Late last week the Financial
Services Authority issued a report of the activities in the years prior to the
HBOS bailout and concluded that the Banks Corporate Management had been guilty
of “very serious misconduct” but owing to the taxpayer stake means it faces no
fine.
One important finding was that the
Bank has misled its own auditors.
The integrity and reliability of
any organisation’s reporting structure are vital to its long term survival. All
too often risk controls are lax or can even be abandoned in the pursuit of
profits.
As in the above case it can prove
a false comfort to rely on the findings of the Auditors. Some of the financial
instruments were so complicated that even their own architects could not fully
understand the full implications. At the other end of the scale how worthwhile
are the observations of a junior member of an audit team sent to a warehouse to
give a competent value of stock being shown as an asset on the company’s book.
Even with the most rigorous reporting
procedures any company is still heavily reliant on the calibre of the people
operating the business and recording each and every transaction diligently.
A prudent exercise for any
organisation is to regularly assess and test the systems in place for
monitoring risk both transactional and counter party to judge that they are fit
for purpose.
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