Risk & Economy » Audit » Don’t be the next Andersen

Don't be the next Andersen

Oscar Wilde once took a sideswipe at Charles Dickens when he said, "One must have a heart of stone to read the death of Little Nell without laughing." In similar vein, we know there has been a certain amount of chortling at the demise of Andersen. It is certainly a firm with a reputation for being hard-charging, to the extent that it acquired the nick-name "Androids". The damage caused by a handful of idiots - who, by shredding trunk-loads of documents, propelled their stupidity onto the front pages of the business press world-wide - has, so far, prompted little sympathy.

But this is a major tragedy and it takes just a few seconds’ thought to reflect, “There but for the grace of God …”

This isn’t a unique collapse – it’s just a particularly high-profile one. In many ways, it’s not dissimilar to the kind of thing the independent investigators at Allied Irish Bank were talking about when they said there had to be more thorough analysis of “long tail” or “event” risks which “while not probable, can be ruinous”. Barings is another high-profile example, but we were also told by an engineering company CEO that one of his subsidiaries built a #4m machine for a client who turned out not to exist: the divisional MD had lied about the contract in order to meet his budget. Meanwhile, he prayed that a customer would materialise from somewhere. Readers will be able to draw on their own experience to think of other examples, which perhaps escaped the attention of the press.

Obviously, it’s not an efficient use of a financial director’s resources to spend his entire time hunting down minute risks of abuse – that way, more effort will be spent preventing the destruction of shareholder value rather than creating any in the first place. But there are lessons for finance. Get out from behind the spreadsheets – especially the ones with ACT BUD and VAR at the top of the columns. Get to grips with the softer issues surrounding financial management and accountability. And make sure the only thing people are more afraid of than screwing up is being caught trying to cover it up.

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