How to effectively engage Senior Management in internal control of a Healthcare Industry

How to effectively engage Senior Management in internal control of a Healthcare IndustryShare on Facebook

Most industries today are faced with a variety of obstacles in achieving or remaining profitable. The healthcare industry is no exception. Profitability is enough of a challenge under normal circumstances, but especially so during fragile economic times. Uncertain revenue streams and rising costs have many healthcare organizations understandably apprehensive.    

Traditionally, hospitals were more focused on managing revenues rather than on costs to insure profitability. But this focus on revenues has become increasingly more difficult to plan, execute and manage due to confusing healthcare reform, complex insurance reimbursements, Rejections, community perception, government red tape and political concerns. Conversely, effective internal controls in the healthy industry in  East Africa has been a challenge but has not been a priority due to limited administrative resources toward cost management:

In my previous article in the Today’s Accountant magazine of ICPAU last year, I clearly stated that without sound internal controls that are linked to cost management function; the health care sector cannot achieve its desired objectives. A hospital cannot set rates and charges which are realistic and related to costs unless the cost-finding system accurately allocates both direct and indirect costs to the appropriate cost centers.

Cost management defined:

Cost management can be defined as the process of collecting, analysing, evaluating and reporting of cost information that is used for budgeting, forecasting, pricing, profitability analysis and performance reporting. Accurate cost information affects both financial and non-financial decision making. Inaccurate decisions often result in unprofitable service offerings, incorrect pricing, inefficient allocation of personnel and low return on investment on equipment purchases.

In Uganda, unless Hospitals quickly realise that there is limited control over revenue sources, and the costs associated with increasing those revenues only result in incremental losses. In comparison, cost management often results in each cost shilling saved, contributing directly to net income. Technology and costing techniques have now greatly evolved; so there is a real motivation to shift the focus to cost management linked with sound internal controls.

In its simplest form, costs consist of direct and indirect (overhead) components. Direct costs are easily identified and assigned to products and services. Examples of healthcare direct costs include: physician and procedure specific staff services (labor), supplies used to deliver services and easily assignable service related equipment costs. Assigning the supporting overhead, or indirect, costs to these same services to arrive at the total cost is far more complex and at times may appear ambiguous. In Uganda little healthcare organization can afford the cost of the skilled labour to effectively design/monitor the internal controls because even the national budget allocated to the healthy sector is less than 5% if compared to other sectors in the country.   

Costing example with needed sound internal control to be in place.

A typical service offered by a healthcare facility is heart surgery. The direct costs would include the cost of the surgeon and procedure specific staff, along with the supplies required for this particular operation. The indirect (overhead) costs would include, but not limited to, general support staff and related costs, insurance, taxes, utilities, facility and administration. It is estimated that these indirect costs can be as high as 60% of the total costs of a hospital service. This is a significant portion of the total cost; so it only takes a slight deviation in such a large component of the cost to paint a startlingly different financial picture. This subsequently leads to inaccurate or misguided decision making if controls are not in place.
Healthcare organisations can improve the quality of their cost information to dramatically reduce the risk of inaccurate financial decisions if senior management is fully engaged in internal control. This includes the ability to better measure efficiencies and capacity utilization. Better information for all of the key stakeholders, including hospital administrators, physicians, or policy makers, will result in a far more efficient and cost-effective industry. But few accountants/ policy makers ask themselves if, really, the Ugandan healthy sector is profitable and management effective: Questions like why healthcare organizations do not participant in the ICPAU FiRe Awards will soon come to stoplight.

The bottom line: need for increased effective internal controls.

Healthcare organisations are finding it increasingly more difficult to improve profitability by focusing on revenues with increasing stock losses due to weak control systems. Refocusing resources on cost management linked with internal control will allow these organizations to achieve increased performance without sacrificing existing service levels.  Understanding the total costs of services will allow the redeployment of resources which provide a higher payback, or will facilitate the elimination of those resources altogether. The bottom line: increased profitability may be achieved.  

How to Get Senior Management to Take Internal Control Seriously

Top managers in hospitals have many calls on their time and attention. Vying for their attention will be patients, suppliers, employees, consultants, and many others. Internal controls can easily be squeezed out of their agenda. The problem this can create is that if senior management does not take control seriously, the “tone from the top” will be wrong—and if the people in charge don’t care, then why should anyone else in the organization? Right or wrong, this is the message that will be perceived across the healthcare industry, and internal control will suffer.

