find the latest legal job
Corporate Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Highly-respected, innovative and entrepreneurial Not-for-Profit · Competency based Board
View details
Chief Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Dynamic, high growth organisation · ASX listed market leader
View details
In-house Projects Lawyer | Renewables / Solar | 2-5 Years PQE
Category: Generalists - In House | Location: All Australia
· Help design the future · NASDAQ Listed
View details
Insurance Lawyer (1-3 PAE)
Category: Insurance and Superannuation Law | Location: Sydney NSW 2000
· Join a dynamic Firm · Excellent career growth opportunity
View details
In-house lawyer 1-4 PAE
Category: Generalists - In House | Location: Adelaide SA 5000
· Leading Brand · Report to a Dynamic Legal Counsel
View details
Echoes of the tech bust

Echoes of the tech bust

THE FORMER chief of internal audit at WorldCom who blew the whistle that exposed the biggest corporate fraud in history says there needs to be greater support for whistleblowers because it is…

THE FORMER chief of internal audit at WorldCom who blew the whistle that exposed the biggest corporate fraud in history says there needs to be greater support for whistleblowers because it is rare that they are able to expose corruption without great personal sacrifice.

“It would be great if you could get some groups for whistleblowers that recognise whistleblowers; if some professional groups could recognise people [for their efforts],” said Cynthia Cooper. She believes such support is warranted because it takes great courage to question and expose corruption, especially among colleagues and superiors.

“It is important to practice finding our courage every day, [because] you need to just prepare yourself ahead of time,” she said on a visit to Sydney last month arranged by the Institute of Internal Auditors-Australia.

She said there had been a lot of worthwhile changes since she and her team exposed what amounted to an US$11 billion misstatement by WorldCom of its accounts — including the Sarbanes Oxley Act, more independent boards and a lot more support for internal audit — but that most exposures still failed in the courts.

“There are all of these laws, like SOX, but very few whistleblowers are successful, and most of the cases are thrown out — [and many ask] is it worth the personal price,” she said.

Often, she said, it was still the case that the press offered “more protection than any law”.

She said there were now obvious similarities between the bursting of the dotcom bubble and the housing bubble, and that large fraud cases may ensue again. “I would be surprised if we do not end up seeing some frauds exposed,” said Cooper.

“There’s been a lot of core strategic risk-taking, and banks have been taking risks that they shouldn’t have and passing that on to investment banks and the public. You have major [financial] instruments that really got away from the financial regulators.”

She advised internal auditors to keep their focus on financial statements because that is where the fraud usually resides.

Asked if she would have done anything differently while at WorldCom, she said: “I would be doing a lot more financial statement auditing.”

“A lot of internal auditors in America are still very focused on operational auditing. If you have a fraud, it is usually going to be in the financial statements.

“So I encourage you to really look at your audit plans to make sure that you are spending some time on financial auditing.”

Internal controls, however, only went so far, particularly when it came to overcoming collusion at the highest levels, she said. “One thing a lot of these big corporate frauds have in common is collusion — executives working together at the highest level.”

In her book, Extraordinary Circumstances, Cooper said external auditor Arthur Andersen made far more from consulting and tax fees than auditing financial statements. So external audits became the loss leader to win consulting contracts. This sometimes led to reduced testing, fewer, less experienced auditors and heavier reliance on internal controls as a result.

One of the factors that allowed WorldCom to fool external audits was that figures were added and moved to other accounts in between the periods when checks were made by Arthur Andersen, and it was known when they would be conducting an audit and on what accounts.

In her book, she said that when Arthur Andersen performed their quarterly reviews — for instance, comparing costs of line items as a percentage of revenue between quarters — the perpetrators of the fraud made sure the ratios remained the same with fraudulent entries. “It is important to maintain that element of surprise and not to share too much scope with your clients,” she said.

The Federal Government has asked the House of Representatives Standing Committee on Legal and Constitutional Affairs to consider legislation to protect employees or former employees of the public sector who make “public interest disclosures” and to report to the Cabinet Secretary, John Faulkner, by February next year.

The committee is considering whether to include compensation for victimisation, discrimination, discipline or an employment sanction, immunity from criminal liability and from liability for civil penalties; and immunity from civil law suits such as defamation and breach of confidence.

This article first appeared in Lawyers Weekly sister publication, Risk Management magazine

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Echoes of the tech bust
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
Unite
Aug 22 2017
Professionals unite in support of marriage equality
The presidents of representative bodies for solicitors, barristers and doctors in NSW have come toge...
Aug 21 2017
Is your firm on the right track for gig economy gains?
Promoted by Crowd & Co. The way we do business, where we work, how we engage with workers, ev...
Scales of Justice, Victorian County Court, retiring judges
Aug 21 2017
Replacements named for retired Vic judges
Two new judicial officers have been appointed in the Victorian County Court, following the retire...
APPOINTMENTS
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
opinion
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
Help
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...