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Book Reviews

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  • The Bold Riders by Trevor Sykes

 

  • Honest Cops by Quentin Dempste

 

  • Whistleblowers by Quentin Dempster

 

  • Rorting edited by Malcolm Brown

 

  • Inside Victoria by Bob Bottom, John Silvester, Tom Noble & Paul Daley

 

  • The Road to Fitzgerald and Beyond by Phil Dickie

 

 

The Bold Riders

Every decade or so a book is published that is of such value and importance that one wants to point it out to everyone in the profession.

The book for the nineties (about the eighties) is The Bold Riders, Behind Australia's Corporate Collapses by Trevor Sykes.

The bold riders that Sykes refers to are the corporate cowboys who came riding onto the financial landscape. Many of them rode roughshod over the investors, the banks, regulators, auditors, the law, and just about everyone else, causing awesome destruction.

 

 

The Devastation of the Eighties

In the relative calm of the nineties it is easy to forget the scale of financial devastation wrought in the eighties.

As Sykes points out, we had the biggest string of corporate collapses in Australian history.

The collapses included:

      Australia's largest industrial group (Adelaide Steamship);

      Australia's three major television networks (Bond Media, Qintex, Channel Ten);

      Australia's largest textile group (Linter);

      Australia's ninth largest enterprise, in terms of revenue (Bond Corporation);

      nearly half of the country's brewing industry (Bond Brewing);

      the second largest newspaper group (Fairfax);

      Victoria's largest building society (Pyramid); and

      Australia's largest car renter (Budget).

 

 

Other Casualties

Other casualties included:

    Severe problems being faced by Australia's largest company as measured by revenue (Elders), its largest media group (News) and the other half of the brewing industry (Fosters).

    Australia's three largest merchant banks had to be rescued by their parents (Tricontinental, Partnership Pacific and Elders Finance).

    Two of Australia's state banks suffered devastating losses and were investigated by Royal Commissions (State Bank of Victoria and State Bank of South Australia) and the other two state banks were deeply scarred (Rural & Industries Bank of Western Australia and State Bank of New South Wales).

According to an article in the Financial Review Alan Bond and his companies will have left unpaid debts of around $5.3 billion.

The article states that "Bond could certainly lay claim to being the world's largest personal bankrupt".

 

 

The Bill

The bill for the bold riders was paid, according to Sykes, by: "Australian taxpayers (who had to bail out the profligate states of Western Australia, Victoria and South Australia); by shareholders in the banks (who saw their fortunes diminish and dividends slashed); and by the remaining creditworthy customers of banks (who were slugged mercilessly for years afterwards as the banks got their balance sheets back in order). And unsecured creditors and trade creditors were wiped out by the thousand."

Because of the vast devastation caused by the bold riders it is important to understand what happened and what allowed it to occur so that we can avoid a repetition.

It is in this respect that The Bold Riders is such an important book; for it clearly lays out the background to the era, the deals that allowed empires to be built and caused their inevitable collapse, the specific methods that were used by entrepreneurs to overcome controls, and the way in which so many people were so easily conned.

 

 

Complicated Transactions

It is to Sykes credit that complicated transactions and corporate structures are simplified sufficiently for the reader to follow, yet the details contained are enough to give one an understanding of the methods that were used by the main players.

It is therefore possible for readers to see what happened and to work out strategies to ensure that they will not be caught by similar transactions and scams.

 

 

Required Reading

People for whom this book should be required reading include internal and external auditors, risk managers, company directors, fraud control specialists, credit management professionals, investors, regulators and almost every professional dealing with corporate matters.

This is so partly because of the failings of the professions in the eighties. Sykes comments about the professionals:

"If the financial community worked the way it is supposed to, outside directors would have exercised their authority over runaway chief executives; accountants and auditors would have detected and exposed the pea-and-thimble tricks in the bold riders' accounts; lawyers would have refused to endorse their thefts; merchant banks would not have lent money and imprimatur to their schemes; brokers would not have pushed their shares; fund managers would not have invested in them; and the financial press would have castigated them.

"Thus another truly remarkable phenomenon of the 1980s was the way in which all these professions prostituted themselves - with the odd honourable exception - to the bold riders."

 

 

So Much Money

 

Sykes comments of the era of the bold riders: "Never before in Australian history has so much money been channeled by so many people incompetent to lend it into the hands of so many people incompetent to manage it."

 

 

Key Issues

 

Among the key issues covered in the book are:

 

      how lending in the eighties often lost track of the fundamentals and sometimes even of common sense;

 

      how conflicts of interest led to poor and costly decisions;

 

      how deficient accounting records and internal checks led to situations getting out of hand;

 

      how creative accounting disguised the fact that companies were in the red;

 

      how non-executive directors and even executive directors were often misled or kept entirely in the dark;

 

      how directors paid themselves exorbitant management fees even when their companies were in the red;

 

      how companies plundered the assets from other companies in which they had shareholdings;

 

      how secret and improper commissions and profits flourished; and

 

      how politicians were sold dreams that turned into nightmares.

