What a forensic audit of public debt really entails

President William Ruto

President William Ruto addressing journalists at State House in Nairobi on July 5, 2024.

Photo credit: Bonface Bogita | Nation Media Group

What you need to know:

  • Forensic audit involves obtaining information and explanation from the persons involved.
  • It is mainly applied in situations where fraud is suspected and seeks to answer specific questions.

The President of the Republic of Kenya on July 5 formed a taskforce to carry out forensic audit of all public debts. It is therefore important to create more awareness to the general public on this subject.

Forensic audit is a special audit over and above the statutory audit. Most people are familiar with statutory audit which is normally done on an annual basis by the auditor to determine if proper books of accounts have been maintained by the entity. 

The auditor therefore issues an opinion on the financial statements of the organisation. The financial statements will show the assets and liabilities of the entity and the revenue and expenditure. Statutory audit, as the name suggests, is a legal requirement.

Forensic audit, however, is mostly carried out in circumstances where cases of fraud are suspected. It is normally carried out to determine if there were any violations of the policies and procedures, loss of funds or non-compliance with certain laws. 

Criminal investigations

It involves a detailed examination of all records and obtaining information and explanation from the persons involved. It therefore tends to take more time and resources than the statutory audit. This is unlike the statutory audit which, in most cases, is done on sample basis.

According to Black’s Law Dictionary, forensic is defined as “used in or suitable to courts of law or public debate”

From this definition, forensic is a general term that is used in various disciplines including criminal investigations, accounting or any other field in which a certain audit or review may be presented in court of law. The main objective of forensic work is to assist in the determination of a case before a court of law. Additionally, forensic work can be used to inform a certain public debate. 

Depending on the complexity and the nature of the entity/subject of the audit, various professional experts may be required to successfully execute a forensic audit assignment.

Debt management

Forensic audit is therefore mainly applied in situations where fraud is suspected and seeks to answer specific questions including the person/persons involved, the period of the fraud, the amount involved and the fraud methodology. This applies to entities both in public and private space.

Forensic audit in the context of our country would be very important in highlighting certain aspects in regard to the public debt. 

Some of these aspects would include the authorisation of the debt, terms of the debt and if there was value for money in the projects that were undertaken using the borrowed funds. 

This information would be of interest to the public and would also be of great help to the government on debt management in the country going forward.

CPA Hosea Muita Njoroge Partner, Forensic Audit Services SFAI Kenya; email [email protected]