Dysfunctional Internal Controls Environment

We often hear about the dysfunctional internal controls environment. Here are some
interesting headlines I came across in the press recently, all in the space of two weeks. I felt I
should share these with you.

Three snared after Barrett fraud probe. Barrett is one of Britains biggest house builders.
The police arrested one of the firms executives on suspicion of bribery in a cash for
contracts scandal. Other staff have been suspended.

BT expects accounts scam to cost 530m. This is the result of inappropriate behaviour
in the British Telecom Groups Italian division. It seems earnings by the Italian division have
been overestimated for years. Shares in the telecoms giant plunged by as much as 19% wiping
5 billion off its value.

Now watchdog may probe Rolls Auditor. This follows the Rolls Royce Bribery scandal
where for years the engineering firm bribed its way around the world. During this time KPMG
was the firms auditors. As mentioned in an earlier article Rolls Royce reached a 671m settle
with the Serious Fraud Office. Now the Accounting watchdog, the Financial Reporting
Council is considering if it should investigate.

Has the management of these firms learned nothing from the public accounting scandals in
the US in the early part of this century, or from the collapse of organisations such as Enron,
WorldCom, and Bear Stearns?

Its common knowledge these earlier disastrous events all stemmed from a dysfunctional
internal control environment.

Despite COSO, the UK Governance Code, Sarbanes Oxley and Uncle Tom Cobley, the
management of these firms, in true historic style, have failed their stakeholders. their
employees and their customers.