RBI ORDERS SPECIAL AUDIT OF BANK OF RAJASTHAN

Deloitte was appointed to do a special audit at Bank of Rajasthan under the authority of the Reserve Bank of India (RBI). This audit was ordered as a result of anomalous operations by BoR.
Deloitte has to audit the bank’s lending policy and the information security system.
Knowing that special audits (ordered by RBI) are uncommon, Bank of Rajasthan must have done very irregular transactions.

Last week, BoR was already under fire because of breaking the law on different occasions, such as anti-money laundering, not supplying some documents to RBI, …
Besides, management of BoR is not always reliable so the RBI imposed a special audit.

Furthermore, Bank of Rajasthan has only one committee to accept loans. This approach is different compared with other commercial banks, who have more committees. For instance, a local office can accept loans up to Rs (Indian Currency Unit) 250 millions, the credit committee at the head office can approve loans between Rs 250 and 500 millions and only the management committee can accept loans above Rs 500 millions.
The RBI is afraid that at BoR, the directors largely decide in the credit delivery system.

Deloitte Haskins & Sell’s will control if BoR has observed all the statutory regulations. The auditors will also take a look at the pension contributions given to the bank’s employees.
The majority of the bank’s 4,000 employees has a pay which is in accordance with the agreement between the Indian Banks Association and the BoR, but 10% of the employees in the mid to senior level receive a different pay and pension contribution.

In my way of thinking, it’s was a good idea to audit this bank. But I also think it would be good if banks were audited every two years, so the government would discover earlier if banks are doing irregular dealings.

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Absolute power corrupts absolutely

After writing 7 blogs and reading the other blogs, I notice already that the big 4 are not as objective as they should be, moreover they have been carelessness in some cases. In my last blog, I would like to highlight that audited cases are not always trustable.

Due to the financial crisis, the High Court dealt with 13 negligence cases last year. This is a record, in comparison with the previous 5 year, there were only 4 cases. The main raison is that shareholder lost their invested money when companies collapsed. I definitely understand that investors are targeting the wrongdoer and in most cases the accountant can be blamed for not warning investors for possible problems.
But this is nothing compared with the 61 claims for audit firms, which participate in corrupt scandals as Enron and WorldCom. Lawyers think that this is just the beginning: the crisis could provoke a storm of scandals. Investors had always had faith in audit firms, the big 4 gives hope in a certain way. If they give the books of a company approval, investors can use the fact that everything happened above board. But nowadays, I completely understand that the confidence in audit firms is gone because they are not always copper-bottomed.
They are plenty of examples of corrupted cases: Equitable life audited by E&Y sued for £700 million in 2005, KPMG sued for $1 billion by New Century, doubts about the impartiality of PwC in the case of Satyam, the role of E&Y by the collapsed Lehman Brothers, … These are a few examples, but as you notice we cannot ignore these problems. An ostrich politics will only worsen the problem.

I definitely think that there must be supreme control on the audit firms, a kind of an upper hand. It is their job to control objectively the companies so investors can know if they should invest. If we can’t have trust in them any longer, how can we possible know whether a company is worth to invest in or not? In my view it is drastic times call for drastic measures.

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'Big four' maintain hold on UK audit market

The Big four is composed of Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. The share of these four auditing companies has not changed the latest four years. Even tough, regulators are taking measures to promote competition of smaller firms. Moreover, there is only one company in the FTSE100, the most important stock exchange, that does not use one of the auditors of the Big four namely the business Randgold Resources which is audited by BDO.

As I said regulators are promoting smaller companies, Steve Maslin, partner of Grant Thornton, also wants to give smaller firms a chance to execute a big audit. As a result of some misunderstandings, the Big four are thought to be the only auditors that furnish services at the biggest public companies.

In 2006, the report of FRC and the Department of Trade and Industry declared that large companies did not have any alternatives other than the Big four to do their audits. This report also explained that it was impossible for small firms to enter at these big audits because of high barriers. Consequently, the makers of this report started a working group with the aim to become a concurrent of the Big four. The latest report showed that there is a small growth compared to 2006.

You can wonder whether it is necessary to bring some competition for the Big four or not, regulators want this because they are afraid that a mistake of one of the Big four could eventually lead to a catastrophe in the British Business. However, this has already happened after a downfall of Arthur Andersen, which used to be one of the Big five. As you know the Big five became the Big four after the Enron scandal.

In my view, I really think it is essential that the working group of any other competition of the Big four become more important. As you have read in some other blogs, for example the blog: ‘Cooperation of E&Y in beer fraud’, Ernst&Young is having some big issues and maybe they end like Arthur Andersen. This can lead to a downfall of the Big four, companies can lose their thrust in it because this had already happened once. Therefore, they would not tolerate a second decline.

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Spontaneous actions by Belgocontrol are not excluded

This week the subject of my blog deals again with the problems by Belgocontrol. Last week, I was blogging about the audit who was executed by Belgocontrol and that was very negative for the company. This audit brought lots of consequences with it and that’s what I’m blogging about now.

Caused by the bad results of the audit previous week, there’s no confidence between the staff and the management at all. Possibly, there will be still spontaneous actions of the staff the coming days.

Recently, it was said that Belgocontrol had a bad management for years and it suffered from structural financial problems. The conclusions have been confirmed now. The staff has no longer confidence in the management. They also disagree with the reaction of CEO Jean-Claude Tintin. He demolishes the audit, but it would be much better if he should search for measures to solve the problems, according to Tourlamain of the syndicate.