So, as a professional auditor, how can you push internal control up the priority list? Showing clearly to management the benefits of strong internal control on the one hand, and the consequences of failure of internal control on the other, is one path to this goal. This can only be achieved if all Certified Public Accountants fully understand the needful to the development of the sector.

Benefits of Control to the healthcare industry

A key message to communicate to management is that, effective and active controls give positive benefits as well as avoiding negative outcomes. Having controls that are effective will ensure that the directions of the board and senior management are implemented as intended; that operations and activities are carried out efficiently and meet their objectives; and that the assets used in a hospital are not only properly accounted for, but also that they are used effectively and efficiently for the benefit of the hospital.


For example at St Francis Hospital Nsambya, Procedures which follow sound control principles have enabled people to carry out their work in an environment that is orderly and satisfying to work in. Good internal controls have protected the hospital and its staff against the temptations of dishonesty, fraud, and theft. In the end even our service delivery has significantly improved if compared with other health care organizations.

In a nut shell, hospitals that have sound internal controls will know where they are, and where they are going, because management information controls will tell the organization’s management what they need to know when they need to know it through the heads of departments and ward managers. If the first imperative of most organizations is survival, then good internal control can play a major role in achieving that objective.

The impact of control failure inside the healthcare industry:

All too often, internal control only becomes a concern to top management after it breaks down. Out of the blue comes the sudden discovery of a massive fraud or a major hole in the accounts, or a business segment that was thought to be profitable is dramatically discovered not to be. There is a myriad of such possibilities. Management discovers, painfully, that when there is such a breakdown of control, almost everything else has to be thrown out of the window while the breakdown is investigated particularly when it is on drug management. It has to engage with internal auditors, external auditors, consultants, and specialists to uncover the root causes of the problem, as there is no cure without first making a diagnosis. The managers responsible for the failure must immediately be identified and a conclusion reached on their degree of culpability. And if someone has to be fired, who is going to take on their responsibilities?

Then, senior managers have to make up their minds on what to do about the underlying problem. What changes have to be made to ensure that it can never happen again? Should they commission reviews in other similar parts of the hospital to gain assurance that the problem isn’t endemic elsewhere? Are major investments in systems or capital items needed to fix things? Should procedures be revised? Do staff need retraining or reorganizing? If so, who is going to implement the changes, and where is the money going to come from?

Control breakdown can have external implications to a health care industry:

Another vital aspect is the impact of a breakdown on external relations. Do investors and the owner’s have to be informed? Is a loss warning necessary? How will stakeholders react? What will the (inevitably negative) impact be on the directors, and therefore the value, of the organization? Often such an announcement will create a loss of shareholder value that is many times the original operating loss. At times like these, an executive director may be lucky to keep his job; at the very least, there is a major risk of loss of personal and corporate reputation. Let all healthcare operators be warned.

The opportunity cost is great

On top of this, in a serious case the opportunity cost of the time that management will lose in attending to the consequences of an internal control breakdown can be massive. Strategic issues, tactical issues, business development—all these and many more normal concerns of senior management will have to take a back seat until the problem is resolved. Add to this the loss of reputation and of confidence, inside and outside the organization, because news will inevitably leak out however carefully those involved try to prevent it.

Getting Management Backing: Where to Start

If the benefits of sound controls are so tangible, and the aftermath of a failure of internal control is so dreadful, how does the auditor make a start on obtaining top management’s backing for a regime of sound internal control? Corporate governance regulations in Uganda, and best practice, now require organizations formally to analyze and record the risks they face. The purpose of this requirement is, first, to ensure that organizations actually understand their risk profile, as only then can they seriously and properly consider whether they have the right mitigation arrangements in place. Often a management team, in making explicit the risks they face, will discover that initially they do not have a common view as to what the risks are. Only when they have a unified vision can they expect to come up with a coherent and balanced response. Only then can they hope to design and develop a comprehensive internal control system that meets the needs of the organization. The auditor can assist by becoming involved in the risk identification process, by emphasizing to senior management the immediate impact of failure to mitigate the risks for example, by pointing out that the accounts will be incorrect.

