...InTouch

 

  

       Issue 13    

 

Welcome

Since the last issue of InTouch, we have seen three large Australian organisations loose their senior executives due to poor risk management and poor governance.  We also saw two large financial institutions and a major retailer fined for breaching regulations. 

AWB, Sydney Ferries, Cross City Tunnels, JP Morgan, Safeway and Macquarie Bank all have sophisticated risk management and corporate governance systems and processes in place.  Are they good enough?  These organisations must not only seriously questions these systems and processes, but management must reinforce a culture for calculated risk taking, the need to take compliance seriously and most importantly consider all their stakeholder needs.

On a positive note, it is pleasing to see our hard work being rewarded by obtaining a position in the 2006 BRW UpStart list.  Thank you goes to our growing list of clients who rely on our skills to help them stay on top of the risk management challenge.

Enjoy this issue of InTouch.

Tony Harb

Director, InConsult

 

Risk Management, Audit & Compliance

  • A US company has hired Kenneth Starr, (yes, the prosecutor in the Monica Lewinsky case ) to take on Sarbanes-Oxley legislation by challenging the PCOAB and to argue that it violates the constitution's mandated separation of powers among the three branches of government.

  • Sydney Ferries CEO has departed after several accidents and poor vessel maintenance. In September 2005, the Chairman and Risk and Safety Manager quit after bungled alcohol and drug testing procedures.

  • The Cross City Tunnel consortium has dumped its CEO just 2 months into his new contract after months of continuous public backlash and failure to attract more than 30,000 cars a day has become too much for the $680 million tunnel's financial backers in Hong Kong and Germany.

  • According to CFO.com, many organisations would prefer a risk-based strategy to Sarbanes-Oxley compliance that would dispense with the ''checklist'' approach and enable them to channel corporate energies toward the most serious problems.  We strongly agree.

  • The CEO of the Australian Wheat Board has quit after allegations of  AWB paid kickbacks to Saddam Hussein's regime under the United Nations oil-for-food program. AWB was also removed from the RepuTex index, a key index that includes companies on the basis of social responsibility. The share price has fallen by  around 40%.

  • Ethical investment funds could sell out of BHP Billiton after the Federal Government widened the kickbacks-for-Saddam inquiry to include the world's biggest miner. Current and former BHP executives could face potential jail terms over their dealings in Iraq.

  • Safeway  supermarkets has been fined around AUD$9M for price-fixing and misusing its market power in the bread market.  The court found Safeway's misuse of its market power against other retailers was "deliberately calculated to restrict competitive conduct". 

  • In the US, a Deloitte & Touche auditor has lost a CD with confidential information on thousands of current and former McAfee employees, putting them at risk of identity fraud. The auditor left an unlabelled CD in an airline seat pocket.

  • A recent ASIC survey of 1250 Australian businesses confirmed that 99% of companies surveyed reported material changes to their accounts after adopting international accounting standards.

   
Financial Services Brief
 

  • The International Association of Insurance Supervisors has issued a 'roadmap' for developing international standards to assess an insurer solvency.

  • Macquarie Bank has admitted that one of its London-based traders invented a fictitious trade late last year that resulted the Sydney Futures Exchange fining the investment bank $20,000.  The SFE concluded that a Macquarie Bank trader had demonstrated "a clear disregard of the (exchange for physical) trading principles" as the trader  "knowingly (gave) incorrect information to the exchange.

  • JPMorgan has been fined $40,000 by the ASX for failing to declare a significant breach of capital requirements on a portfolio trade worth almost $1 billion.

  • Online Super has been placed in administration.  The company  promoted self-managed super funds and steered clients into risky mezzanine lending products with the now collapsed Westpoint group.  The wind-up proceedings was brought about by the Australian Taxation Office over tax arrears of about $300,000..

  • 6,000 investors could lose $1 billion after the failure of property giant Westpoint.   ASIC is now investigating what could be the biggest corporate failure since HIH.

  •  A bank employee has misappropriated around $7.2 million from her employer.  The employee processed over 50 false accounts and loans between 2001 and 2004.

Enron Update

 

The fraud trial of Enron's bosses' has begun. 

 

A pool of more than 100 potential jurors reported to the US courthouse where 12 jurors and four alternates will be chosen to hear the case. Former Chiefs Mr Lay, 63, and Mr Skilling, 52, took the company on a see-saw ride as it rose to become the seventh largest US company, then plummeted into bankruptcy in a financial scandal. It was the Enron fraud and other failures that led to the passage of the 2002 Sarbanes-Oxley Act that toughened financial reporting and auditing requirements for publicly owned companies.