Now, there is a presentation of a plan for Belgocontrol. It consists of 5 action points that have to be concluded by July 1. The first point is preparing a new management contract. The second point consists in working out synergies with the military air traffic controllers. A proposal of the financial problems would be presented soon to the board of ministers. Concerning the international position, they think about alliances with other countries. At least, there will be probably a replacement for the Board of Directors, says Tourlamain.

I understand the staff lost its confidence in the management of the company. It’s really important the staff is good informed about the exact problems and especially the measures the company will take to solve them. Everyone in the firm has to know his task. Only in this way the objectives can be achieved. It’s good there is already an actionplan, hopefully it will bring Belgocontrol again on the right track.

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Audit destroys reputation Belgocontrol

Belgocontrol, the public company that’s responsible for the control of the Belgian air traffic, isn’t on the right track concerning its financial aspect. An external audit shows us there has been a bad management in the company for years and the financial situation isn’t good at all.

Etienne Schouppe (CD&V) gave the command to KPMG to execute this audit. The review was very negative. All the decisions and executions the firm took the last 10 years, were evaluated as negative. The top of the company is reproached of misguided management.

According to the audit, the board of directors of Belgocontrol isn’t informed sufficiently aware of the activities of the company. Furthermore, the board members would possess too less technical knowledge.
Because of a lack of strategic vision, the firm has a bad assets and liabilities structure. For years, the costs are too high while the productivity is too low.

There’s a lot of negative comment for the executive board committee. The Chief Executive Officer takes all the decisions himself, so we can’t say there is a team. In the company there are some indignant findings, for example, the absenteeism is remarkably high, 114 of a total of 1320 employers, aren’t able to work.

On the picture, we see Jean-Claude Tintin, CEO of Belgocontrol. In his view, the audit is only meant to cause damage to the company.


Presently, Belgocontrol has to work free of charge for the regional airports in our country, such as Charleroi or Deurne. That’s a reason why the costs are so high. Probably there will be extra revenues from the regional airport, in the future. According to Europe, the free work by Belgocontrol is an unjustified state support, and in the future the regional airports will have to pay for Belgocontrol.

I think the bad communication in Belgocontrol is a big problem, it’s necessary that they work in team. Only in this way, it can be possible to take good measures to solve the problems, I suggest.

I hope for the company that Europe has the right statement, and that the revenues will come soon.

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FIVE TELECOM FIRMS UNDER GOVERNMENT AUDIT SCANNER

Last week, Isabelle has written her blog about an audit at Bharti Airtel’s (the biggest telecom operator of India) which was ordered by the government. Apparently, it is not the only company where there were stated irregularities because India’s Department of Telecommunication (DoT) wants to put the five biggest telecom operators (including Bharti Airtel) of their country through an audit.


A federal audit panel is necessary to control if the companies had been swindling the government by misreporting revenues with a view to pay lower licence fees. For example, a company can account revenues with higher licence fees to services with lower licence fees to dodge taxes.
The companies concerned are Bharti Airtel, Reliance Communications, Bharat Sanchar Nigam Ltd, Tata Teleservices and Vodafone Essar.

The Comptroller and Auditor General of India (CAG) will audit the books for the last three financial years. Generally, the CAG only examines the books of government departments and state-run companies. But when there is a suspicion that a private company is swindling the government, CAG can control the books of the private company concerned.

Reliance Communications has already been under fire in December last year, when the special auditor showed that the company didn’t declared all revenues to government for the financial years 2006-07 and 2007-08. But the company said that the report was prejudiced.

According the DoT, the department has sent a letter to the companies in which was asked to supply the needed details to the CAG.
The spokesman of Tata Teleservices affirmed that the company get a letter from DoT and he said that they will supply the needed information. If needed, they are ready to assist the auditors. In contrast with Tata Teleservices, the other four companies were not reachable for a reaction.

Besides, if the CAG is not fulfilled with the results, it is willing to do an extra audit, the Economic Times reported last week.
I think it’s good that the CAG will do an extra audit, because if it’s true that (some) companies have paid less licence fees, it would be normal that they have to pay a fine.

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Most audits in the catering industry

The Belgian State Secretary of fraud control, Carl Devlies of the Democratic Party, announced the fraud figures. The report shows that the catering industry is still the most audited sector, followed by the building states and the cleaning companies. In fact, I find this obvious: How smaller the company, how easier it is to commit fraud. My blog, which I wrote two weeks ago (about how we can avoid an audit), proved already that companies who receive lots of cash money (as the catering industry), have more opportunities to swindle.
As a consequence of the increased controls on fraud in these industries, the amount of charges gets higher too. In case of the building states, we notice that the fraud is increased. But we have to nuance these figures: more efficient controls make it easier to detect fraud. However, Carle Devlies is expecting recuperations due to the reduction of the VAT-rate and the implementation of an electric cash register (but this will be obligated in 2013).
The government is working on better fiscal and social standards that can cause more targeted controls. This is not a bad idea, on the contrary in my opinion it was high time to take action.
The report of Carl Devlies shows also that the largest group of foreign illegal workers were Polish and Brazilian. Nevertheless, we can also see improvements as a result of a new system which made it possible to legalise easier Polish workmen. This new system is, in my opinion, good but there will be always fraud. The top 10 countries where illegal workmen come from (and who are employed illegally in Belgium), is given below on the map.