It is not least by confronting management with the consequences of control failure that it can be helped to take internal control seriously. The internal auditor can help to create an understanding and appreciation of the consequences of control failure by making presentations and having one-to-one meetings with influential people, such as the medical director, chief executive, chief financial officer, audit committee chair, other board members, and senior managers. The objective is to create an awareness of internal control in the organization and, through that awareness, to change the attitude to it.

While some risks may be external to the hospital and not susceptible to internal control, many can be mitigated by internal controls. In healthcare setting, management is reluctant to accept the need for internal controls, believing that staff should be trusted. Internal auditors should point out to such management that trust is not a substitute for internal control.

A proper system of internal controls should be considered a force for moral good, in that it effectively removes temptation from employees by ensuring that undesirable behaviors will be promptly detected and corrected; if employees understand this, they will be less likely to attempt to defraud their employer.

How you can Make It Happen in the healthcare industry

      Collect evidence about the state of internal controls and any opportunities that exist for improving them.


      Present the benefits of better controls in terms with which management can identify.


      Review the organization’s code of conduct or similar document; if none exists, it is worth raising the issue.


      Seek a meeting with the head of the hospital and influential members of the board. Have a clear but short agenda. Aim for some specific goals from your meeting. Go prepared with a succinct presentation and some practical recommendations.


      Use the opportunity to argue for the importance of tone from the top where internal control is concerned; if the top people in the company take internal control seriously, so will everybody else. Ask whether they like unwelcome surprises and what they are prepared to do to avoid them.


      Point up the risks facing the organization, and show how a well-designed control structure can help to avoid or mitigate the worst consequences.


      Don’t expect everything to be achieved with just one meeting. Be prepared to keep going back with the same messages until they are not only accepted, but also acted on.


Management’s role in ensuring effective internal control is vital. Management sets the tone from the top. Unless management engages and commits, the rest of the organization will not take internal control seriously. The internal auditor can help management to appreciate the importance of internal control by demonstrating its value—not least, the efficiency dividend to an organization if good, cost-effective internal control systems are in place—and by making management aware of the consequences of failures of internal control. The internal auditor can further assist management by highlighting the need to set tone from the top, to allocate sufficient resources for internal control, and to ensure that internal control processes are suitably designed for the needs of the business.



Random news



Cycle time refers to the period required to complete one cycle of an operation; or to complete a function, job, or task from start to finish. Cycle time is used in differentiating total duration of a process from its run time.

It is the average time between successive deliveries. In other words:
Cycle Time = Operating Hours per day / Quantity per day
For example, assume that the plant operates for 10 hours per day and need to produce 60 computers each day. The Cycle Time is 10 / 60 = 1/6th of an hour,which is 10 minutes. In other words, on average every 10 minutes a computer rolls off the assembly line.
“Quantity per day” is the same as Throughput for a day, in the example 60 computers per day.
As the old saying goes that time is money, critical business processes are subject to the rule of thumb that time is money. Such processes are usually carried out through resources that often result as bottlenecks. Unfortunately, the products derived from these processes are usually the ones that matter most to customers; therefore, the products need to be delivered as fast as possible. This cuts across both to the internal and external clients, manufacturing and service industries.

    Competitive Advantage:Business and service delivery has changed over recent years, and competitors threaten in almost every market. Reducing product cycle times increases the potential to develop and deliver innovative products and be first to market with them. This is especially true if you compete against multiple providers that offer similar products or close substitutes. Every day you reduce your cycle time is a day you gain in meeting or beating competitor product launch dates.
If company A cannot supply the desired product at the desired time, a competitor will.Inthisnew environment, cycle time reduction provides a key competitive advantage.

    Customer satisfaction: Reduced cycle time can translate into increased customer satisfaction. Quick response companies can launch new products earlier, penetrate
New markets faster, meet changing demand, and can deliver rapidly and on time. They can also offer their customers lower costs because quick response companies have streamlined processes with low inventory and less obsolete stock. According to empirical studies, halving the cycle time (and doubling the work-in-process inventory tums can increase productivity20% to 70%. Moreover, quartering the time for one step typically reduces costs by 20.05%.

    Improves quality: With reduced cycle times, quality improves too. Faster processes allow lower inventories which, in turn, expose weaknesses and increase the rate of improvement. After eliminating non-value added transactions (as opposed to value added transformations), there are fewer opportunities for defects. Fast cycle time organizations experience more rapid feedback throughout the supply chain as downstream customers receive goods closer and closer to the time they were manufactured.

