Re­tired pub­lic ac­coun­tant and au­di­tor Michael Toney, who has wel­comed the probe on the cir­cum­stances that led to the Fi­nance Min­istry’s dis­cov­ery of a $2.6 bil­lion er­ror, says he hopes Au­di­tor Gen­er­al Jai­wantie Ram­dass al­so launch­es a probe in­to the Au­dit De­part­ment to iden­ti­fy ar­eas that may need to be im­proved.

Toney in­di­cat­ed this in a state­ment on the im­broglio be­tween the Gov­ern­ment and the Au­di­tor Gen­er­al yes­ter­day.

Toney not­ed that he qual­i­fied as a char­tered ac­coun­tant in 1974 and has spent the ma­jor­i­ty of that time in the prac­tice of au­dit­ing. Al­so, over that time, he said he served on many boards of di­rec­tors and their au­dit com­mit­tees, ei­ther as chair­man or mem­ber.

He said he based his in­sights on the is­sue on news­pa­per re­ports. He not­ed prin­ci­ples fol­lowed by ex­ter­nal au­di­tors and gave an ex­pla­na­tion of the con­cept of ma­te­ri­al­i­ty.

Toney not­ed his un­der­stand­ing that the Fi­nance Min­istry is to sub­mit the Pub­lic Ac­counts to the Au­di­tor Gen­er­al by Jan­u­ary 31 of the fol­low­ing year—four months af­ter the end of the State’s fi­nan­cial year end of Sep­tem­ber 30—and the date by which the Au­di­tor Gen­er­al is to sub­mit her au­dit opin­ion (re­port) is by April 30, three months af­ter the Min­istry’s sub­mis­sion.

“My un­der­stand­ing is that these dates are set out in the laws of the coun­try and, giv­en that this is the peo­ple’s busi­ness, miss­ing these dead­lines is tak­en se­ri­ous­ly,” Toney said.

On the sub­mis­sion of the pub­lic ac­counts on Jan­u­ary 31, 2024, Toney said, “While this ques­tion is be­ing de­bat­ed, each side is dig­ging its heels in deep­er and deep­er, and in the mean­time, much more fun­da­men­tal mat­ters that ‘we the peo­ple’ need to con­sid­er aren’t be­ing ad­dressed.

“It seems to me, first of all, that all par­ties agree that a $3.4 bil­lion er­ror is a ma­te­r­i­al er­ror. I’m heart­ened to hear that the Min­is­ter of Fi­nance will cause a probe to be done as to the cir­cum­stances that led to this ma­te­r­i­al er­ror be­ing dis­cov­ered...”

Toney said his com­ments on the Au­di­tor Gen­er­al’s de­part­ment were de­lib­er­ate­ly di­rect­ed to the de­part­ment and not to the per­son cur­rent­ly hold­ing the of­fice of Au­di­tor Gen­er­al.

“I do so be­cause I note that the in­cum­bent was ap­point­ed in No­vem­ber 2023, two months af­ter the 2023 year-end, and at a time when the 2023 au­dit would have been in progress,” he said.

“My ex­pe­ri­ence is that a change at that lev­el in any ac­count­ing firm and dur­ing an au­dit of such crit­i­cal im­por­tance is usu­al­ly fraught with chal­lenges in terms of han­dover, ex­e­cu­tion of pro­ce­dures and re­port­ing, which have to be care­ful­ly man­aged if the as­sign­ment is to be suc­cess­ful­ly com­plet­ed.

“Be that as it may, my ma­jor con­cern is that as an au­di­tor, I would be em­bar­rassed to have my client in­form me of an er­ror of the mag­ni­tude of $3.4 bil­lion be­ing dis­cov­ered in the ac­counts, six months af­ter the end of the year and just one month pri­or to the is­suance of my au­dit re­port.”

He added, “I’d want to re­view my au­dit pro­gramme and pro­ce­dures to find out ex­act­ly why, if they were prop­er­ly ex­e­cut­ed, the po­ten­tial for or an ac­tu­al er­ror of this size would not have been iden­ti­fied and brought to my im­me­di­ate at­ten­tion.”

Not­ing re­ports that the dis­crep­an­cy was caused by chal­lenges in pro­cess­ing tax re­funds with a new elec­tron­ic sys­tem, Toney said it’s stan­dard au­dit prac­tice that when a new sys­tem is to be in­tro­duced in­to an ac­count­ing net­work, that ac­tiv­i­ty is flagged at a very ear­ly stage—usu­al­ly the au­dit plan­ning stage—and a spe­cial au­dit pro­gramme is de­signed to en­sure that the new sys­tem would be gen­er­at­ing ac­cu­rate in­for­ma­tion.

“Is this kind of strat­e­gy and con­se­quen­tial test­ing still done? One would as­sume that by now, the sys­tem er­ror has been iden­ti­fied and re­paired. Has the au­dit de­part­ment since test­ed the sys­tem to en­sure that the er­ror will not oc­cur again?” he asked.