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Study by Ernst & Young about real estate funds

As you have read in some other blogs, Ernst&Young is having some big issues which does not stop them for doing their job. On their site I found a study that they have recently achieved. Every year, E&Y investigates worldwide real estate markets. As a result of this study, it seems that listed real estate companies or specifically Real Estate Investment Trusts (REIT’s) helps to get other real estate investments out of the economic troubles. Nowadays, quality of assets is much more important than it used to be. Essential parts to execute transactions are location, term and quality of the rent.

Geert Gemis, associate of Ernst&Young Tax Consultants, believes that REIT’s are created to build a market for investors so they can buy real estate on a more efficient way. The study proved that the REIT’s has reached this expectation. Furthermore, they have reached very high share prices and earned milliard of dollars. These high results are not the same in every country, for instance the profit of the REIT’s are much higher in the United States in comparison with Japan. Belgium has established a return of 17.2%.

Another result of the study is the weaknesses of the REIT-model in the financial crisis. The crisis makes it difficult to conserve money, even though it is better. Geert Gemis said that maybe the state has to reconsider their rules about the REIT’s. Therefore, the thrusts have to divide a large part of the earnings, usually between 80% and 95%, to disburse as a dividend. The capacity to conserve money can play a critical role in the next worldwide financial crisis.

I think that the state has to rethink the rules about the REIT’s, when they always have to disburse 80% to 95%, this could end in a negative result. Consequently, E&Y is doing a good job to research the influences of the REIT’s every year.

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Paying auditors without conflict

When I was in London, I received a newspaper (The London Evening Standard) when I entered the underground. I started reading it and what I found was an article about E&Y.

What we know from Lynn’s previous blog, is that E&Y is struggling a tough period. Now again, there are some doubts about the report on Lehman Brothers (which went bankrupt in 2008). Quite cynical, I received the newspaper in Canary Wharf just in front of the building where Lehman used to be established.

The Financial Reporting Council, the supreme body that controls auditing firms as E&Y, asks further explanations on the report. There is doubt that E&Y reacted not decisively enough. If you ask me, I would no longer have faith in E&Y, I do not believe in their impartiality.
The biggest problem is the way that auditors are paid. They receive their wages by the companies itself. Auditors are appointed by the shareholders. Their job is to judge if the annual report is correct or not, so they can protect the shareholders. I definitely think that auditors condone when directors pay them more. It is nonsense to believe that everything happens fair in auditing. Money can convince everyone.

The article propose a new way to pay auditors: In state of paying auditors by the companies, the auditors can be paid by the FRC. The FRC can recover the money of the company. In my view this is the fairest way. This has a big advantage: there would be no longer doubt that auditors revised their meaning when the company tried to persuade the auditor with money. In my reckoning, there will be always fraud and companies can still try to convince the auditor.

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Notice that the article was longer in the newspaper

Special audit gives virtually clean chit to Bharti's accounts

At the request of the government, there has been executed a special audit on ‘Bharti Airtel’, the biggest telecom operator of India. There were determined some irregularities in the industry, but no fraud.

It’s strange because earlier this week, the report was presented to the Department of Telecom (DoT), and there wasn’t remarked something suspicious. Sunil Mittal-promoted company said the accounting practice was done correctly.

The first audit report was submitted in October 2009. It was performed on RCom, a telecom operator. The controllers had increased some issues concerning to loss of revenue to the Treasury.

Kohli, CEO and joint managing director of Bharti Airtel said that the regulatory compliance is very important for Airtel. The special auditors have validated this belief.

The dealer distribution margins have been quantified by the auditors. Bharti Airtel just pays licence fee on actual realised revenues. It doesn’t pay it on the end-retail price collected by the retail outlets.

The auditors confirmed that the company works with circle-wise and service-wise accounts.
The accountants said that the transfer of revenue from one segment to another doesn’t have the intention to take benefit of the arbitrage.

It’s clear that auditing is very important. There are always companies who are trying to commit fraud.
In this article it’s not concerning fraud, however, this company tries to pay less licence fee at the government. There will be always firms who act dishonestly, for this reason, I think, there has to be a lot of audits in each company!

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Green loan: energy audit

Since 2005, there is an energy audit. This audit can help you to do energy savings. The cost of this audit is about 400 to 700 euro. Furthermore, when you do an investment to save energy, you can subtract your taxes till 40% of the total facture (in 2009 and 2010 the maximum was 2,770 euro).

With this audit, you investigate how much energy you use at your house. The results of this audit establish the performance of your heating, isolation of the floors, walls, roof, doors and windows, also the sanitary facilities get measured. As a result of the energy audit, you will know how much and in what way you can save energy. Moreover, you get the technical information to start this saving.

Furthermore, the report gives an estimate of the return of the investment. Therefore, it takes account with the Flemish contributions and the fiscal measures. However, this audit doesn’t oblige you to execute the saving. Accordingly, an energy audit is most of all interesting for families who want to renovate.

Besides, there is also an energy certificate. This isn’t the same as an audit. A certificate is obliged when you sell or let a building. It informs the possible buyers or lessees what the use of energy is. This part influences the price.

In my view, an energy audit can be very interesting. It’s better to know what you can do to save energy, even if it’s more expensive. You have to look at the costs long-term. Moreover, you can subtract a part of the costs in your taxes. This is certainly an amenity.

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THE INCREASING ROLE OF AN INTERNAL AUDITOR

Ernst & Young has made a study about the role of the internal auditor in companies. “Ernst & Young’s 2008 Global Internal Audit Survey” examines the current situation and the evolutions in the internal department of auditing. Besides, the study also shows how the auditors fulfil the increasing expectations of the stakeholders.

