The Benefits Risks and Limitations of Lifestyle Audits
May 25, 2021
The Benefits Risks and Limitations of Lifestyle AuditsDownload Article
The ‘lifestyle audit’ is a buzzword on the South African anti-corruption agenda. In 2018, incumbent president Cyril Ramaphosa called for lifestyle audits on people in positions of responsibility. Some state employees, including members of the Western Cape cabinet and South Africa’s national power company Eskom, have already been subjected to lifestyle audits.
The South African Revenue Service (SARS), which has been conducting lifestyle auditing for years, announced it would undertake lifestyle audits to recover undisclosed taxes. In 2019, auditing giant KPMG introduced lifestyle audits for its employees to promote integrity and identify possible abuses of internal processes and client contracts.
For public and private-sector investigators, some legal restrictions and nuances need to be navigated. In our view, lifestyle audits should not be ad hoc or be used to make definitive assessments. They are more effective as part of an overall monitoring programme or screening process to red flag areas of concern warranting further investigation.
"Lifestyle audits are a valuable tool in the fight against fraud and corruption, but they come with risks that must be carefully considered when relying on them."
The Lifestyle Audit: A Description
A lifestyle audit is a comparative exercise in which a person’s legitimate income is measured against their lifestyle.
If the audit reveals a disjunct between a person’s known financial affairs compared to their lifestyle and spending patterns—“living beyond their means”—then there is the heightened risk that the person is receiving alternative income.
This income may be from sources that present a conflict of interest or potentially illicit activities, including fraud, collusion, embezzlement, bribes, kickbacks, and tender rigging.