Toney said while the le­gal pun­dits are por­ing over briefs and ap­pear­ing in court—re­sult­ing in costs that “we the peo­ple” have to pay, “I’ve heard noth­ing said about the more fun­da­men­tal ques­tions men­tioned above con­cern­ing the process for en­sur­ing the in­tegri­ty of our fi­nan­cial state­ments”.

Say­ing the Au­di­tor Gen­er­al is the gate­keep­er of T&T’s fi­nan­cial state­ments, Toney added, “If we can­not re­ly on the opin­ion of the au­di­tor as it re­lates to fi­nan­cial state­ments, es­pe­cial­ly our fi­nan­cial state­ments—the pub­lic ac­counts—then on what or on whom do we re­ly to hold the stew­ards of the pub­lic purse ac­count­able?

“I sin­cere­ly hope that, as a re­sult of this ex­pe­ri­ence, like the Min­is­ter of Fi­nance, the Au­di­tor Gen­er­al launch­es a probe in­to the Au­dit De­part­ment to iden­ti­fy ar­eas in the De­part­ment that may need to be im­proved.”

He added, “Hav­ing sat on both sides of the ta­ble—as au­di­tor and as client—is­sues such as this case in point oc­cur reg­u­lar­ly: clients re­port ma­te­r­i­al er­rors that they had pre­vi­ous­ly missed and that the au­di­tors, too, had not dis­cov­ered. When such mat­ters were pre­sent­ed, the pri­ma­ry fo­cus would be to ad­dress the is­sue im­me­di­ate­ly so that the au­di­tor could sat­is­fy him­self in or­der to still is­sue an un­qual­i­fied au­dit opin­ion and still meet his dead­line. It is usu­al­ly a nerve-wrack­ing time on both par­ties but the main ob­jec­tive is to present cred­i­ble fi­nan­cial da­ta to the user of the fi­nan­cial state­ments.”

Toney said he re­alised that in the case of the pub­lic ac­counts, cer­tain dead­lines are set by leg­is­la­tion and its in­ter­pre­ta­tion seems to be the cause of the le­gal im­broglio.

He al­so said he found it strange that in a mat­ter that is so im­por­tant to T&T’s fi­nan­cial gov­er­nance, nei­ther the In­sti­tute of Char­tered Ac­coun­tants of T&T (ICATT), nor any of the pub­lic ac­count­ing firms have so far not com­ment­ed on the mat­ter.

Toney’s ar­eas of

con­cern in im­passe

• An au­di­tor is usu­al­ly re­quired to ex­am­ine fi­nan­cial state­ments pre­pared by the client in or­der to ren­der an opin­ion (the au­di­tor’s opin­ion) as to whether, in­ter alia, the state­ments are free from ma­te­r­i­al er­rors. He/she does so by ex­am­in­ing the client’s books and records in or­der to sat­is­fy him/her­self the fig­ures are ac­cu­rate to with­in the ma­te­ri­al­i­ty lim­it and pre­pared in ac­cor­dance with the gen­er­al­ly ac­cept­ed stan­dards ap­plic­a­ble to the par­tic­u­lar en­ti­ty be­ing au­dit­ed.

• A ma­te­r­i­al er­ror can be de­fined as an er­ror of such a mag­ni­tude that it would cause a read­er of the fi­nan­cial state­ments to form a dif­fer­ent view than what he/she orig­i­nal­ly had re­gard­ing those state­ments. For ex­am­ple, if the state­ments that I had pre­pared for my au­di­tor in­di­cat­ed prof­it of, say, $1,000, and in ex­e­cut­ing the au­dit I found an er­ror of, say $700, that caused the prof­it to be now $300, it can be said that the $700 er­ror is a ma­te­r­i­al er­ror. De­ci­sions that would have been made giv­en the for­mer re­sult now have to be re­cal­i­brat­ed giv­en the new re­sult.

• Au­di­tors usu­al­ly work with ma­te­ri­al­i­ty lim­its de­pend­ing on the specifics of the en­ti­ty be­ing au­dit­ed. This is a lim­it be­yond which the au­di­tor will not tol­er­ate in ren­der­ing his/her opin­ion on the fi­nan­cial state­ments. It is a high­ly pro­fes­sion­al judge­ment call on the part of the au­di­tor and one that is sanc­tioned by the high­est-rank­ing mem­ber of the au­dit team.

• Dif­fer­ent firms have dif­fer­ent meth­ods of es­tab­lish­ing ma­te­ri­al­i­ty. It is not nec­es­sary to go in­to these meth­ods here. Suf­fice to say that the set­ting of ma­te­ri­al­i­ty lim­its is a stan­dard prac­tice in au­dit­ing.

Au­dit plan­ning

• One of the crit­i­cal phas­es of an au­dit is the plan­ning phase. It is dur­ing this phase that the au­di­tor will try to get a sense of what to ex­pect dur­ing the course of the au­dit. It is al­so at this time that the ma­te­ri­al­i­ty lim­it will be set, new sys­tems in­tro­duced by the client and high-risk ar­eas iden­ti­fied. This sets the ba­sis for the au­dit plan in­clud­ing re­source al­lo­ca­tion, and key dead­lines.