    Cost savings: Cycle time reduction saves costs.

Typically, optimizing efficiency in production processes helps you cut down on cycle time, which saves you money. This often results from thorough analysis of every step of the development and production process, refinement of inefficient steps and removal of steps unnecessary to the process. Each hour or day cut from the product cycle time saves money spent on labor, equipment and utilities used in production.
For example, if manufacturing cannot respond quickly and if a high service level isdesired, then the organization must either keep high inventory or lengthen the promisedlead time. Also consider a service industry: Suppose the central store spends less time on internal clients, they will save on deterioration, pilferage and insurance if some of the inventory is insured. 

    Distribution Channel Benefits
Within a traditional distribution channel, manufacturers produce and then sell products to distributors or retailers, which eventually sell goods to consumers. Maintaining close relationships in your distribution channel is important to manufacturers, and reducing product cycle times helps you meet the needs and requirements of distribution channel partners. This strengthens your position and makes you more attractive for other resellers looking for efficient producers.
Cycle time reduction results in simplified processes with fewer steps. In most cases, a process that has fewer steps will yield fewer mistakes. Simpler processes produce fewer errors.

Common methods to reduce cycle time
There are several efforts suitable for reducing cycle times. Streamlining multiple efforts, however, can yield a much more efficient process resulting in cost and time savings and customer satisfaction. When reducing process cycle time, consider a combination of the following ideas.
Perform activities in parallel. Most of the steps in a business process are often performed in sequence. A serial approach results in the cycle time for the entire process being the sum of the individual steps, not to mention transport and waiting time between steps. When using a parallel approach, the cycle time can be reduced by as much as 80% and produces a better result.
A classic example is product development, where the current trend is toward concurrent engineering. Instead of forming a concept, making drawings, creating a bill of materials, and mapping processes, all activities take place in parallel by integrated teams. In doing so, the development time is reduced dramatically, and the needs of all those involved are addressed during the development process.
Change the sequence of activities. Documents and products are often transported back and forth between machines, departments, buildings, and so forth. For instance, a document might be transferred between two offices a number of times for inspection and signing. If the sequence of some of these activities can be altered, it may be possible to perform much of the document's processing when it comes to a building the first time.
Reduce interruptions. Any issue that causes long delays and increases the cycle time for a critical business process is an interruption. The production of an important order can, for example, be stopped by an order from a far less valuable customer request--one that must be rushed because it has been delayed. Similarly, anyone working amidst a critical business process can be interrupted by a phone call that could have been handled by someone else. The main principle is that everything should be done to allow uninterrupted operation of the critical business processes and let others handle interruptions.
Improve timing. Many processes are performed with relatively large time intervals between each activity. For example, a purchasing order may only be issued every other day. Individuals using such reports should be aware of deadlines to avoid missing them, as improved timing in these processes can save many days of cycle time.
A case study in streamlining
Consider an electronics manufacturer receiving customer complaints about long order processing times--a cycle time of 29 days. An assessment of the order processing system revealed 12 instances where managers had to approve employees' work.
It was determined that the first 10 approval instances did not yield detailed reviews because managers felt the activity was an interruption when there were other activities that needed to be addressed. Those initiating the orders, therefore, were given authority to approve their own work. This saved an average of seven to eight days in the order processing activity.
Many subsystems had interfered with the process--each performing the same or similar tasks. The logical step was to perform redundancy elimination, and a detailed flowchart of the process was created. At closer inspection, 16 steps proved very similar to one another. By changing the sequence of activities and creating one companywide order document, 13 of these steps were removed.
Over a period of four months, the order system was totally redesigned to allow information to be entered once and become available to the entire organization. Due to this adjustment, activities could be handled in a parallel manner. After a value-added analysis, the manufacturer was able to reduce cycle time from 29 days to 9 days, save cost and employee time per standard order, and increase customer satisfaction.
The good news is that almost every company is a good candidate for cycle time reduction.



“Anybody can succeed if they discover their talent and purpose for living, go ahead to develop it and take a step to deploy it. The 3 Ds (Discover, Develop and Deploy) have shaped my life and, it is a personal success model that can positively affect other people’s lives”. 

Who is Moses Kasakya?

