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From pharaohs to forensic accounting

Tristan Yelland Tristan Yelland

Forensic accounting first originated in ancient Egypt as a way to stamp out corruption under the rule of the pharaohs. Tristan Yelland explains how and why forensic accounting is just as relevant in the fight against corruption in Africa today.

Ancient Egypt was Africa’s first great dynasty and is widely credited with many inventions that are still in use today. These range from paper (papyrus) and ink, to irrigation, cosmetic make-up and the 365-day calendar.

What is perhaps less well known is that ancient Egypt also gave us an embryonic form of forensic accounting, as well as some of the earliest documented anti-bribery and corruption policies.

These last two inventions were borne out of necessity and designed to combat fraud and corruption amongst the pharaohs’ government officials. Fast forward several millennia to the present day, and fraud and corruption are no less of a problem than they were in Ancient Egypt.

Like then, modern forensic accountants are at the forefront of the fight to prevent it...

A history of corruption in Africa

While global scandals such as Petrobras, 1MBD and the Panama papers show that corruption is not just an African problem, Transparency International’s latest Corruption Perception Index suggests that corruption is more pervasive in Africa than anywhere else in the world.

Sub-Saharan Africa is the world’s lowest-scoring region, with an average score of 32 out of 100, compared to a global average of 43. Countries faring particularly badly are Somalia (12), South Sudan (12), Sudan (16) and Equatorial Guinea (16). Even Africa’s largest economies of South Africa (44), Egypt (33) and Nigeria (25) don’t score well.

Recent years have seen a number of high-profile corruption scandals brought to light across the African continent. These include the Luanda Leaks, an investigation into corruption in Angola during the 38-year long regime of President José Eduardo dos Santos, and the ‘State Capture’ matter in South Africa, in which former President Jacob Zuma is alleged to have colluded with private companies and individuals to embezzle billions of dollars of public funds.

It may therefore be tempting to think that corruption – and particularly corruption by unscrupulous government officials - is a relatively recent development in Africa’s history. However, a look back in time reveals that this is not the case.

Corruption is an ancient problem

Most of us are familiar with ancient Egypt as a dynasty ruled by pharaohs, of vast pyramids, mysterious mummies, and powerful and exotic gods. But it was also a dynasty that struggled with the misappropriation of government assets and in which government officials abused their positions of power to steal from ordinary citizens.

Ancient Egypt had no currency and no banks. Rather the pharaohs’ vast wealth took the form of stocks of gold, grain and other commodities.

Unfortunately for the pharaohs, these presented easy and tempting targets, and many of their advisors gave in to temptation and stole from their leader. The pharaohs’ needed to fix this problem, and their solution was to turn to specially trained scribes.

The first forensic accountant and internal controls

Scribes played an important role in ancient Egyptian society and politics. As skilled professionals who had mastered the hieroglyphic language, they were employed to record everything from court proceedings to wills and magic spells.

Scribes were also trained in numeracy and record-keeping, and it was these skills that the pharaohs deployed to safeguard their assets and root out corruption.

The scribes developed a sophisticated record-keeping system, which noted every addition and withdrawal of gold or grain, not unlike modern debits and credits. This is now regarded as the ancient origin of modern bookkeeping.

To prevent and detect errors or theft, the scribes also created a complex internal verification system. To operate the system, scribes used bone tokens to record details of inventory owners and amounts.

These were then cross-referenced to a master control document, and any discrepancies were investigated. It is this system of verification that is referred to by scholars as the first recognizable example of forensic accounting.

It also served as a powerful deterrent to any inventory owner who may have harboured thoughts of stealing from the pharaohs. If they were caught, the punishment would likely have included beatings or mutilation.

To ensure that scribes didn't fall victim to the same temptation as other officials, the pharaohs employed two scribes to record each transaction in the ledgers independently. As long as the scribes’ totals agreed at the end of the day, there was no problem.

But if the totals were materially different, both scribes would be put to death. It may have been harsh, but it was also the world’s first internal control.

Scribes as forensic accounting investigators

Despite these measures, corrupt government officials continued to find ways of lining their own pockets. Often, this was at the expense of ordinary citizens through tax collection.

In the absence of currency, tax was levied in the form of grain or other commodities. Tax collectors were enormously powerful and would tour the empire, making assessments of what was due. Corrupt tax collectors would over-charge citizens, skimming the excess off the top before depositing the correct tax payment in the pharaohs’ grain stores.

