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Financial Management

August 23, 2016

Situation

Our client managed an arrangement with an outsourced service provider that supplied advice and support directly to the public. This arrangement involved direct funding by our client of over $1,750,000 per annum.

Task

We were initially engaged to undertake a financial audit of the income and expenditure reported by the service provider over a selected period of the formal agreement between the parties. As the project was underway, this was extended to include a review of the effectiveness of the financial management of the arrangement between our client and the service provider.

Action

Our initial objective was the substantiation and verification of the external financial reporting and ancillary records relating to the funding of the service provider by our client. We subsequently conducted a detailed analysis of the underlying objectives of the relationship between the parties and whether the financial management principles and methodologies established in the formal agreement were the most appropriate to support this arrangement. The audit itself identified numerous instances of incorrect financial reporting by the service provider with a net cumulative result of over $1 million being erroneously reported over a four year period. This finding validated our supplementary conclusions that the financial management rights and obligations contained in the formal agreement between the parties were ineffective and required more clarity. We also determined that the financial requirements of the agreement represented an ineffective hybrid between a service provision relationship and a grant funding arrangement that was inappropriate under the existing circumstances and had contributed to the incorrect financial reporting not being detected in a more timely manner.

Results

Following the renegotiation of the formal agreement between our client and the service provider, this project resulted in a more robust system of financial management being established between the parties that is more appropriate to the particular objectives and arrangements in place. This result was a direct outcome of our extensive experience in the financial management field and our broader focus on underlying issues and potential solutions when undertaking client engagements.

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