The role of the internal auditor becomes more consultative. This is the result of the difficult economic situation and the increased expectations of the stakeholders. Those put pressure on the (executive) managers and the audit committee to improve risk management.

The inquiry has shown that in the years to come there has to be more attention to operational risks, such as IT (75%), mergers and acquisitions (61%), improvement of performance(45%), fraud (39%), ...
Further, 64% declares that it’s difficult to find and keep employees with specialised knowledge on these fields.

Because the expectations are changed, the traditional skills of the internal auditor don’t fulfil the needs of the current companies. Given that employees with specialised knowledge are hard to find, companies are short-handed. That’s why it’s difficult to have an effective risk management. Only 17% of companies declares their risk management is very competent.

On the one hand, it’s positive that the role of the internal auditor is increasing, but on the other hand, the functions may not be too various. Because in that case companies won’t find employees.
Moreover, if internal auditors are given too much work, the productivity will decrease, the result being that the risk management won’t improve either.

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Claims of financial abuse may close Communities First fund

Caused by the accusations of financial abuse at a publicly-funded community project, the Assembly Government’s flagship anti-poverty programme is in problems.
More than £241m has been spent on the programme’s projects in the most deprived areas of Wales, unfortunately there is much doubt about the effectiveness in combating poverty.

The results of an investigation performed by Assembly officials and the Wales Audit Office, will soon be presented to Mr Sargeant, the Social Justice Minister.

A leading committee member of one South Wales project said: “It would be grossly unfair for Carl Sargeant to punish all Communities First partnerships. A lot of good work is being done despite the criticisms in reports that have been published.”

According to the Assembly’s public accounts committee, good results aren’t achieved due to weaknesses in the Assembly’s construction and management of the programme.

Last October, Mrs Bostwick told BBC Wales that she was worried after she attended a staff meeting. She realized that it were the same residents connected to the project, she heard about people being paid cash.

Mrs Bostwick raised her worries with Plas Madoc’s trustees. Plac Madoc is a registered charity formed in 2003. She did it on advice of Communities First officials North Wales.
After a while the team didn’t use her services anymore.

At the moment it was known they would we vindicated, the claims were denied by the partnership’s managers.
The assembly Government said they are aware of issues in one particular Communities First Partnership.

Mr Sargeant will make a statement of the Assembly after he will have received a report of this.

In my view, they have to wait to take a conclusion until the final results of the investigations are known. The accusations are clear, but there has to be more certainty before important decisions concerning this case can be taken, I think.

5 ways to avoid an audit

I have no doubt that managers are getting the creeps when they hear the word ‘audit’. An audit turns over the whole company. It can bring some clarity but inside the company, an audit can cause lots of stress. Managers become bad-tempered and the employees are the victims. So, I wonder if it is possible to avoid legally an audit. In the article that I found, 5 ways are given to avoid an audit, but these five rules give no guarantee.



Rule 1: Check your arithmetic
The company won’t get a full audit if they have some mathematical mistakes. But if the books keeping are full of it, the audit company will have doubts about the honesty of it. Audit Computer programs are so sophisticated that its find directly dubious results, like high amounts for charitable contributions.

Rule 2: Arrange your finances so they don't stand out
Some situations can have easily an audit like self-employments, companies who receives revenues in cash, ...

Rule 3: Substantiate, substantiate, substantiate
We can find more fraud at items as auto, travel, meals and entertainment. Auditors control especially these items. Knowing that, try to be clear in this.

Rule 4: Know when to file
If the company has to pay taxes, do this in time. On the one hand, if the company pays to early, it gives an interest-free loan. On the other hand, paying to late increases the chance that the company gets an audit.

Rule 5: Plan your taxes to pre-empt an audit
Make sure you have all evidence to prove high spending.

In my opinion, these 5 rules can help the company to pass an audit, but not to avoid one. For instance, rule 2, you can nothing do about it: you are self-employed or you’re not. These 5 rules can only give you confidence that you have a precise bookkeeping.

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Cooperation of Ernst & Young in beer fraud

The auditors and Marc Guns (a leading figure) of Ernst&Young have to appear for the Court of First Instance, namely the Correctional Court. E&Y is being suspected of forgeries in a fraud with Alken-Maes. Rudy De Hainaut (a previous leading figure of Alken-Maes) also has to appear for the court.

An enquiry at Mechelen has established that Alken-Maes sold illegal beer to more than 300 bars. At the time, in 2002, after a banal theft, this fraud could become known. Consequently, Alken Maes asked Ernst&Young for help. Together they rose up a construction to hide the illicit trade. Moreover, E&Y is being blamed, because as a consultant, they helped with a fraud. Furthermore, when they did audits at Alken-Maes, they were pretending that nothing was going wrong.

Christophe Ballegeer reacts optimistic at this issue. He is believing in a good ending of the trial. Moreover, he is convinced of the juridical procedure which will show that Marc Guns and E&Y can’t be blamed.

Ernst&Young emphasized that they have cooperated on the research. The auditors hopes that the good name and the reputation of their company can assured in this trial.

In my point of view I think that E&Y are scared that their reputation will be damaged. Consequently, they react in this manner. However, I didn’t expect that Ernst&Young has cooperated to a fraud. As auditors, they have to be professional. In the long run, this issue can create a lot of damage for them.

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FRAUD RISES TO RECORD LEVELS IN NEW ZEALAND: KPMG

When I was searching for a topic to write about, I hoped to find something related to fraud.
First, I couldn’t find an article which was interesting enough to write about. But I carried on searching and then I found a topic which was related both to fraud and to KPMG.

