Accounting Assignment: Analysis on Business Scandal of Bankwest

Question

Task: The report on accounting assignment requires you to critically analyse the corporate collapse or business scandal of an organization of your choice.

Answer

Introduction
The report on accounting assignment is intended to create a critical analysis of the corporate collapse and business scandal of Bankwest. The company is listed under the ASX and has been providing banking services to the people of Australia. The company is a specialist in banking loans, saving accounts, debit cards, accounting, e-services, and real estate business. The bank was previously known as The Bank of Western Australia and was sold to the commonwealth bank of Australia in the year 2008. The bank closed some of its operational branches in the Australian states of New South Wales, Victoria, and Queensland due to increased customers who started preferring online banking. This prompted the management of the bank to close its physical operations in some of the branches. The particular report deals with a proper evaluation and examination of the factors that led to the corporate collapse and business scandal and how the company could have applied and implemented the various principles related to the ASX corporate governance. The company had been associated with a fraud related to the financial accounting system. The customers of the bank had invested in portfolio management and suffered huge losses in the crashing of the share prices of the bank at the onset of the global recession.

Background
When Bankwest was merged into Commonwealth bank, the company had started dissolving the assets of consumers and personal deposit savings. According to some of the customers, the bank had moved aggressively to reduce the exposure to small-sized commercial property clients. However, the Commonwealth Bank of Australia, being the parent concern of Bankwest, indulged in some unethical practices against the governing principles of ASX. The financial planning team of CBA was involved in a substantial fraudulent scheme from the year 2003 to 2012. The financial planners of the bank were involved in the manipulation of files of many of their clients(ASX Corporate Governance Council, 2019).They forged their documents to invest the clients' money in high-risk investments to earn a high percentage of bonuses and commissions. Despite tipoff from some of the whistleblowers of the CFPL, many customers of the bank lost a significant portion of the live savings, with some of them amounting to millions of dollars. This was considered fraudulent financial advice provided by the financial advisers with a set plan of creating a corporate scandal. The security and investment commission of Australia was criticized for being slow and inadequate to react to the situation that had claimed the savings of many people who invested in the bank. The efforts to recompensate the victims who lost their life savings were not satisfactory as the bank needed vast amounts of the fund to cover up the rogue financial planners involved in the scandal. This process resulted in the allocation of minimal compensation for the people who had lost their savings. This incident is considered one of the most disastrous financial scandals of Australia and is also considered an example of a breach of ethical conduct. The lifetime savings of many retired people and pensioners were dissolved in the accounting and financial fraud that resulted in the ill reputation of the Bankwest and commonwealth bank in the global financial market(Biedron, 2021). The objective of the report is to discuss the issue of behaviour and governance in the company, the role of the management and directors in following compliance methods, and the roles and responsibilities of regulators and governing bodies regarding the practice of ethical considerations in the company.

Critical analysis
The CBA accounts for nearly 29% of the total household deposits for Australia's citizens. It is considered the largest among the top four Australian banks. In the year 2008, the Australian security and investment commission sent a warning notice that indicated the fact that 38 financial planners of the bank fell in a high-risk zone for noncompliance with the appropriate financial planning protocols and regulations. The constant threat and risk of legal implications by the ASX and other financial regulatory bodies were surrounding the Commonwealth bank during those times. That was when one of the financial planners noticed issues in the bank's financial department. As per Blackburn (2019) the practice of unethical activities is prohibited by the ASX under various circumstances. It holds every financial institution responsible for any misconduct created in the accounts of the company or bank. The CBA fraud was made as the bank did not comply with the corporate governance principles provided by the ASX. The ethical principles of accounting and banking were not followed by the bank as it created forgery and manipulations related to the accounts and funds of various customers without their legal consent. According to Janda(2018) this can be termed as a case of fraud that cannot be tolerated in any financial institution in the world. The investigation that was initiated by one of the financial advisers helped in the discovery of secret manipulations in the risk profiles of various customers of the bank done by an employee named Don Nguyen. the accused person was suspended from the company activities owing to fraud and deceit along with the manipulation of clients funds and liquid assets. He also made false representations regarding the loss of money and attributed the cause to misfortune and other immaterial and impractical aspects.

