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WHERE WERE THE AUDITORS?
The High Court judgement and allegations of money laundering also raise questions about the efficiency of external audits (Accountancy Age, 20 April 1989 p. 3; 18 May 1989, p. 2; 13 July 1989, p. 3; 20 July 1989, p.1; 30 May 1991, p. 2; also Mansell, 1991d), especially as auditors are expected to state whether the financial statements show a `true and fair' view.
AGIP (Africa) Limited had been audited by the Channel Islands based part of Coopers & Lybrand (now part of PriceWaterhouseCoopers). In an affidavit dated 29th March 1985, Coopers & Lybrand audit partner explained that Coopers only became aware of the fraudulent payments in mid-January 1985. He further recalls that
| "On 1st February 1985..... I returned a call from Barry Jackson, who had some years ago been the partner in an associated firm of Coopers & Lybrand but which association had ceased in the late 1970s...... he told me of the allegations of fraud and asked me whether we would confirm that a fraud had in fact been committed... he wished to co-operate fully.... he told me that the sums involved amounted to approximately $8.4 million and that remittances had commenced in March/April 1983...... I told him that we had not discovered the fraud in the 1983 audit". |
The audit partner then added,
| "I now have the basic details of what occurred and I am aware of fraudulent payments made in 1983 and in 1984. Indeed, I have now been asked to carry out an audit for 1984 as a matter of urgency and we are shortly to commence that audit [our emphasis]". |
However, Coopers had already concluded the 1984 audit and issued an unqualified audit report with the date 26 March 1985.
AUDITORS' REPORT TO THE MEMBERS OF AGIP (AFRICA) LIMITED
We have audited the accounts on pages 2 to 12 in accordance with approved auditing standards. The accounts have been prepared under the historical cost convention.
In our opinion, the accounts give a true and fair view of the state of affairs of the company at 31 December 1984 and of its loss and source and application of funds for the year then ended.
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The `approved auditing standards' mentioned in the audit report required that the "auditor should obtain relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom" (Auditing Practices Committee, 1980a). The same standards also advise that if "the auditor wishes to place reliance on any internal controls, he should ascertain and evaluate those controls and perform compliance tests on their operation" (Auditing Practices Committee, 1980b).
A `letter of representation'18 (dated 26th March 1985) obtained by Coopers from the AGIP Chairman and Vice Chairman in respect of the financial year ended 31 December 1984 noted that "Full provision has been made for financial losses in the Tunisian Branch arising from the misappropriation of funds". There is no such note in the representation letter relating to 1983. In contrast, the 1984 final accounts contained an extraordinary item of $7,078,384 described as `the charge for financial losses incurred by the Tunis Branch in 1984, which will form part of the basis for an insurance claim to be recovered in a future year'. Whether alerted by their internal discovery of fraud (in January 1985, see above), AGIP had already managed to adjust its financial statements to enable Coopers to give an unqualified audit opinion is not known.
For the AGIP audits, a number of questions are relevant. As the payments by AGIP were allegedly fraudulently diverted, how did the original creditors get paid? If the original creditors were not paid, did they ever complain? Did the company make duplicate payments to creditors? Major companies frequently have budgeting arrangements against which payments are recorded. In the case of AGIP, this could have shown either a large underspend or a large overspend. Did auditors or anyone notice? Following standard auditing procedures (Coopers & Lybrand, 1984), auditors may have examined supplier statements to ascertain the `true' existence of the amounts owed to creditors. They may have written directly to major creditors and asked them to confirm the balances shown in their client's books. What did this reveal? In the light of the very public disclosures, did the AGIP management investigate the full extent of the frauds? If so, what did it discover and communicate to auditors? Perhaps, the misappropriations of monies were well concealed and standard auditing procedures were unable to detect them.
The AGIP case raised major issues and required that the regulators examine the details and the implications of the case. Such an investigation would not only serve to clarify the nature of this case, but could enable more effective ways of combating money laundering to be developed.
CHAPTER 5
THE WHITEWASHES
The High Court judgement stated that accountants knowingly laundered money. It also stated that other firms may be involved. The judgement raised questions about the efficiency of auditors and the resolve of the regulators to effectively combat money laundering. The case involved not only accountants, but also non-accountants (e.g. Ian Griffin, Roger Humphrey). It involved organisations operating from Jersey, England, Tunisia, France and the Isle of Man. Clearly, these matters could only be investigated by someone with independence from the accountancy industry. The investigator also needed to be able to secure evidence from accountants and non-accountants alike. Such considerations ruled out accountancy trade associations, such as the Institute of Chartered Accountants in England & Wales (ICAEW).
The High Court judgement should have prompted the Department of Trade and Industry (DTI) and possibly other regulators to act. Yet there was no public indication that any regulatory body was keen to do so. We, therefore, invited various regulators to investigate the matters. Our correspondence began with an approach to the DTI. Soon we discovered that various regulators were either unwilling or unable to examine the AGIP affair. On occasions, the UK regulators claimed to have examined the AGIP affair, but none were willing to let the public examine their reports and findings.
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