According to a study of the KPMG Fraud Barometer, the value of frauds in New Zealand is risen sharply in the last six months of 2009.
In the first six months of 2009, an amount of $ 22 million was defrauded. In the last six months of 2009, this amount is increased by $ 76 million. So the total sum for the year 2009 is $ 100 million.
This is about 30% more than in 2008.

This rise is due to many cases concerning multimillion dollar frauds, KPMG Forensics Partner, Mark Leishman says. All sectors in New Zealand could being threaten by fraud.

That doesn’t imply that in all levels of a company people can defraud big amounts. Apparently, the managers are more probable to perpetrate fraud than lower level employees. Managers normally defraud $ 1 million while the average sum defrauded of an employee is $ 500,000.

Besides, there are different types of fraud. There are 6 current affairs of fraudulent loans, 6 of tax evasion, 5 of accounting fraud, 3 of deception and at least 2 cases of investor money stolen.

Can a committer defraud just as much money in every type? The survey shows that although New Zealand is suffering from tax evasion, the amount in this category isn’t as much as in cases of fraudulent loans.
If we take a look at the amount defrauded per type, we see that by fraudulent loans $ 34 million is defrauded, secondly investor money stolen ($ 20 million), thirdly tax evasion ($ 6 million), fourthly accounting tax ($ 5 million) and at least creditor money stolen ($ 4 million).

The KPMG Fraud Barometer supervises the level of reported frauds appearing before the criminal courts in New Zealand. Not every fraud is included in the barometer. The amount must surpass
$ 100,000 and the perpetrators must at least have been charged.

In my opinion, it’s was a good measure for New Zealand to map out the fraudulent affairs. Now, they know that there is a lot of work to do to avoid such a high figures in the future. I think that the committers must be punished severely. By this, people will consider the consequences of perpetrating fraud before doing it.

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Enquiry of consumers

In my previous blog I wrote about the issues that Carrefour has to deal with. That’s why I think it’s important to know what consumers really want. Therefore, I looked up something that involved supermarkets or consumers. On the site of Deloitte I found a study of consumers. With this research, supermarkets will know the new trends of consumers. This is a yearly investigation, which is formulated together with Flycatcher.

In the enquiry, they examine different subjects like comparison of prices, parking places, quality aspects. These themes are important for the supermarkets. Consequently, they know what consumers want and they can cater for it.

I will discuss some useful results that can be interesting for supermarkets. Most of the people visit the store more than once a week. Therefore, it’s not necessary to offer a delivery service. The most important thing of a supermarket is definitely the price. An other aspect that is also fundamental is the freshness of fruit and vegetables. Moreover, kind staff is certainly an amenity.

Furthermore, parking places are needful. Good quality and a generous choice in the line of products is what consumers need. 25% of the consumers has complaint at the supermarket or wanted to. Products that weren’t present, expired storage life date or bad quality of a product can be causes for the complains.

I think that a research like this is necessary because supermarkets can adapt their store to the consumers. For example, like I said, consumers think it’s very important to have parking places, if the consumers can’t park their car, they will go somewhere else. Accordingly, supermarkets needs to take care of enough places for their clients.

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Ernst & Young auditors accused in investment case

Two former auditors of Ernst & Young had failed to uncover the misappropriation of client funds by an investment advisor. The Securities and Exchange Commission has instituted public administrative proceedings against them.
The proceedings were instituted against Gerard A.M. Oprins, 50, was a partner in Ernst & Young’s financial services practices group since 1995 and against Wendy McNeeley, 33, she’s a former audit manager in Ernst & Young’s financial services group. Now, she’s working for another firm.

The case handles about the audits of the 2004 financial statements of AA Capital and its connected AA Capital Fund. The Chicago-based investment advisory firm managed more than $ 194 million for six union pension funds. During the audits, Oprins and McNeeley learned that John Orecchio, the AA Capital’s president, had borrowed $1.92 million in funds belonging to AA Capital’s clients between May and December 2004. So, he could pay a personal tax liability coming from his ownership interest in AA Capital’s private equity funds. The SEC also says that Orecchio had invented the whole story about the ‘tax loan’ to hide his misappropriation of client assets for his personal use.

According to the Sec, Oprins and McNeeley failed to review the transaction in accordance with Generally Accepted Auditing Standards. Between 2004 and September 2006, Orecchio misappropriated more than $23 million in client funds, at least $5.7 million of the so-called ‘tax loan’. The commission obtained a temporary restraining order in September 2006 against AA Capital and Orecchio Partners.

The commission accused the 2 auditors of inappropriate professional behaviour. Now, the public administrative proceedings are started. The auditors can be excluded or appearing from practicing before the SEC. Ernst & Young refused to comment.

In my opinion the auditors should be severely punished. They have to realize that such practices can’t be tolerated.

APPLE ADMITS USING CHILD LABOUR

An audit isn’t always executed under the authority of the government. Some companies control regularly their subcontractors.
Like this, Apple discovered that some subcontractors are employing underage workers and underpaying their employees.

Apple audited 102 manufactories. It discovered underage labour in three factories. In total, eleven 15-year old ‘kids’ were hired in the companies to build computers, iPods and mobile phones. The company didn’t want to say the location of the factories concerned, but most of its plants are situated in China. Further, there are also factories in Taiwan, Singapore, the Philippines, Malaysia, Thailand, the Czech Republic and the United States. Apple reassured that the child workers are not longer hired. Besides, it isn’t the first time the company uses child labour. In 2008, Apple had been hiring 25 child’s to work for it.

