Question Tag: Microfinance

i) The board of directors of the company is made up only of Mr. and Mrs. David Commodore:

• Contribution to Failure:
  • This structure does not promote sound corporate governance. A company with public accountability, such as a microfinance institution, should not have only a married couple as its board. This can lead to a lack of independent oversight and decision-making, increasing the risk of mismanagement.
• Recommendation:
  • The Bank of Ghana (BOG) should require all Microfinance Institutions (MFIs) to have a diversified board comprising both executive and non-executive directors, including independent members who are not related by family. This ensures that decisions are made with broader oversight and reduces the risk of biased or improper decision-making.

ii) The failure of the Bank of Ghana to examine or detect the non-submission of the fidelity returns submitted to it by the company and monitor the company adequately:

• Contribution to Failure:
  • BOG’s failure to monitor the company effectively allowed DCM to operate without proper oversight. This lack of scrutiny meant that financial irregularities went undetected, leading to the company’s eventual collapse.
• Recommendation:
  • BOG should strengthen its monitoring and supervisory mechanisms, including implementing automated systems that alert the central bank of non-submission of returns or irregularities in submissions. Regular and thorough inspections should be mandated to ensure compliance and detect potential issues early.

iii) The auditors have been the auditors of the company since its incorporation over ten years ago:

• Contribution to Failure:
  • Having the same audit firm for over ten years creates a familiarity threat, which can erode the independence and objectivity of the auditors. This long-term relationship may result in complacency and a failure to critically assess the company’s financial statements.
• Recommendation:
  • MFIs should be required to rotate their auditors after a maximum of five years. Auditor rotation helps maintain auditor independence and brings a fresh perspective to the audit, reducing the risk of oversight or bias.

iv) The failure of the auditors of the company to spot and question some dubious accounting treatments adopted by the company:

• Contribution to Failure:
  • The audit firm’s failure to question dubious accounting treatments is partly due to the conflict of interest created by the consulting services it provided to the company. This self-review threat compromised the auditors’ ability to remain objective and critical, allowing financial misstatements to persist.
• Recommendation:
  • BOG should enforce regulations that prohibit audit firms from providing both audit and non-audit services, such as consultancy, to the same client. This separation ensures that auditors remain independent and do not face conflicts of interest that could compromise the quality of their audit work.