The clients of the Bankwest or Commonwealth bank started to see their investment values plunge to nothing within few months. The bank customers began flooding the offices with complaints against the backdrop of a global financial crisis or recession that had already started to grasp the global financial market. As per Law & Yuen (2019)The customers realized the mistake that they made as it was an aggressive and challenging decision to opt for these portfolio investments in the backdrop of an incoming global economic meltdown. The account holders lost their assets owing to the frauds created by some of the financial planners and advisers in the bank. The fraudulence and manipulations led to the resignation of Don, who was the main person accused in the forgery case of 2008. He resigned om the year 2009, citing reasons related to ill health, which allowed him the provision to draw a lifetime amount of 70,000 Australian dollars as per the insurance policies of the bank.

Ethical issue in the case
The first ethical issue that can be related to this incident is the combined effort of a few financial planners in creating fraud and manipulation with the account holders that made a lifetime scar for them. As account holders and other service holders of the bank, they are liable for getting privileged services that are risk-free and beneficial for the; The bank charges amounts for provision of sound advice and counselling regarding investment options intended for the benefit of the account holders. However, in this case, the financial planners have provided wrong and inaccurate information and advice regarding the implementation of investment funds subject to market risk and stock value-oriented (Lynch, 2018).The beginning of the global financial meltdown resulted in the insolvency of the funds manipulated by the financial advisers of Commonwealth bank. The issue of ethics that can be considered in this case is the illegal forgery of customer documents and manipulations in accounting figures without the consent or permission of the customers.

The second issue that deals with the code of ethics and principles for accounting bodies are the cover-up of the accused people that were responsible for the creation of fraudulence and the misrepresentations in the accounts of the customers. To safeguard the image of the bank and to save the financial planners from serious legal prosecutions, the bank had to spend a lot of funds to cover up the entire matter for the sake of reputation and market value. This act was considered unethical by the account holders and customers of the bank who were deprived of their fundamental rights. This aspect was considered more unethical because the bank's management had to allocate funds for covering the incident and saving the financial planners from severe prosecution (Morris, 2015). This activity caused the recompensation amount to shrink, and the ultimate amount prepared for redistribution was very meagre. From the code of ethics and many more ethical considerations, this act was not beneficial for the customer as they have gone through considerable losses due to the frauds. On the other hand, the offenders were provided much support from the organization that was not expected from an ethical angle.

Corporate governance principles that are applicable
There are as many as eight principles related to corporate governance under ASX that can be followed by organizations. However, there are primarily three corporate governance principles that are related to the contemporary accounting issues in organizations, particularly in the case of the scandal at Bankwest or Commonwealth bank. Apart from these three principles there are a few international governance principles that are applicable to this particular fraud case. The Sarbanes Oxley Act of 2002 was established in the US to counter high profile corporate scandals.There are also a few other governance principles that can be applied in this particular fraud case. They can be attributed to accountability, fairness, transparency, and responsibility. These are the four primary corporate governance principles that can be applied to the case of fraud in accounting firms and financial institutions in the United Kingdom.The fraudulence in the Commonwealth bank is a series of repeated transactional errors that have resulted in the considerable loss of reputation for the financial institution.

1)Laying a solid foundation for management and oversight
This principle explains the importance of the respective roles and responsibilities of the board and management in regulating, scrutinizing, and closely monitoring the actions and implications of the financial advisers and the planners of the company. The administration should adequately demonstrate leadership aspects and oversee the strategic implementation and the objectives of the entire accounting management system (Ramos Montesdeoca et al., 2019).The question related to this particular case is the absence of integrity issues in the accounting system.

The application of proper ethical codes of conduct and integrity in the external audit of the company would have helped the company in averting the frauds in the accounting department. Adequate monitoring and evaluation of the accounting and corporate reporting systems would have detected the copies done by some of the financial planners of the organization. A regular review of the performance and actions of the financial planners would have helped in averting the incident that had caused considerable harm to the company and its account holders. A forensic accounting theory can be applied to detect fraud in the accounting process of financial institutions like the Commonwealth bank (Staff, 2019).The application of forensic accounting theories can see past and present accounting scandals that are related to the organization, as the CBA, and are considered experts in the detection of frauds and manipulations related to financial accounting. The use of this theory would have successfully detected and mitigated the causes of fraud and miscalculations in the accounts of CBA.

