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1/ We reviewed the signed Forensic Audit contract yesterday. Some of the criticism circulating in media recently was misplaced. There are weaknesses, but they're mostly, though not all, due to Leb law & institutional credibility of the Govt (as we said before).
2/ Anyone who has previously negotiated contracts with auditors would find that a large portion of the criticism circulating in the media was around terms that are *not* unusual for these types of contracts. I'll point these out below & mention where we think the real issues are.
3/ The Scope of Work is good, but it excludes deep dives into govt agencies (as expected). This was one of the biggest areas of concern. If the intent is to fight corruption, then there need to be explicit deep dives into every govt agency.
4/ Notwithstanding how good *any* scope is, you still need a client (MOF in this case) that is active, serious, & credible so that the scope is executed comprehensively. You cannot solve "govt credibility" problems in a contract.
5/ The contract price is not that much different from what was previously negotiated with Kroll for production of a Preliminary Forensic Audit Report (described in the next tweet). This idea that it is 4x higher than Kroll is not accurate.
6/ It's true that A&M is to submit only a Preliminary Forensic Audit Report within 10-15 weeks. We had criticized this as being too short (it may still be). But turns out this Report is only a "scoping" report to identify areas requiring further investigation shld Govt request it
7/ There should've been a pre-agreed framework to transition into the "deeper dive" phase. The contract makes reference to it very briefly. The Kroll contract went into more detail on this transition and what it entails, but still says "terms to be agreed". Similar but not same.
8/ The difference is that the A&M contract requires a more active effort by the MOF/Govt to transition into the deeper dive phase than the Kroll contract did (though it still did to some extent). This could become an impediment to the more detailed work later on.
9/ Egmont Group is not mentioned in the contract as some sides wanted. But it's not even clear what role Egmont can play (it seems none, so not sure why the focus on it, feel amateurish). But if Govt wants Egmont's support, nothing in the contract prevents it from asking Egmont.
10/ The Kroll contract did say that the Govt can *request* Egmont's support. But again, it doesn't make a difference because the Govt can ask either way. Egmont is not a party to this contract. There is no reason to mention it here.
11/ There was criticism in the media around Govt's ability to disclose or to use A&M's work in legal proceedings. The terms are standard and no different from what was negotiated w/ Kroll. Disclosure or use is permitted but subject to conditions, which is normal.
12/ Article 151 of the Code of Money and Credit (and the Banking Secrecy law) will likely prevent A&M from receiving all of the information and access to BDL employees it needs to comprehensively complete its work.
13/ A&M will generally send info requests to BDL (MOF commits itself to cooperating & to make best efforts under the law to ensure BDL cooperates). We don't see another way to do this under Leb law given MOF is the client & has little legal ability to force BDL's cooperation.
14/ BDL is not a party to the contract. MOF can't force BDL to cooperate. You can't commit BDL, an independent entity, to doing something in a contract it isn't a party to. There should've been an effort made to change the law to ensure BDL's cooperation and facilitate the work.
15/ As a result, A&M will rely mostly on data provided by BDL (if it provides any) to do its work. But BDL is the entity being audited. A forensic auditor should use its own computer forensic/data collection experts to retrieve data & not rely on the subject to provide it.
16/ Data can be incomplete or destroyed by the subject being audited. That's why you want the auditor to go in & extract data itself. This isn't possible unless the law is changed. You cannot go around the law in a contract. Hopefully A&M will be able to identify such obstruction
17/ Unlike Kroll's contract, there isn't enough discussion in the contract around how A&M's work intersects with the other auditors (KPMG and Oliver Wyman). This coordination can still be done, but you need a MOF that is willing to facilitate this work.
18/ Actually, in every case, you need a client that is willing to facilitate the work. If MOF (or BDL) are not active and cooperative participants, the work will not be done properly no matter what's in the contract or what's in the law. Kroll in Mozambique faced the same issues.
19/ In Mozambique, the Attorney General (a law enforcement agency) was Kroll's client. In Lebanon, it's the Ministry of Finance. If the agency overseeing the work does not have trust/credibility/independence/power, there is nothing you can put in a contract to get around this.
20/ The quality of A&M's work will, in part, depend on the cooperation of people/agencies whom it may be investigating. This is a fundamental issue that cannot be solved in a contract. The political & judicial systems themselves don't have any credibility to facilitate the work.
21/ There is no independent judicial in Lebanon to actually pursue legal charges in a professional and fair way against anyone implicated in a crime based on A&M's work.
The Govt must also commit itself to publishing the full findings.
The Govt must also commit itself to publishing the full findings.
22/ A&M will need to dive very deeply into transactions and contracts and have access to senior people to uncover any crimes. If it isn't able to do this at some point (b/c of the law or just non-cooperation), it may not be able to uncover much. Access to information is key.
23/ Kroll is clearly the more experienced of the two companies. There was a deliberate decision not to select it. That's not the say that A&M can't do the work, but Kroll was no doubt the more experienced. The Kroll contract actually shows how much more experienced it is.
24/ As the A&M contract has been signed, the company can now kick-off its work. I don't see how it will be able to do its work given the issues mentioned above, but MOF will have to quickly appoint qualified and trusted people to the 3-member committee that will oversee the work.
25/ The focus should've been on changing Leb law to facilitate the work, having an independent/credible entity overseeing the audit, expanding the scope into every major govt agency, committing to transparent process. The focus the last week has been mostly on trivial issues.
26/ One thing I forgot to mention was the time period. The A&M work will examine the previous five years. The Kroll contract instructed the company to do a high-level forensic audit and identify which time periods should be examined in more detail. I like Kroll's approach better.
27/ It's worth noting that the Scope of Work isn't only backward looking nor is it exclusively to discover crimes. It is financial information gathering and also involves a review of compliance and internal controls at BDL, and recommendations for improving them.