In addition to the child labour, the staff of Apple has to work more than tolerated. The company permit a 60-hour work week, but only 46 percent of the subcontractors are keeping to that rule. What means that more than half violate this regulation.
Moreover, the firm discovered that 35 percent isn’t paying out enough his employees.

Not only Apple is doing wrong. Foxconn, one of its biggest suppliers, is acting inhumanly. It has been charged because of neglecting human rights.

I think Apple has to tackle its problems by doing more controls. Furthermore, the audits should be done unannounced. If I were a manager of Apple, I would terminate the contract with Foxconn. I would also close down the factories where child labour is found. Apart from that, the employees who are underpaid or working too much, should get a compensation for their work.

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Belgium gets finally an internal audit committee

Belgium has finally after 8 years an internal audit committee. This supervises the federal public services. In 2002 agreements were made regarding the establishment of an audit committee. But until now there was no minister managed to do it. In the context of more autonomy for the federal services, an audit committee is founded. The federal government wants to treat them like any other company. Without doubt, it was about time!

We owe it all to Guido De Padt (Open VLD), as the other ministers carried the case over to the next one. After 7 months of service, De Padt figured it out so the committee could get off the ground. The deed was signed by Prime Minister Yves Leterme, Minister of Civil Affairs Inge Vervotte and Budget Minister Guy Vanhengel. The committee will have seven experienced members. Cleary, this proves again that the Belgian government takes a nosedive: what had to wait for 8 years is now done in 7 months!

As a matter of fact, the opposite throws cold water on it. Ben Weyts (N-VA) thinks that there are aspects of the modernization of the public services that is uncompleted. Like a service where civil servants can complain about misuses in their departments.
According to Ben Weyts I definitely think that there is still some work to do. However an internal audit committee is a tight spot for De Padt. So in my view, he did already an excellent job but he still needs to work it out.

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Deloitte Consulting is hiring

Deloitte is awarding hundreds of jobs to established consultants, also newly minted MBA’s and undergrads.

Today, most companies are doubtful to hire in such big numbers, they are afraid of prolonged economic weakness, although Deloitte did it!
Now, the company is extending 50 to 60 offers to experienced consultants, each week. By June, the firm will have hired in total more than 700 of experienced consultants.
Over the past six months Deloitte has hired nearly 800 MBA’s and undergrads. Deloitte’s HR staff expects to make also 1000 offers to the class of 2010.

According to Punit Renjen, a 23-year veteran of the company and a strategic consultant, this hiring of Deloitte in a time of economic weakness is ‘a seminal experience’ and a competitive advantage.

Many strategic firms don’t bring in midcareer experts, preferring to cultivate their own, but Deloitte is the exception. The company also recruits at many schools, for example the Big 10 universities and Carnegie Mellon, where another firm might hire only one or two people a year, says Tom Rodenhauser, vice-president at Kennedy Information. Deloitte recruits at 75 different schools across 10 different degree programs, including business majors and specialized degrees, such as HR and public health, says Rick Harrison, head of the firm’s HR.

Six months ago, Ryan Osborne refused 2 offers before he started his job by Deloitte Consulting. He’s a specialist in life sciences and information management. He was convinced of this work because he’d seen so many of his own practice leaders join the firm in earlier years.

In my view it's a good strategy of Deloitte, because a lot of people can get experience by working there!

AUDIT REVEALS CARE CONCERNS

An audit doesn’t always reveals financial problems. When I was searching for a good article to write about, I found the article ‘Audit reveals care concerns’. First, I thought it wasn’t a good article. Nevertheless, I read it. When I was done with it, I’ve changed my opinion. An audit doesn’t always care about financial stuff, does it?

In a Christchurch rest home in Papanui, an audit disclosed problems about the well-being of the residents. It was a staff member of Windermere rest home who criticised the treatment of patients.
The employee said that “staffing levels were disgraceful and residents were being neglected”.

After hearing this announcement, Healthcare Compliance Solutions did an emergency audit.
The control confirmed the staff member was telling the truth.

Because the audit report enclosed details about residents and staff, the Canterbury District Health Board first didn’t want to gave a copy of this report. Afterwards, when all private details were eliminated, the Press get a summary of the main problems.

The problems were various. Like the employee said, there was a problem with “the workplace culture and staff relations”. But there are much more troubles in Windermere rest home, such as badly dietary service, lack of clinical leadership, ...
Furthermore, the rest house didn’t even fulfil the obligations which were mentioned in the contract, like care planning, family involvement, medication, ...
According to the summary, these issues arise from “poor management and clinical leadership”

I think it’s very good that the staff member told about the problems in the rest house. The residents, elderly people, aren’t able to protect or even to take care of themselves. Consequently, this negligence must made public to help these people. Finally, I hope that the wrongdoers will not get off scot free and that the new manager and staff will take good care of the residents.

Cow poop!

Last week I wrote my blog about Deloitte, which made it possible to apply by your mobile phone. So we knew allready that Deloitte is a company that responds to trends. But do you know that Deloitte has actually a YouTube account? I found it accidentally by googling.

There was one video that got my attention. The commercial called "What if your work mattered to the world?" and the first thing you got to see was a woman standing in a cow barn. It is about 4 consultants from Deloitte, who are participating in a project. The project is out for recycle cow dung.
The 4 employees are telling why they are so enthusiastic to participate. They took everything for granted and they hardly dwell on the fact where the milk and other natural products come from. So working with cows adds variety to their job.

