This article first appeared in The Times on 1 October 2015. (Subscription required.) Please click here to view the article on The Times website.
The fostering of a zero-tolerance culture towards fraud is fundamental to keeping customers’ trust in businesses
The events that have overtaken the Volkswagen Group in the past ten days have dramatically demonstrated the importance of reputation and standing to the success of any business venture. With a third wiped off share value, regime and organisational change the order of the day and the widespread belief that in a couple of years most legal CVs will reference the initials VW somewhere, it is clear that management time is well spent developing robust governance procedures and a corporate culture to match. Of course this comes as no surprise to most advisers – we have seen it before. As one of the “Big Five”, Arthur Andersen was arguably the strongest brand in the accounting world ten years ago but disappeared in a matter of months after allegations in connection with its audit of Enron – allegations that were eventually quashed by the Supreme Court but by then Andersens had ceased to exist. After 2008 and the banking scandals, financial institutions started advertising the importance of delivering what you promise and a commitment to developing customer trust – the Hiscox “As good as our word” advertising campaign is a leading example of this. With money tight, the resources available to UK government regulators and investigators has been limited for some years and there has been a consequent shift in legislation towards self-regulation and reporting. As part of this process it is recognised that strong corporate governance and the fostering of a zero-tolerance culture towards fraud is fundamental. However, no governance or control environment can overcome collusion and in the coming weeks the expectation is that in VW’s case, management suppression of whistleblowing and far greater senior executive knowledge of exactly what was going on may well emerge. These developments would open the way to criminal prosecutions where intent or deliberate deception has to be established. It is recognised that whistleblowing or fraud hotlines are critical in sustaining an anti-fraud culture built using a strong governance framework. The UK government has come under increasing pressure to review whistleblowing legislation that currently might most generously be described as well-meaning but confusing – the government’s website emphasises that potential whistleblowers need to decide if the matter that they are reporting on is in the “public interest” and helpfully notes that independent advice should be obtained if they are not sure whether, as a whistleblower, they are protected by the law. VW is learning the importance of salvaging its reputation fast – as the driver of a VW petrol-engined car, my local dealer has already emailed me following my car’s MoT to advise that; “Securing the trust of our customers and that of the public is and will remain of paramount importance to us.” Just how important will no doubt come to light in a court room near you soon.
|Paul Smethurst Partner d: +44 (0)20 7309 3904 click to email|
Paul, a forensic and corporate investigation specialist, is well known for his ability to understand and interpret complex accounting transactions – whether for the purposes of supporting a legal case or in the course of a commercial due diligence exercise. Paul also acts for a number of insurance entities and brings to them his experience as an insurance and banking specialist auditor. He is an experienced accounting expert witness in Court and other formal proceedings.