ENRON, WORLDCOM, SO WHAT?

At a recent business meeting when the press furore about the Enron and Worldcom scandals was at its peak I had several heated discussions with various individuals about who had shredded what document or hidden what records or falsely accounted for what sums.

Whilst these conversations were interesting and despite my protestations to the contrary the overwhelming reaction was what had all this to do with ‘my’ business and how was it relevant to what 'we' did.

As has been well reported these incidents and others like them (Allied Irish Bank’s rouge trader in the US) highlight the key issues of proper corporate governance, corporate fraud and the risk businesses, no matter how large or small, have in relation to their employees.

Have you ever asked yourself the question as to how good your business's internal checks and procedures are. If the answer to this somewhat rhetorical question is ‘good’, ‘excellent’ or ‘foolproof’ ask yourself another question. If you were guaranteed immunity from prosecution how would you go about circumventing those same internal checks and procedures. I suspect that the answer to this question will be completely different. Someone else might have worked this answer out for themselves as well.

Awareness about corporate or employee fraud because of these high profile cases is on the increase not just in terms of media reporting but also because the governments here and in the US are starting to take notice of the potentially damaging effect corporate fraud can have on the stability of the economy.

In small to medium size companies any form of corporate fraud or employee theft can have a potentially terminal effect on the business with the result that the owners of that business can, as happens in so many cases, see years of hard work and the prospect of future financial stability and wealth disappear in the blink of an eye.

It might be the case that an unscrupulous employee is or is being used to launder the proceeds of crime through your business. You may be an unwitting and honest victim but that will cut no ice with the people who investigate these crimes and ultimately you are left to pick up what is left if indeed there is anything.

Legislation is likely to be introduced next year which will introduce tough new laws to recover from individuals or companies the proceeds of crime and to investigate all types of fraud. The establishment of the Assets Recovery Agency, confiscation and recovery orders and new tougher money laundering provisions are all proposed in the Proceeds of Crime Bill which is likely to become law sometime next year.

The argument I made to my friends at the business meeting was that scandals like Enron and Worldcom and the issues surrounding Allied Irish Banks US rouge trader John Rusnak can all be avoided if business and particularly their senior/owner managers take time to learn the lessons of these scandals and put in place their own systems and procedures to ensure that the prospect of these scandals or worse being carried out on a smaller but no less devastating scale in their own businesses can be avoided.

My view is that if your are unsure about the integrity of your own procedures or suspect that things might not be as they appear you should act quickly and seek expert advice. Given the changing environment we all now operate within it is always better to be safe than sorry. Being sorry can last along time as I suspect the executives of Enron and Worldcom will ultimately find out.

Source: Commerce & Industry October 2002