“Why cow poop?”, you probably will think. Cow dung affects climate change by the gases they emit. Their excrements can be converted into energy. Farmers are aware that their activities could disrupt the nature. Deloitte helps the farmers with the implementation of the processing machine and they also give advice.

In my view Deloitte made a good decision to help to farmers and so they can help indirectly the environment. Besides this, I definitely think that consultants cannot really know the needs of farmers. The professional business of consulting is in no case comparable with the agriculture. It is a world of difference.

Watch the video on YouTube.

Carrefour plans to cut 1672 jobs and will close 21 stores

At the special works council, Carrefour has decided to cut 1672 jobs and they will close 21 stores. Moreover the wage of employees has to decrease. As a result of these decisions, Carrefour is hoping to become again profitable.

The 21 stores that will be closed exists of 14 hypermarkets and 7 supermarkets. Seven other stores of Carrefour will be opened in franchise by an entrepreneur. Furthermore negotiations will be hold between Carrefour and Mestdagh. The group Mestdagh is the head of the Belgium Champion stores. This group is interested to take over 14 stores. However it’s not sure that there will be an agreement.

There is no doubt that 1672 jobs will be cancelled. If the negotiations with Mestdagh or the franchise experiment fail, there is a possibility that more jobs will be deleted. Therefore the labour union said that there is a change that the abolition of the employment will increase to 4000.

The board of Carrefour said that 27 hypermarkets and 25 supermarkets were already making loss for many years. The opinion of the French leading figure, Gerard Lavinay, is that if Carrefour will close all those stores, 4700 people will lose their job. 3000 jobs can be saved if Carrefour will limit that huge number. Besides I think when 4700 people will become unemployed there will be a big fuss. Carrefour is making the right decision to constrain it. If the negotiations will be carry through, the French group will be at the right track to become again profitable.

As a result of this big problem, the causes are easy to find. It’s mostly because there were not enough investments in the GB-stores. Also the stores aren’t innovative.

Britain posts first deficit for January since records began

Britain has reported his first budget deficit for January since records began. That’s due to increasing government spending and diminishing tax receipts.

According to the Office National Statistics the expenditure of the Government has exceeded its income by £4.3bn.

It is the first time the Government needs to borrow in January since records began in 1993.
Andrew Goodwin, senior advisor to Ernst & Young Item Club said that January usually has a healthy surplus, because in January there are always the receipts of the corporation tax. Even in the moment of financial crisis, it’s surprising to see that the Government became in a situation of deficit.

The ONS said the Government has spent £4.4bn more than in January 2009, while receipts were down £4.2bn.

David Kern, chief economist at British Chambers of Commerce, said that these bad figures reinforce the need for credible and specific deficit-cutting measures in next months.

Now, it’s very important that the Government announce a stop in the public sector wage bill, and an immediate review into the cost of public sector pensions. So the markets and the rating agencies will be persuaded that the Government is trying to resolve this big problem.

I also find it surprising that Britain has reported his first deficit in January since the records began in 1993. I think there has to change a lot to get the financial situation healthy again.

Deloitte: Apply by mobile phone!

Mobile phones become more and more sophisticated. That is why Deloitte Holland created a new software application that makes it possible to receive job offers and to apply directly. This makes Deloitte the first one to do this. A good anticipating on the market, if you ask me.

When you shake your mobile, you can see the vacancy in a wider area around your neighbourhood. The application has received the suitable name ‘Shake your Job’. The day after launch, the application was used 178 times. The intervention of a computer is not needed. But on the other hand, I read on other blogs that ‘Shake Your Job’ has a lot of growing pains.
‘Shake your Job’ can only be used by owners of an Iphone or an Ipad. You might think that this is a narrow public, but analysis tells us that in 2014 the half of the mobile phones will be having internet.

Lennart Sloof of Deloitte strongly believes that well educated people will use this application. This is logical, only people with a good education will apply for a job by Deloitte. Sloof also ensured that the supply will increase the demand by offering mobile job announcements, but I am not sure about this. The demand will not automatically increase as the supply increases.

Applying mobile is a good alternative: easier and always available. I expect that this will be a normal thing in the future. But I still prefer a computer!

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KPMG SUED FOR 'NEGLIGENT' AUDITING

In April 2009, New Century Financial sued KMPG, the auditing firm of the company, for recklessly and grossly negligent auditing.
New Century, America’s second-largest seller of sub-prime loans, went bankrupt in April 2007.
KPMG was sued for at least $ 1 billion.

KPMG was claimed two times, once in New York against KPMG’s American business, and once in Los Angeles against KPMG International. In New York, the court accuses that the operations of KPMG in the United States have led to “materially misstated” financial statements. In California, KPMG, also known as the international parent company, is blamed for “severely reckless and grossly negligent” activities of the US business.

The claims also charge that KPMG has flout the tougher laws on auditor independence. This laws were introduced in 2001, after Enron’s collapse.

New Century started his activities in 1996. Ten years later, the company was the second-biggest originator of sub-prime mortgages. They bundled the loans, sold them to investors, who gave them new capital to keep lending.

New Century would buy back the mortgage-backed securities if there were defaults within the first months. In 2006, the collapsing American housing market was the beginning of the problems at New Century. The investors stopped buying the securities because they knew about the problems. Barely a month later, New Century went bankrupt. They pointed out KPMG as the culprit. KPMG was sued for at least $ 1 billion.