Moses Kasakya was born in Budaka district in Eastern Uganda. It is also here in Budaka that he got his Primary and O-Level education. He later moved to Masaba senior secondary school for his A-level where he undertook Mathematics, Economics and Geography. From there, Moses went to Makerere University for a Bachelor of Commerce Degree where he graduated in January 1994. Moses is also a member of the Institute of Certified Public Accountants of Uganda. Moses has a Post Graduate Diploma in Financial Management and Post Graduate Diploma in Revenue & Tax Administration. Moses has over the years undertaken specialised trainings in Leadership, Fraud Risk Management, Corporate Integrity and Internal Audit. He is also a member of the Institute of Internal Auditors, USA.

With such education background (which he terms simple education), Moses is so much more than what the eyes see. Within him lays a wealth of knowledge and determination, within him a clear conscience exits, and when you chat with him, his words scintillate with a lot of remarkable brilliance.

Professional Journey

Moses’ professional journey has been a steady and progressive affair. In his own words, Moses says that “God has blessed him where he has been able to move from glory to glory as far as his professional career is concerned”.

Moses started working when he was still a student at Makerere University as a Research Assistant at Uganda Bus Company.  As a Research Assistant, his role was to collect relevant information that would enable the management of the bus company devise means of competing in the transport market. At that time tax commuter vans (matatu) were posing a direct competition especially for shorter around-town trips like Gayaza, Lugazi and Kayunga. Moses also taught Economics in Butebo S.S, Palisa District.

Immediately after completing his studies at Makerere University, Moses joined Kyagalanyi Coffee Limited as an Accounts Clerk. In 1996 he joined J. Lutta Coffee Limited (defunct) as an Accountant. In September 1997 he joined Uganda Revenue Authority (URA) where he began as Assistant Revenue Officer in Customs for 3 months. In 1998, Moses was posted to Jinja as Head of VAT Audit for two years. In 2000, he was posted to Tororo as the District Revenue Officer for two years. In 2002 he was posted back to Kampala to work in the Commissioner’s Office as a Tax Inspector where he was tasked with responsibility of advising the commissioner on Compliance matters at districts.

In 2004, he was appointed as Senior Revenue Officer, Internal Audit. Towards the end of 2004, URA commenced a restructuring program following results of the commission of inquiry. Following the restructuring exercise, Moses was appointed as a Supervisor, Tax Investigations in May 2005.

Towards the end of 2007, Moses took leave to go ponder and pray about his stay in URA as a “tax collector”. Being a Christian, the phrases like “tax collectors will not go to heaven” had started to affect him. During this break he learnt that tax collection is biblical and that those that won’t go to heaven are those that either cheat the taxpayers or cheat the government as advised by John the Baptist when tax collectors sought him out (Luke 3:12-13). Further appreciating that tax was to enable government administrators provide public services where individuals cannot afford on their own like construction of roads and other infrastructures; and that everybody must pay their debts including tax as biblically advised by Paul (Romans 13:5-7). Most satisfying was when he affirmed that even Jesus paid tax (Mathew 17:27). Moses’ conclusion was that if the process of tax collection that ends with tax payment was evil, Jesus would not have accepted to participate in it.

While still on leave where he had gone to ponder on his stay in URA, where he made interesting discoveries, Moses was recalled by his Commissioner and asked to manage a new project, the Compliance & Integrity Enhancement Project. As Manager, Compliance & Integrity Enhancement, Moses was to advise management on best practices in Compliance and Corporate Integrity and also coordinate implementation of Integrity Enhancement Initiatives.

The objective was to develop integrity driven workforce to enable the Authority accomplish majorly four outcomes i.e. Increased revenue yield, Reduction in costs of fraud, Improvement in Client satisfaction and attain Positive Reputation for the organisation and individual staff. To Moses, this was an exciting opportunity to positively impact the values of his fellow workmates. “This was and is an engagement I am so proud of” he said, with his eyes glowing with contentment. In light of the integrity enhancement program, and with support and involvement of the URA top management, the URA Integrity Perception index made a drastic gain from 51% at the time to about 80% in five years.

After 5 years in that position, Moses felt it was time for a move. He got an opportunity, Umeme Ltd as Integrity Manager responsible for forensic auditing, internal policy compliance, corporate integrity and physical security. This move to Umeme Ltd helped him to advance his exposure to a publicly listed organisation.