 

 

Lending Practices

 

Among the inappropriate lending practices were:

 

      Lending to a company to buy assets, then lending to the holding company on the basis of those same assets and finally lending to the entrepreneur's company to buy share in the holding company based on the same assets. Thus three hundred million dollars might be lent that was only represented by one hundred million dollars worth of assets.

 

      Lending to companies on the basis of dramatic, and ultimately unreasonable, revaluations.

 

      Lenders were not always aware of what amounts other members within their group had already lent to companies. Their exposure was sometimes far greater that they realised.

 

      Loans were made that effectively represented equity risks but on which only a debt return was required. Equity returns should be significantly higher than debt returns because of the much greater risk involved.

 

 

Creative Accounting

 

Among the methods of creative accounting were:

      highly optimistic revaluations of assets;

      not recognising contingent liabilities or often even real liabilities;

      sham transactions at balance sheet date;

      round robins of cheques to disguise the financial position;

      recognising income immediately that should properly have been recognised over a number of years;

      not taking account of expenses in the year in which they were incurred in favour of accounting for them over a number of years;

      not taking account of decreases in asset values;

      not providing adequately, if at all, for bad and doubtful debts;

      off-balance sheet financing, and even off-off-balance sheet financing (omitting notes from the financial statements that should be there to indicate the off-balance sheet financing); and

      using equity and consolidation accounting in a very selective manner and structuring group structures to avoid properly accounting for subsidiaries and major investments.

 

A Concern

What is of concern to fraud control professionals is the way in which staff in companies were treated if they objected to the inappropriate management practices.

Careers of staff were often destroyed or severely damaged if they took a stand against the bold riders.

 

Wealth of Information

The Bold Riders represents a wealth of information from which we have a great deal to gain. If those concerned with fraud control read only one book during the nineties it should be The Bold Riders.

 

 

 

Honest Cops

by Quentin Dempster

When faced with cultures of corruption it often takes a great deal of courage to stand up and be counted. This is especially so when standing up may mark you for vilification, threat and even target practice. This book is about those brave individuals who were prepared to risk their careers, their health in some cases even their lives to expose corruption in the Australian police forces.

When reading this book one is impressed by the courage of the individuals and astounded by the extreme reactions they encountered. Instead of their reports being acted on and corruption immediately tackled, these people were faced with the corrupt being protected and the honest cops being victimised.

To the reader it is the willful blindness of authorities and their all too frequent willingness to subvert the rule of law that is astounding, not to mention scary. This book is a well written, riveting and clearly told testimony to the honest cops and a damning indictment of their difficulties in trying to reintroduce honesty into policing. This book is important reading for anyone interested in cultures of corruption and how they need to be tackled.

 

 

 

Whistleblowers

by Quentin Dempster

I have had the honour to meet some of Australias brave whistleblowers. Many of those I have met seemed to bear the scars of their battles with the organisations and individuals that were determined to silence or crush them. They would have had much easier lives and in many cases benefited if they had simply ignored the fraud, corruption, public health threats, substantial wastage and other untenable conduct.

So why did they speak up? And why did so many people refuse to listen? What was it about the organisations that encouraged deafness rather than remedial action? And why did the whistleblowers persist? These are some of the issues considered in this book about whistleblowers in Australia.

The book considers cases from both the public and private sectors and in the recounting and explaining what happened the author gives many valuable lessons to those interested in protecting the organisations from coverups and cultures of silence and corruption.

 

 

 

Rorting

Edited by Malcolm Brown

This book is subtitled The Great Australian Crime. This appears to be because the authors consider rorting to be a costly crime in terms of its financial and social costs, and also because they point out how pervasive it is in Australia. The authors contend that rorting is an Australian way of life in one form or another.

The book contains accounts of police corruption, corruption in the justice system, insurance fraud, the Fine Cotton racing affair, fraud and corruption in the building industry, tax evasion, the Skase affair, the State Rail Authority, the Phillip Carver affair, corruption in local government, travel rorts and a salted gold mine in Borneo.

This is an interesting collection of topics on fraud and corruption in Australia.

 

 

 

Inside Victoria

by Bob Bottom, John Silvester, Tom Noble & Paul Daley

The corruption and scandals of Victoria from the 1950s to the beginning 90s are chronicled in this book. The account is fascinating and easy to read and is a great guide to the scandalous highlights of the times, from the Bolte era to the State Bank, Pyramid and the NSCA.

 

 

The Road to Fitzgerald and Beyond

by Phil Dickie

This is a useful guide to the Fitzgerald inquiry, exposing four decades of crime and corruption, details of the people involved and the findings of the inquiry. Phil Dickie and his colleagues were instrumental in exposing the activities that led to the Fitzgerald inquiry, so he is well placed to write the book about those remarkable events.

The book is a useful guide to anyone who is interested in obtaining a better understanding of corruption.

 

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