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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