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Dirty old men of corporate Kenya
Rank: Elder Joined: 1/21/2010 Posts: 6,675 Location: Nairobi
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Jamani wrote:Following the defense above, have we ever heard of any audit company in kenya, that had the "the luck to uncover fraud" from any of the listed companies and reported it? I can't remember any....... CMC had issues, audit passed over years, remember AK issues audit passed etc... is it that they are not lucky or do they turn a blind eye and use the defense above to argue that they relied on management representations..... so why do we pay them? if all they do is rely on management representation which is cooked
Auditors cannot detect if invoices are inflated unless suppliers point it out.. The company charges a certain price to suppliers and they accepted it & paid up.. How were EXTERNAL auditors expected to recognise the fraud?? Mark 12:29
Deuteronomy 4:16
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Rank: Member Joined: 2/8/2007 Posts: 808
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We shouldn't begrudge Ndung'u he is looking after his interests which are also aligned with Wanjikus. Most of the wealth he has he accumulated in the securities exchange in the 90's when the market was worth pennies.
Paul Ndung'u owns MOBICOM, is the 4th largest shareholder of KQ, owns a significant portion of HFCK,CMC Olympia, Sasini, Rea Vipingo, Mumias, Total Kenya, owned a decent portion of Equity Bank before selling much of it. We therefore shouldn't be questioning his motives, what we need is similar shareholders with such share volumes getting into the board and agitating for good governance. We should therefore be cheering Paul on and urging the likes of Baloobai Patel, Mahendra Khetshi shah, Mansuklal Shah, Karim Jamal, Kibunga Kimani, Sunil Shah, Mulchand shah etc to get into boards of companies they have substantial holdings. These are likely to align with Wanjiku as they are portfolio investors with diverse exposure as opposed to the Muthokas of this world whose interest is to manufacture an advantage for their main business without little regard for the rest of the shareholders.
Look at companies like KCB which government owns only 20% but controls the board and the sub optimal returns we continue to earn or KQ where Gok & KLM combined own 49% but run the airline or Centum where DJ owns about 28% but runs the show.....Kenya needs shareholder activism in the board room and not the AGM for Wanjiku to get something out of the exchange.
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Rank: Member Joined: 2/25/2010 Posts: 158
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Following the defense above, have we ever heard of any audit company in kenya, that had the "the luck to uncover fraud" from any of the listed companies and reported it? I can't remember any....... CMC had issues, audit passed over years, remember AK issues audit passed etc... is it that they are not lucky or do they turn a blind eye and use the defense above to argue that they relied on management representations..... so why do we pay them? if all they do is rely on management representation which is cooked [/quote] I think most auditors in Kenya 'eat' with their clients. That is why they do not unearth malpractices when carrying on audits. In most government offices, when auditors come to check the books, the officers take them for 'lunch' and the auditors just pass the books. I belief this is what happens in companies offices too. I am reading a book on Enron (The smartest people in the room) and it looks like the auditors of this company were rubber stamping everything the management wanted. Now the big question is, what are we investors going to do to ensure that we do not befall the same fate as our colleagues in CMC? We need to be vigilant and we need to organize in order to 'know' what is happening to the companies which we invest in. Why do companies open off shore companies? I asked this question in a thread regarding Centum and I am still waiting for an answer. Who are the owners of these offshore companies? Are shareholders represented on them? Food for thought Keeping it all in the family
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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guru267 wrote:Jamani wrote:Following the defense above, have we ever heard of any audit company in kenya, that had the "the luck to uncover fraud" from any of the listed companies and reported it? I can't remember any....... CMC had issues, audit passed over years, remember AK issues audit passed etc... is it that they are not lucky or do they turn a blind eye and use the defense above to argue that they relied on management representations..... so why do we pay them? if all they do is rely on management representation which is cooked
Auditors cannot detect if invoices are inflated unless suppliers point it out.. The company charges a certain price to suppliers and they accepted it & paid up.. How were EXTERNAL auditors expected to recognise the fraud?? Guru when you speak we listen.... they cant detect inflated invoices, neither do they have control over the information supplied to be audited so why do we need auditors?
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Rank: Chief Joined: 8/4/2010 Posts: 8,977
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@Jamani - you are nearly there to get it on enterprise corruption. Read the history of arthur andersen. Someone also pointed out a book called 'the number'. Read it too. Then you'll understand why we have enron's, cmc's etc as the fraud gets confessed when the deals have been settled long ago. The fox is a good entertainer... As time passes by, it is forgotten and then the 'wash, rinse, repeat' cycle restarts... So who's next after cmc.... http://en.wikipedia.org/wiki/Arthur_Andersen$15/barrel oil... The commodities lehman moment arrives as well as Sovereign debt volcano!
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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[quote=hisah]@Jamani - you are nearly there to get it on enterprise corruption. Read the history of arthur andersen. Someone also pointed out a book called 'the number'. Read it too. Then you'll understand why we have enron's, cmc's etc as the fraud gets confessed when the deals have been settled long ago. The fox is a good entertainer... As time passes by, it is forgotten and then the 'wash, rinse, repeat' cycle restarts... So who's next after cmc.... http://en.wikipedia.org/wiki/Arthur_Andersen[/quote] Thanks for the info, i will look for time gather the material recommended above and read.... but can someone just explain why we need to pay auditors to do a GIGO process and not an audit?