In November 2015, Moses got another opportunity with the Uganda National Roads Authority (UNRA) as the Director Internal Audit. He is part of the top management team tasked with the responsibility of transforming UNRA’s performance following the public scandals around its operations.

Also worthy noting is that in between all his assignments in the different organizations Moses continued teaching on professional accountancy courses, particularly Advanced Financial Accounting, Taxation and Audit. He believes teaching is one of his purposes for living. He contemplates progressing this calling through publishing articles or books that will be relevant even to people in places he can’t reach or long after he is gone.

On how he achieves objectives

As a Director, my role is to identify the “end in mind” in line with the company strategy. Then sell that “end in mind” to key stakeholders while accommodating prudent adjustments. In my case the key stakeholders are the Board Audit committee, Audit clients/ management and my staff.

With clear sight of the “end in mind”, I put my controls on majorly two things. One is the plan plus resources to achieve the “end in mind” and the other is to ensure quality of the final product of our services. In this case the quality of findings in the report and advise therein. I normally do not entertain results of “excited” auditors. I entertain results with sufficient evidence and those that address risks which make a boss lose sleep. In between the plan and final product I let employees deploy their creativity as this boosts their morale and interest in their work.

Both by law and company policy, UNRA employs CPAs i.e. Members of ICPAU across the various directorates and specifically in Finance and Audit. In internal audit department we also have other major professionals such as engineers and IT professionals.

On Staff training and knowledge enhancement

“The management team at UNRA led by Mrs. Allen C. Kagina believes that the foundation of success of any institution lies in the quality of the employees. At UNRA we assess quality of staff on four fronts; we review whichever staff are competent, productive, motivated and are of integrity” Explained Moses. To this end we dedicate sufficient resources to improving the quality of our staff including training.

On the role of ICPAU in promoting the accountancy profession in Uganda and beyond

I remember when ICPAU came in as the national accountancy body. It came in with a massive and aggressive program of encouraging people to study accountancy and it continues to do so. Secondly, it developed the curriculum to guide trainers of the profession. It also enforces the quality of the final products (we accountants) to be released to the public through administering examinations

The Institute enforces quality of the accountants through mandatory continuous development programs or else some would become stale and an embarrassment to the profession. It further maintains up-to-date articles via the website. It also registers and publishes a list of members on the website to make it easy for interested parties to confirm who is a CPA and who is not.

The lobbying for the Accountants Act, 2013 was a milestone for the accountancy profession as a whole. Unlike before, masquerading as an accountant has become a crime. The institute also lobbied government to sponsor candidates especially those working with government entities and this boosted the numbers of accountants in Uganda.

However, I believe that the Institute should do a little more on fighting fraud in the country. He therefore calls upon ICPAU to be more proactive take initiatives to investigate into media reports; The Institute will not only enforce its public interest but also save the country’s resources for the benefit of all of us and for generations to come.

OnRole of Government in promoting accountability

I believe Government always means well. It has put in place infrastructures that enable accountability and ensure standards are followed. Some of these include the enactment of the relevant laws like the Accountants Act, 2013, Public Finance Management Act, 2015, Leadership code administered by IGG, Anti-Corruption Act and setting up the Anti-corruption court.

The Government also put in place services of Auditor General to check and advise on compliance, effectiveness of controls and value for money. It also set up respective Committees of Parliament to review accountabilities of Government votes. The Government has also invested in automated information management system (IFMS) that boosts efficiency in accountability and continuously institutes commissions of inquiry where things go wrong.

To that end it is objective and fair to say that government means well on matters of accountability. However, it still comes back to us the professionals in our respective industries to ensure that we live up to our codes of conduct.

A word to Accountants

First and foremost, it’s a privilege to qualify and enroll as an accountant. It is only accountants that are most likely to be found in every entity including spiritual entities given that all entities have money matters.

Accountants should position themselves as strategic business advisors and not gain comfort in being book keepers or just producing financial reports. In addition to analyzing the financial data and hopefully its implications, the accountants should go ahead and advise on viable business opportunities or better still use the accounting knowledge and skill to start business ventures to boost the economy.

I also encourage accountants to explore the political platform in Uganda, specifically the Parliament of Uganda to help law makers on matters of finance.

