Recent events have underscored how vital it is that senior management set clear defined operational and reporting procedures.
In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.
HSBC executives have been accused by MPs of incompetence for saying they were unaware of tax evasion activities in their Swiss private bank. Chris Meares, the ex-head of HSBC's private banking division, said he didn't know what staff "were up to".
This is not a new phenomenon for example I have worked in trading environments where totally unrealistic profit targets have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.
Some of the most spectacular financial disasters have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is! It is a truism that recessions catch what the auditors miss
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