The Tribune

• Accountants see uptick amid COVID emergence

• Return to offices discovers suspect transactions

• Predictions of more work on govt benefit fraud

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian accountants have revealed a significant increase in demand for forensic services to detect potential financial crime, and trace assets, arising out of the economy’s post-COVID emergence.

Craig A “Tony” Gomez, the Baker Tilly Gomez managing partner, told Tribune Business that the noticeable “uptick” likely resulted from companies returning to the office environment and discovering financial transactions that stood out as suspicious or requiring answers as to the destination of funds/assets.

Besides the “change in business format” enforced by the pandemic, Mr Gomez said another explanation for the increase in forensic accounting requests was that some private sector firms had been delayed by the pandemic in summoning outside specialists to come in and provide scrutiny.

And he warned that he “wouldn’t be surprised” if forensic accountants were soon hired to examine the multi-million COVID-19 benefits and assistance payouts made by the Government, given that the need to rapidly pay-out this $300m-plus sum due to the nature of the emergency would undoubtedly see unscrupulous persons seek to exploit the lack of controls by perpetrating benefits fraud.

Mr Gomez, responding to a question from this newspaper on corporate insolvencies, said “what we expected during the pandemic has not happened” in that area of work. He attributed this to the fact that many clients of The Bahamas financial services industry were invested in the capital markets, which had held up reasonably well to the COVID pressures.

“We’re not seeing any uptick in that kind of business,” he added. “What we are seeing is an uptick in the need for forensic accounting, maybe because of the pandemic and change in business format. We all know one of the best ways to discover improprieties in the workplace is to have all the employees on vacation. We’re always cautious of one employee that can’t take a vacation.

“Unfortunately, because of the pandemic all employees were forced to break the cycle and work from home. As a result, a number of issues have come to light with employee improprieties and the need to bring in forensic accountants....

“If I were to put it in context, where we might have seen one [forensic accounting] case every second or third year of practice, we seeing maybe four to five over the last 12 months.” Mr Gomez was quick to point out that not all these cases may have occurred during COVID-19, and the pandemic was simply when they were discovered “due to the change in the workplace”.

Forensic accounting involves the tracing of monies and assets, and uncovering a transaction “paper trail” that is usually concealed by perpetrators to determine where they have ultimately ended up. Accountants are typically called on to perform these tasks when such transactions cannot be explained, and there is suspicion that fraud, embezzlement or some other ‘white collar’ financial crime is occurring.

Such services are also required to analyse financial information that forms part of legal proceedings before the court system, although Mr Gomez was quick to point out that not all forensic accounting assignments end up before a judge.

He added that in the US, just 30-40 percent of forensic accounting assignments come before the courts. This was because the companies involved did not want to attract negative publicity or felt that the costs involved meant it was just not worthwhile to initiate legal proceedings. In The Bahamas, most such cases involved employee-related fraud.

“The other significant statistic that plays into the pandemic scenario is fraud in the workplace probably takes 15 months to discover. Fraud is not something that happens today and is discovered tomorrow,” Mr Gomez said. ‘The pandemic has lasted 15 months. What you see now is that as businesses begin to ramp up they are discovering transactions on which questions arise.

“We see a bit of that occurring here in The Bahamas, where questions are occurring or arising. To get a handle on what is going on, firms are reaching out to forensic experts to have their queries addressed and answered.”

The Baker Tilly Gomez chief said the reversion to home working during the pandemic may have given unscrupulous employees the possibility to exploit the lack of oversight or internal controls that would normally be present in the office.

“A person operating by themselves or with a skeleton staff may find themselves in position to take advantage of less internal controls,” he added. “Not all of that will have happened in the last 12 months. It could have happened earlier, and a number of these cases may have been going on for a while, but with the change in workplace they have come to light.”

Mr Gomez predicted that Bahamian accountants will see increased demands for forensic services moving forward as a result of a recent court ruling that found assets held by a party prior to their marriage - either husband or wife - could be included in the matrimonial estate to be divided between both in the event of divorce, thereby increasing the motive for disguising or hiding assets.

And then there is the likelihood of COVID-19 benefits fraud. “In the US, because of unemployment benefits paid out, certain government agencies are estimating they will lose to fraud an estimated $31bn-$32bn,” Mr Gomez told Tribune Business. 

“We don’t have any indication of anything like that in The Bahamas, but remember we have paid out $90m in government-funded unemployment benefits, which is not a small amount in a country of our size and does not include monies paid out by NIB as part of the 13-week programme.

“We know that when money is given out like this, there are perpetrators acting either individually or collectively who seek to benefit from such a system. I wouldn’t be surprised if, moving forward, forensics are applied to a process like that in The Bahamas. It’s not unusual when massive amounts of funds are disbursed that people seek to unfairly take advantage of the process. I expect more will come.”

As at end-May 2021, the Government had itself provided $118m in unemployment assistance, including direct cash for unemployed and self-employed Bahamians. NIB, meanwhile, was said to have paid out $263.6m in employment benefit and assistance between August 25, 2019, and May 18, 2021.

Elsewhere, $25.9m was spent on COVID-19 public health and safety measures to ensure the healthcare system and healthcare workers had what they needed to function. Another $32.5m was spent in social assistance, mostly through the food assistance programme.

Some $44.5m was spent as part of a payroll support programme, which allowed private businesses to use tax credits to pay their employees, and $53.3m was spent in business continuity support to entrepreneurs and small businesses.

John Bain, managing partner at UHY Bain & Associates, yesterday backed Mr Gomez’s prediction that forensic accountants will be called upon to probe benefit fraud. While he had experienced no increase in demand for such services yet, he said: “I see a need for it.

“I see that there’s going to be a lot under the current situation, with no need for Parliamentary approval with a lot of things, but a lot of spending. I see in the future that there will be a need to answer for certain things. It hasn’t happened yet because the emergency orders are still in effect.

“But I think after that there will be a lot of questions asked as to how the money was spent, and to account for the money. I expect to see an uptick in times ahead with government-related stuff, especially if there are little controls on spending money and accountability for spending money.”

Kendrick Christie, another Bahamian forensic accounting specialist, confirmed to Tribune Business that he, too, had seen an uptick in such assignments which he attributed to “the perfect storm” of persons being out of office and also unable to travel and properly supervise/check on operations in satellite offices in the Family Islands.

“It’s certainly above what we’ve seen in pre-pandemic years,” he added. “There’s a change in the culture of some companies to pursue these matters rather than sweep them under the rug. There are a number of companies seeking to investigate properly, spend money, have it on record and learn from the experience.”

Mr Christie, though, said many companies seeking to pursue forensic accounting probes and trace/recover assets often became “frustrated” by the wait for cases to move through the court system. “I have two cases and it’s been two years on both of them,” he added.