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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guru267 wrote:Jamani wrote:Following the defense above, have we ever heard of any audit company in kenya, that had the "the luck to uncover fraud" from any of the listed companies and reported it? I can't remember any....... CMC had issues, audit passed over years, remember AK issues audit passed etc... is it that they are not lucky or do they turn a blind eye and use the defense above to argue that they relied on management representations..... so why do we pay them? if all they do is rely on management representation which is cooked
Auditors cannot detect if invoices are inflated unless suppliers point it out.. The company charges a certain price to suppliers and they accepted it & paid up.. How were EXTERNAL auditors expected to recognise the fraud?? Exactly.. How?? I expect that their procedures would entail a review of the invoices posted on the company's financial systems and as well as vouching a sample of the physical invoices... but if both records contain the cost + the 0.5%, how is the auditor supposed to tell that there is a fraud.. and yes, auditors uncover fraud in listed companies in Kenya all the time and report this to the board (there is no requirement for them to report to shareholders). For instance, the fraud that led to a number of dealers losing their contracts with Safcom was reported by their external auditor. The only thing is the figures involved MUST be material (when considered against the company's overall position) in order for the auditors to qualify his opinion on the financial statement.
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Rank: Elder Joined: 9/12/2006 Posts: 1,554
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mozenrat wrote:
Exactly.. How?? I expect that their procedures would entail a review of the invoices posted on the company's financial systems and as well as vouching a sample of the physical invoices... but if both records contain the cost + the 0.5%, how is the auditor supposed to tell that there is a fraud..
and yes, auditors uncover fraud in listed companies in Kenya all the time and report this to the board (there is no requirement for them to report to shareholders). For instance, the fraud that led to a number of dealers losing their contracts with Safcom was reported by their external auditor. The only thing is the figures involved MUST be material (when considered against the company's overall position) in order for the auditors to qualify his opinion on the financial statement.
You must be an auditor or rather you have spoken as an auditor.... though I feel different about auditors (these are people we pay to come look at our watch and tell us the time, if its set wrongly they will just say its working fine) I rest my case...
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Rank: New-farer Joined: 5/3/2010 Posts: 69
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@accelriskconsult, The external auditors rely on information given by management and that they deem adequate to make a reasonable opinion. That is clear. My point was the need not to spare any stakeholder when such scandals occur. Something like this. http://www.time.com/time.../0,8599,1867092,00.html
or the Arthur Andersen story It is an open secret in corporate Kenya that external auditors usually have some clue of big buck shady deals. Companies are not amorphous entities but a collection of human beings. Every finance/accounting person in Kenya has relatives or ex-collegemates working with the Big 4. Mid-level managers talk with external auditors when they meet at the club. Things will be discussed and hints dropped over a beer. From the Nation story, the CMC case at some point involved 17 senior managers. It is not possible to keep a secret among so many people. Will leak through ex-employees, employee relatives, employee spouses etc. I have no proof but the external auditors definitely knew there was something stewing. They either 1. as you rightly state were not provided with adequate information by CMC management to unearth the fraud or 2.they looked the other way because neither the client nor the auditors wanted to rock the boat. The latter is reinforced by 2 things you have already observed-1.many FDs/CFOs are usually the former external auditors of the company they work for.2.Deloitte will probably not be voluntarily pulling out of their relationship with CMC anytime soon. It is not an attack on auditors but rather an attempt not to insulate any stakeholder from scrutiny. The law is definitely on the auditors side though. accelriskconsult wrote:Jamani wrote:accelriskconsult wrote:[quote=Jamani][quote=accelriskconsult]
Jamani, the role of auditors is not to detect fraud but rather to express an opinion on whether a company/organizations financial statements are materially misstated[]and on whether the organization will remain a going concern in the foreseeable future (which is approximately 1 year).
Auditors usually rely on information provided by the executive management and directors of a company. If the information is withheld as happened in the case of CMC, an external auditor cannot be held liable. Audit standards require that the auditor design their tests in such a manner that if fraud exists, it will be detected. In designing those tests, auditors rely upon the general ledger, financial statements, agreements with suppliers and other contractors, minutes of meetings, company policies etc. Audit tests are therefore only as good as the information provided.
I do not know whether you have read the CMC story about how the fraud was perpetrated ...I read thank you......
As I have argued previously on Wazua, shareholders rely on auditors opinions at their own peril. My question was why do we pay these people if all they do is rely on management to show them what to audit? The board of directors remains the most important organ that shareholders can use to check the excesses of management. If the board is crooked, the Wanjiku shareholder is a sitting quacking duck! Then we shareholders are all doomed as some of the information will never flow out..as did in AK and CMC..... well i would like to hear of Smeer/Ssini/Neveready among others in line with single sourcing 1. Remember misstatement is qualified by the preceding work, materially. 2. Read the story again and you will realise that the only record of the accounts referred to was the dossier that was found in the former MD's safe. The only way to obtain this information was (a) to break in to the MD's safe (b) To have an internal source at a very high level leak the information. Remember the accounts are not even held with Kenyan banks, are not in the company's general ledger, and according to the management and board never existed. Deloitte ought to have resigned as the Company's auditors as soon as the story of the secret accounts emerged. Not because of any guilt on their part, but because (i) management made false written representations to them (ii) Their independence is already compromised
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Rank: Member Joined: 4/2/2011 Posts: 629 Location: Nai
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Jamani, Mozen, RVP agreed and thanks for coming to the table to debate a very important issue.
2 questions to those of you who may know;
1. Does CMC have internal audit and risk management departments?
2. Do you think a whistle blowing hotline would have helped?
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