perform begin with complaints received by INT from confidential sources. But very often they are the result of concerns raised by operational colleagues, either as a result of their own project supervision uncovering indicators of wrongdoing, or due to information they receive from other sources, such as project staff.

Most commonly our forensic audits will reveal patterns of procurement fraud, conflict of interest and self-dealing, kickbacks, fraud in implementation and embezzlement of project funds.  In some cases where potential wrongdoing by contractors was identified, investigations to substantiate sanctionable practices have been undertaken by INT and local authorities were provided with a basis to conduct their own investigation through an INT referral. In one case this culminated with individuals being charged with multiple counts of fraud and corruption. Our team works closely with investigators on these cases.

In order to ensure a successful outcome, the engagement of government counterparts and their commitment to follow up action, as well as collaboration with Governance specialists and country office colleagues early on is critical.  Our procurement and financial management colleagues have a deep understanding of the policies, procedures and local context governing a project, while we can bring a critical eye to financial documentation. Together, we can further help identify and address gaps in control systems, and help ensure that development funds are used for the purposes intended.

How does the World Bank's forensic experience compare to other donors?

Our experience at the World Bank in recent years is bringing us closer to a methodology that is a fit for a global organization like ours. One that can easily be adapted to the capacity challenges and inconsistencies in fraud and corruption patterns across regions and countries where we operate. Last March, we hosted a donor coordination session to discuss forensic tools for proactive risk management with more than 15 bilateral donor representatives from Europe and North America. While we now rely mostly on in-house expertise, other donors have been extensively outsourcing forensic auditing services for many years, which has its own benefits and challenges. Developing best-practice standards for Terms of Reference used to retain forensic auditors and standards for reporting forensic audit findings are critical to achieve results, particularly noting how much money can be saved if patterns of fraud and embezzlement are detected early. 

Is there any overlap between forensic auditors and other skill sets involved in the same case?

Sometimes there is a healthy tension between lawyers/investigators and forensic auditors. As a forensic accountant, we are trained to conduct financial investigations, including the handling of evidence, interviewing skills and expert witness testimony skills. This can be a strong positive within collaborative team, where we can learn from each other. I often managed investigations from start to finish when I worked in the private sector as a forensic accountant, but larger, multijurisdictional cases involving multiple offenses are best handled by a multi-disciplinary team consisting of legal, investigative, accounting, and other experts.  In my experience, it works best when we work together, and when all the experts, including the forensic accountants, don’t stray too far from their expertise.

The forensic accounting field is growing around the world, and standards for forensic engagements are evolving globally, which is a good thing. This will help ensure that a minimum level of consistency, competency and professionalism is maintained for forensic work.  These standards govern the professional standards forensic accountants must follow during forensic engagements, starting from how to handle information and evidence and to the type of reports and deliverables they should and can prepare.  More importantly, forensic accounting education programs are also evolving and maturing, which will help train the next generation of forensic professionals. And with big-data analytics also expanding, fraud and corruption detection analytics is set to grow in leaps and bound; this will open new opportunities for prevention. It’s definitely an exciting time for forensic accountants everywhere and I feel very privileged to be able to bring my skills to bear for an organization like the World Bank.



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Comments

Submitted by Alexia G. Amesbury on

I am from Seychelles where the level of poverty is reported to be 40% but the last president of Seychelles James Michel saw it fit to enter into some dubious contract for procurement of security and intelligence contract with persons or companies of a very dubious nature. Some Irish personnel and over the last 8 or so years Seychelles has lost close to SCR 500,000 Million. It could be much more but contracts and persons involved are not identifiable. Can your organisation please help investigate so that the money can be repatriated. Seychelles has been on IMF assisted programmes of some sort but despite this the haemorrage of funds continued unabated.

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