Beyond automation: The case for independent auditors in bonded warehouses
Bangladesh has embraced automation in bonded warehouse management, but without independent audits, negotiation-based corruption persists. A dual approach is now vital
A high-ranking official from the National Board of Revenue (NBR) was recently present at a forum discussing the post-budget implications. The NBR has made commendable progress by advocating for automation and MIS-based verification to curb corruption in bonded warehouse management.
However, automation alone cannot resolve the deeply rooted issue of negotiation-based corruption, particularly in bonded warehouse audits. To truly establish a transparent, unbiased, and corruption-free audit environment, the inclusion of independent third-party auditors is not merely beneficial — it is essential.
Automation reduces errors, not negotiations
MIS automation primarily helps to:
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- Prevent data entry manipulation.
- Ensure the accuracy of quantitative records.
- Streamline document flow.
Yet, the interpretation of MIS data verification and reconciliation results, production data, stock differences, waste levels, and inventory usage — particularly for work-in-progress (WIP) — often requires human judgment. This, in turn, leaves room for subjective negotiation between companies and inspecting authorities. In this grey area, negotiations, compromises, or even unethical dealings can occur despite digital systems being in place.
Independent auditors reduce mutual influence
A key advantage of independent auditors (third-party) — especially those appointed under Section 220 of the Companies Act, 1994 — lies in their legal and professional independence. This allows them to provide a more objective and impartial evaluation of financial statements and compliance.
They do the following:
- Operate under professional codes of ethics.
- Provide objective analyses of production capacity, raw material usage, and inventory levels.
- Restrict negotiation over MIS verification findings.
- Limit the scope for collusion by acting as an independent third party rather than a participant in bilateral agreements.
By removing direct dealings between the company and the inspecting authority, the scope for negotiation-based corruption is significantly minimised.
Why auditors complement MIS
Management Information Systems (MIS) and independent audits are not substitutes for each other; rather, they serve as complementary tools in governance.
On the one hand, MIS and automation provide accurate, real-time data that helps reduce clerical errors. They improve tracking processes and support transparency within organisations.
On the other hand, independent audits bring expert analysis and contextual understanding that MIS alone cannot provide. Auditors ensure unbiased interpretation of data, add accountability and assurance, and build trust through professional oversight.
Together, MIS delivers efficiency and precision, while audits strengthen credibility and governance.
Why the inclusion of CMA Matters
The inclusion of members of ICMAB is vital due to their specialised expertise in cost and management accounting, particularly in industrial and production environments. Their professional skills enable them to interpret complex data such as MIS report verification, WIP inventory, stock, and production metrics — areas that demand a high level of judgement and analytical ability.
ICMAB members are trained to handle these responsibilities with precision and objectivity, ensuring greater transparency and accountability in both financial and operational reporting.
Precedents and global practice
In India, the Customs Audit Regulation Act, 2018, mandates the inclusion of professional accountants in customs audits.
While MIS-based systems are undeniably a step forward, true audit integrity requires the synergy of automation and independent verification. By formally including qualified, independent auditors in the bonded warehouse audit process, the NBR can achieve:
- Reduced corruption and negotiation-based irregularities.
- Increased tax compliance through objective reporting.
- Reduction in informal payments, thereby improving revenue integrity.
- Faster and smoother audit resolutions, as independent auditors provide pre-verified documentation.
- Enhanced government revenue collection.
- Greater trust and credibility in Bangladesh's export governance system.
A dual approach for genuine transparency
Effective MIS systems can reduce data manipulation, but only independent auditors can eliminate negotiation-based corruption and ensure genuine transparency. Combining MIS systems with independent cost audits (under Section 220 of the Companies Act, 1994) ensures that bonded warehouse audits are not only efficient but also accurate, unbiased, and free from undue influence.
It is therefore time for the NBR, BGMEA, and other key stakeholders to adopt a dual approach — one that integrates technology with professional independence to reinforce transparency and accountability in the bond licence renewal process.
Mohammed Salim is an FCMA and a past president and council member of ICMAB.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