 

Combined, the two men face more than three dozen fraud and conspiracy charges that accuse them of lying to investors about the company's financial state while they enriched themselves by selling millions of dollars in stock.

 

Former CFO Mr Fastow, has pleaded guilty to 2 conspiracy counts and agreed to testify against his former bosses in exchange for a maximum 10-year prison sentence.

 

A former senior accountant for Enron's profitable trading division has testified that he improperly raided reserves to increase earnings in mid-2000 when he learned former Chief Executive Jeffrey Skilling wanted to beat Wall Street expectations. $14 million was added to reported income so Enron could announce earnings-per-share of 34 cents rather than the 32 cents Wall Street expected, making the company appear more successful than it was.

 

Integrated ERM

 Corporate Governance,

Compliance, Risk Management

and Internal Audit.

InConsult Pty Ltd · L12, 35 Pitt Street · Sydney NSW 2000
Tel: (+612) 9241 1344  · Fax: (+612) 9253 3001
© 2006 All rights reserved

Email Us  |  Unsubscribe

 
    

 

Risk Management

     in 2020

InConsult presented their vision of risk management in the year 2020  to members of Institut Bank-Bank Malaysia (IBBM). 

IBBM is the professional and educational body for the banking and financial services industry in Malaysia.

The audience comprised of risk, audit and compliance professionals from a cross section of Malaysia's national and international banks.

As we move towards the year 2020, improving technology will see risk management:

  • shift from structured to totally integrated through the use ERM technology,

  • move from reactive to responsive, and

  • become a basic management competency, just like communication and people skills.

(L-R) CY Wong, Christina Ang (IBBM Content Manager), Dr Kamal Khir (IBBM Director) and Tony Harb

 

InConsult makes

    2006 BRW UpStarts

InConsult has made the 2006 BRW Upstart list released by BRW Magazine on February 16. 

The list ranks InConsult at number 67.

Ok, Ok, stop laughing.  We all have to start somewhere!

 

ERM QuickStart

   "take your first step"

  • Are you thinking about introducing a structured risk management program, and success is critical?  Do you have a limited budget and want to get it right the first time?

  • ERM QuickStart helps you take the important first steps in developing your risk management program.

  • Want to know more?  Click here to email us.

 

 Corruption

 

In a recent AFR article, research by Miller, Roberts and Spense identified 6 features of corruption that can help identify and analyse corruption :

 

1.  Power;

2.  A disposition to exercise that power;

3.  An opportunity to exercise that power;

4.  Invisibility or concealment;

5.  Self-regarding gain; and

6.  The abuse of a pre-existing fiduciary duty of trust.

 

So what strategies can an organisation adopt to reduce the risk of corruption?:

 

1. Reduce or eliminate the opportunity for corrupt behaviour.
2. Segregate duties within an organisation so as to reduce and dilute the concentration of power.
3. Reduce concealment of corrupt behaviour.
4. Reduce the incentives for self-regarding gain at the expense of the corporation.
5. Generate and sustain, through ethical education, an ethical corporate environment that both encourages and rewards the ethical disposition and actions of executives and employees of the organisation.

 

Source: AFR

 

 

Australia Fails Anti-

Money Laundering Audit

According to the FBI, the Russian mafia launders $US36 billion ($48 billion) through America each year.

In Contrast, the Australian Government estimates that $2-3 billion is laundered in Australia each year.

Yet, an audit by the world's top anti-money laundering body, the Financial Action Task Force, concluded that Australia met only 12 of its 40 criteria.

The report states that:

1. Australians have no obligation to disclose the beneficial owners of trusts,

2. Transaction reports by all types of financial and non-cash dealers are inadequate, and

3. "Investigators generally do not investigate". There have been just three convictions for indictable money.

Source: Sydney Morning Herald.. 

 

New APRA Standards

              Released

The Australian Prudential Regulation Authority has released new prudential standards as part of its general insurance stage 2 reforms

The three standards are GPS 220 Risk Management, GPS 230 Reinsurance Management, and GPS 310 Audit and Actuarial Reporting and Valuation.

The standards include a requirement for:

  • provision of a rigorous business plan including the insurer's ability to meet future capital requirements;

  • senior management to provide a financial information declaration annually;

  • documentation of reinsurance arrangements including a reinsurance arrangements statement;

  • prior approval of limited risk transfer arrangements; and

  • approved actuaries to prepare a financial condition report annually.

  • APRA regulated general insurers must comply with the new standards from 1 October 2006.

Coming Soon

  • Getting prepared for the new Anti-money Laundering Act.