I call upon all accountants to uphold integrity; acting with integrity minimizes some risks and illnesses associated with stress. People whose wealth is through fraudulent means never gain complete joy in life as the fraud element always comes back to haunt them, say when a child or friend inquires into how they made money even when the inquest is innocent. People would rather develop the potential of someone with integrity and let go of a competent product that is fraudulent.

Small and Medium Practices (SMP) still a long way to the top of the class

Small and Medium Practices (SMP) still a long way to the top of the class

The commercial banks will soon start publishing their abridged audited accounts for the year ended 31 December 2015; in the New Vision and Daily Monitor. What will be evident is that the external auditors will be one of the Top 5 firms (PwC, KPMG, EY, Deloitte and PKF). For purposes of this article, the author has restricted himself to just 2014 and 2015 but a more expensive research will be extended to 20 years back.

In December 2013, the Bank of Uganda (BOU) published a list of 56  auditing firms that had passed the test and were thus considered suitable to audit the financial statements of commercial banks, credit institutions and microfinance deposit taking institutions (Tier 1,2 and 3). The list was compiled by BOU after the auditing firms have submitted their pre-qualifications documents by the due date. The author had not yet established the total number of auditing firms that had submitted their pre-qualifications documents to BOU.

Suffice to know that those 56 firms were all duly authorised firms approved by the Institute of Certified Public Accountants of Uganda (ICPAU). By that time, the total number of auditing firms approved by ICPAU was close to 190, meaning that about one-third had been pre-qualified by BOU.

However, the number of Tier 1-2 financial institutions is limited and not all the firms will get an audit. The table below shows that out of 27 Tier 1-3 financial institutions, only five of the 56 firms got an audit for the year ended 31 December 2014. The top three of PwC, KPMG and EY had the lion’s share auditing 22 of those financial institutions which constituted 97% of the total assets of that population – which stood at UGX 18 trillion (US$ 5,300 million). Compare this to assets of about 90 members of the Association of Microfinance Institutions of Uganda (AMFIU) which added up to between US$300-400million.

Source: Author’s own compilation from published accounts in newspapers
The story of dominance by the top firms may not be very different come 2015.

Of particular interest are the following statistics:

•    Out of the 56 auditing firms that were on the pre-qualification list in 2014, a total of 18 were unsuccessful in their bids for 2015. The author will attempt to find out why that was the case. It could be that the audit firm did not pass the BOU requirements or they did not meet the deadline or did not submit a bid altogether; these facts will be established;

•    For the year 2015, BOU pre-qualified a total of 64  audit firms. Notably, a total of 26 new audit firms were added onto the list which was a welcome boost to those firms. The author will in due course engage the BOU to find out the criteria for inclusion or exclusion of an audit firm from the pre-qualification list; and

•    Out of the 64 audit firms pre-qualified for 2015, a total of 22 of them were sole proprietorships. Originally, there was a view that only audit firms with at least two partners would be eligible for BOU pre-qualification, but that assertion has now been proven incorrect.

Is the situation in Kenya, Tanzania and Rwanda any different?  

Kenya has over 500 auditing firms registered with the Institute of Certified Public Accountants of Kenya, but with 56  commercial banks, mortgage financial institutions and microfinance banks. On the other hand, Tanzania has close to 150 auditing firms registered with the National Board for Accountants and Auditors of Tanzania, but with 44  commercial banks, finance leasing companies and other financial institutions. Last but not least, Rwanda has close to 35 auditing firms registered with the Institute of Certified Public Accountants of Rwanda, but with 17  commercial banks.

In Q2 2016, the author will have established whether the financial institutions in Tanzania, Kenya and Rwanda primarily also use appoint the top firms of PwC, KPMG, EY and Deloitte as their external auditors or is it a good mixture of the top firms and SMPs.

Do SMP have a chance on the Tier 1-3 cake?

The author thinks the SMPs have a good chance but one would need to dig deep into the critical success factors why the Tier 1-3 financial institutions continue to prefer PwC, KPMG, EY and Deloitte as their external auditors. In the meantime, the SMP have to be contented with auditing forex bureau which number over 200; non-deposit taking microfinance and SACCOs which could be approaching 2000 in number across Uganda. Should BOU consider regulating these Tier 4 institutions in the future, then the auditor’s pre-qualification list will end up being the same as the ICPAU list in its entirety.

Today's Accountant Magazines