It think that KPMG has made mistakes in the auditing, but it’s not the only reason for bankruptcy of New Century. The collapsing American housing market is also a cause, and KMPG has nothing to do with that. So New Century can’t blame KPMG for everything. It has to accept that they has made mistakes too.

Source: http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6018408.ece

Greece changes chief debt manager as pressure grows

As a result of the crisis in Greece, on Thursday there had been a replacement of Spyros Papanicolaou. Petros Christodoulo, known as the former head of asset management at the National Bank of Greece, is the successor and will take up the position immediately.

The announcement came just before Greece was due to report Brussels, although EU officials said that the letter had not yet been received in Brussels.

However EU nations repress Greece, to take its finances under control. By March 16, Greece has to show signs of fiscal improvement. If not, they have to impose even tougher budget cuts. So their plan is to decrease its financing deficit (about 12,7%) to 8,7% this year. The Government has planned some measures (for example higher tax on petrol).

The Greek Prime Minister, George Papandreou has had a meeting of socialist leaders in London yesterday. There he said that they won’t use bailouts, but they will follow their program and for that they will need support.

Joaquin Almunia, the EU Competition Commissioner, said that Greece must take action to fix its public financial crisis. However support of other countries won’t help, most of the problems can only be solved by Greece.

After I read the article, I agree with the replacement, Petros Christodoulo has a lot of experience of financial problems (he works at the National Bank). I don’t agree with the opinion of Joaquin Almunia, Greece will need help from other countries. They can only solve their basic problems themselves, but for the total crisis they will need help.

KPMG has £600m consultancy target as accountants rebuild advisory roles

KPMG wants to catch up his 3 other rivals of 'The Big 4'. Within four years KPMG wants to triplicate its consulting revenues to £600million. KPMG audits 25 of the 100 FTSE companies. The FTSE 100 of the British Stock Exchange is similar to the BEL20.

Its ambitious plan is out to recruit 300 consultants over the next 12 months. Without doubt, this is a bright spot in times when redundancies are daily news. The last 3 months, KPMG has recruited 24 senior consultants, who were employed by PwC and Deloitte. I wonder how much KPMG paid to make the senior consultants desert.

KPMG sold his consulting division in 2002 but rebuilt it 4 years ago. Two other companies of ‘The Big 4’, namely Ernst & Young and PwC, did the same after conflicts and scandals. In my view, it was not fair to sell the company for big money and rebuilding it afterwards. Atos Origin, the firm who bought this division paid a lot of goodwill to KPMG. But in 2007 the clients returned to KPMG when they reopened the consulting division.
I definitely think that KPMG is playing a strategic game. Now they recruit senior consultants, they expect that the consulting division will grow, they expect that the consulting division will grow: Clients of PwC and Deloitte will go over to KPMG because the senior consultants could entail clients.

What will the future bring us? KPMG believes that the demand for consultants will rise again when the economy is making progress. The fees for consultants will rice by cost savings in the public sector. But it’s wrong to think that the demand will rise again if the economy becomes better. A lot of companies are bankrupt and others won’t need consultancy because they are cutting down.

The plans of KPMG reflect on the rivals of ‘The Big 4’: Also PwC and Deloitte want to expand. Without doubt, the competition is far from over.

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KPMG: Internal accountants give more attention at behaviour and culture in their own organisation.

As a consequence of the financial-economical crisis, the companies of the Netherlands give no longer just attention at rules and procedures. Now the social aspects such as culture, faith, involvement and loyality of their employees become more important. So they try to improve the integrity at work.

A study of KPMG shows that by 2/3 of the companies the internal accountants give more attention at behaviour and culture in the own organisation than they did before. More than 80% propose to continue that attention in the near future.

The increased attention for ‘soft controls’ has to avoid fraud and to guarantee the good reputation of the company.

Human acting is very important according to Bart van Loon of KPMG.’ It’s easy to stipulate rules, but the acting of the employees is more influenced by their integrity, their knowledge, their skills,… ‘ he says.

The study also shows that the increased attention for soft controls demand new methods en techniques, but first at all they need more audacity to do more of these soft controls. So, when the accountants are able to carry out good soft controls and to negotiate with the management, it will be a great value for the internal accountants in their own organisation.

My opinion is that it is a very good strategy to give more attention at the social aspects of the employees. Rules are often too complicated and employees are not really motivated to applicate the rules. They do what seems best to the enterprise. I suggest the human acting determines what exactly happens in the organisation.

Deloitte: Innovation is the strategy to accelerate growth

The results of an internal audit in Deloitte said that fundamental innovation was needed for economic growth. At present innovation is more important than ever.

There are three trends that influence the innovation. First of all, the global economic balance has changed. This means that as well as the new competitors, also the development of new markets and the influx of foreign capital has converted. That’s why a clear vision and clear decisions are needed. The second trend consist of regulation. The government has taken drastically interventions. For example there are more rules, more auditing. Finally the third trend is sustainable enterprise and corporate responsibility. Growth is necessary to be on top of these three trends.

Last year Deloitte has made a growth of 3%. They want to ensure a return of growth. That’s why they have made a tool, which is being offered to clients. It’s called the Innovation Maturity Assesment. With this tool, organizations can look how innovative they are. The results of this tool concluded that Deloitte is ‘heroïc and tribal’. This means that if there is something to renew, they will use it. But they did not provide enough resources for innovation.

After this conclusion of the tool, Deloitte decided to have a team of talented employees that study innovation of the consulting service for a year.

Deloitte takes account with the fact that innovation is a constant practice. I think that this is important to pay attention on, Deloitte react quickly on external changes.