Hiring of Auditor General should have started earlier

It is disturbing when a nation of many certified public accountants fails to fill the position of the Auditor General. The office became vacant in August last year.

The Auditor General is supposed to be in the office for an eight-year non-renewable contract. The recruitment process should have started a year before the expiry of Edward Ouko’s term.

The Auditor General ought to have extensive knowledge about public finances.

The office holder audits reports for national and county governments, as well as all the funds and authorities in the states areas. It also handles the accounts of all courts, commissions and offices established by the Constitution.

Further still, the office of the Auditor General audits the accounts of National Assembly, the Senate and county assemblies, plus accounts of political public debt. In addition, the Auditor General may audit and report on the accounts of any entity that receives money from public funds.

Without an audit report, public financial statements lack credibility. Why?

Identifiable but difficult to observe activities carried by those in high positions tend to prompt doubts and uncertainties in the public eye.

For example, government activities are doubted by the citizens, and it is those doubts that create the need for verification - a market for auditors.

Not surprising, Tom Lee’s assertion in 1993 rings true today.

He said: “Depending on the nature of doubt and circumstances, verification takes place intuitively, or by instruction, instantly or over time, expertly or crudely; explicitly or implicitly; and, formal or informal.”

Acceptable criteria

An audit is meant to establish the degree of correspondence between the object of doubt and some acceptable criteria.

The greater the correspondence, the higher the probability that doubt is removed.

For human beings, doubt creates negative anxiety.

An audit should thus remove doubt from the minds of those who use financial statements.

Commenting on rebuilding audit function, Murphy A E asserts that the capacities to secure relevant information, to judge the reliability of its authenticity and to use it intelligently to further inquiry are essential to the right of reason in human affairs.  

The abstract component in audit information makes it difficult or tricky setting up audit systems, more so in an information technology environment, but even trickier choosing the head of the audit team.

Those responsible for recruiting the Auditor General want an individual who is able to reduce or remove doubts held by the public about the quality of public financial statements.

That individual must have a specific characteristic because the quality of an audit report depends on the auditor’s characteristics. Unfortunately, the panel tasked with recruiting Ouko’s successor is yet to make public their desired characteristics for interrogation.

The quality of financial statements should not affect the quality of the auditor’s report; the auditor is to report whether the financial statement describes what actually went on in the firm over the accounting period. Furthermore, the poor state of financial systems of the reporting firm warrants no audit!

This is why auditors start on compliance tests.

Competence and independence

The two fundamental characteristics those recruiting the Auditor General must look for is the probability that they are competent and independent.

Competency is assumed in those registered as Certified Public Accountants (CPA).  

It is expected that a CPA professional can verify disclosed financial information. Financial statements should faithfully reflect what they purport to present.

The audit boss should also have the capacity to confirm that the financial statement numbers capture the phenomena they purport to represent.

The difficulty is the ability to be certain that a CPA is, in reality, proficient. That depends on how we train our accountants.

The fact that the selection panel received over 60 applicants for the post, shortlisted 17 and was unable to make a pick is not a plus to the CPA profession.

Ideally, the panel should write a report to the Institute of Certified Public Accountants of Kenya (ICPAK) for a follow-up.

The next critical characteristic for the Auditor General is independence. While it might be easy for selectors to reasonably establish competency, it is difficult knowing whether they are independent.

The independence is about objectivity and honesty in an audit assignment.

The requirement is that the auditor is independent in thought and deeds. But how easy is it to establish the domicile of these traits in a CPA?

How sure can a panelist be that the new Auditor General will collect and evaluate suitable evidence and have the courage to report adverse findings? 

- The writer teaches at the University of Nairobi