However, where such officials grew noticeably rich, the pharaohs used scribes to investigate the source of their newly acquired wealth.

In one recorded example, a pharaoh learned of the construction of a complex of lavish, but unexplained, buildings and monuments. Concerned that the funding for the buildings might not have been legitimate, he ordered two scribes to investigate the source of funds and report back to him. This is not dissimilar to the application of Unexplained Wealth Orders today.

The “eyes and ears” of the pharaohs

It's no surprise then that the scribes of ancient Egypt came to be referred to as the 'eyes and ears' of the pharaohs.

They were an integral part of ancient Egypt’s political and economic machinery and safeguarded both pharaohs and ordinary citizens from corrupt government officials. They devised systems to pro-actively prevent and detect fraud and corruption and investigated allegations when crimes were suspected to have taken place.

For this reason, scribes cannot only be considered the forefathers of modern forensic accountants. They could also be said to have set a precedent for the role forensic accountants can play in combating fraud and corruption.

The clamour for change today

Cases such as the Luanda leaks and the state capture matter in South Africa have shone a spotlight on modern corruption on the African continent.

Like the ancient Egyptian tax collectors who defrauded their citizens, a common feature of these cases has been the abuse of power by government officials to enrich themselves at the expense of the populations they govern.

The difference is that modern officials are doing it on a much larger scale - what has come to be known as 'grand corruption'. Rather than demand excess tax from an individual (petty corruption), corrupt public officials might now award government contracts to companies of which they themselves are the beneficial owner, effectively diverting vast amounts of public funds to their own accounts, to the detriment of large swathes of the population.

The causes of corruption in Africa are enormously complex and varied and have been considered in detail by academics, intergovernmental organisations and not-for-profit groups alike. Though their conclusions may vary in some respects, all are agreed that there is an urgent need to address the problem.

On a corporate level too, medium-to-large European and American firms that have significant exposure to the UK Bribery Act or the Foreign Corrupt Practices Act are raising awareness among African governments of the importance of the fight against fraud and corruption, while citizens have begun harnessing the power of social media to demand accountability and transparency from those in power.

In parts of Africa, people and governments are starting to take notice of the clamour for change. Recent years have seen several African leaders come to power on the back of popular anti-corruption agendas, amongst them Cyril Ramaphosa in South Africa and George Weah in Liberia.

Why scribes and why forensic accounting

As was the case when the pharaohs employed the scribes, the growing emphasis on the fight against corruption has once again brought forensic accounting to the attention of those governments and stakeholders across Africa who are intent on bringing about change.

Indeed, following regime changes, several African governments have pro-actively sought the services of forensic accountants, including our firm, to assist them with the investigation and recovery of state funds that were embezzled by previous administrations.

Like their ancient predecessors, forensic accountants use sophisticated accounting and investigative techniques to prevent, detect and correct fraud and corruption. But where the scribes had to rely on bone tokens that were inscribed with hieroglyphs, the modern forensic accountant has an array of tools that can be deployed to assist with an investigation. These range from sophisticated document review platforms to state-of-the-art data analytics programmes to the latest computer forensic technologies.

Armed with these tools, as well as a dogged and questioning mindset, a skilled forensic accountant can identify those transactions that seem odd or out of place, to look behind the façade of a company to reveal its true beneficial owners or unwind complex and deceptive accounting entries to trace money that may have been laundered through offshore shell corporations.

A skilled forensic accountant will pursue all leads until a crime has been exposed or an asset repatriated.  

Forensic accounting offers hope for the future

The picture painted of corruption in Africa is often a bleak one, but there are signs of hope for the future. Already, some countries are making progress:

On 23 August 2017, João Lourenço was elected as the President of Angola, marking the end of the long-running regime of José Eduardo dos Santos. Since then, the new Angolan government has embarked on a high-profile anti-corruption drive, which has led to the recovery of USD 5 billion in stolen assets and earned its new president the nickname 'The Terminator'.

Although examples such as this are encouraging, much more work needs to be done, and the spotlight will likely continue to shine on African corruption for the foreseeable future.

Against this backdrop, the pivotal role played by scribes in preventing and detecting corruption in ancient Egypt serves to highlight the significant contribution that forensic accountants are poised to make in the fight against corruption in present-day Africa.

For support in using forensic accounting to help your business, contact Tristan Yelland.