2)Instilling a culture of acting lawfully, ethically, and responsibly
The second corporate governance principle of ASX that can apply to the fraud case of Bankwest Commonwealth bank is the adoption of a work culture that is ethically and lawfully proper. It emphasizes that the directors and senior executives of a company should create laws and ethical values that should be followed by the entire company. The principle says of having disclosure of conduct code for the directors, senior employees, and executives. The application of conduct applies to the topmost authority of the company as it will ensure adherence by the lower and middle-level employees (Toms, 2019).The upper level of the company should be informed about any manipulations and malpractices that are against the ethical code of conduct.

Proper training provided by the company trainers regarding the adherence to the ethical codes and conduct to all the employees of the organization would have helped the company in reversing the incident that had created a considerable amount of future problems for the company. The directors and executives of the company should have consistently acted against the malpractices in the accounting system. Instead of covering the people responsible for the fraud, they should have appropriately punished the offenders according to their unethical and improper actions. Any breach in materials or evidence should also be handled using regulations and legislation. The application of virtue ethics theory would have considerably helped the company in stopping the use of unfair and unethical activities that are related to manipulations and frauds in the accounting system.

3)Recognition and management of risk
The ASX corporate governance principles recommend using proper recognition and management of risk factors associated with the misrepresentation of accounting evidence and reports. The fraud that was done by some of the financial advisers would have been averted if there were proper risk management and risk recognition methods (Tutino & Matteo Merlo, 2019).An establishment of a sound risk management framework and the periodical review of the effectiveness of the framework should be considered an integral aspect of risk mitigation in a company like CBA. The recession and global financial meltdown had created a downward trend in the share prices of the company, and that had severely affected the risk portfolios of some of the account holders of the bank. Proper guidance and advice should have been provided by the bank to the investors to understand the risk index of their investments. However, the ultimate responsibility of the company is to create a proper management framework that should be combined with an audit committee that can help address various risks involved with market investments (van Driel, 2018). This mechanism will provide a clear and transparent focus on the judgment required to oversee the risk management framework. The agency theory of accounting is applicable in the case of risk management and mitigation. It is assumed as the theory that helps in explaining and resolving issues related to business principles and ethics.

Conclusion and recommendations
The company could have adopted a few principles of fair accountability to mitigate the risks associated with the manipulation of accounts. The company security system should be more substantial. Legal implications should have applied to every offender if found guilty of any kind of manipulation in the financial transactions.

Transparency in the accounting standards should be maintained in accounting policies that should be followed according to the laws enforced. It is the company's responsibility to provide the reimbursements amounts to the people who lost their money due to frauds in the accounting system. The company's CEO is responsible for the fraudulence and is answerable to the public in every aspect. The bank CEO should not have provided cover-up and any financial support to the offenders who carried out the risk operations of portfolio management (Staff, 2019).The account holders should have received the entire amounts of funds that have been dissolved due to the manipulations by the financial planners, and they should have warned the account holders about the harmful effects of the global recession that was a contributing factor in the solvency of the funds of the customers of the bank. However, it can be presumed that the Commonwealth Bank of Australia would not have been able to commit a serious offense like this incident had it followed the guidance of the corporate governance principles of the ASX. Many existing customers who suffered miserable amounts of money would have been benefitted by the adherence and compliance to ASX rules and regulations.

References
ASX Corporate Governance Council. (2019). Corporate Governance Principles and Recommendations 4th Edition. In https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-fourth-edn.pdf. https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-fourth-edn.pdf

Biedron, R. (2021, March 1). Famous Accounting Scandals In Corporate Finance. PLANERGY Software. https://planergy.com/blog/famous-accounting-scandals/ Blackburn, V. (2019, March 20). Top accounting scandals in 2018. Accountancy Age; Accountancy Age. https://www.accountancyage.com/2019/03/20/a-summary-of-the-cases-of-financial-scandals-of-2018/ Janda, M. (2018, May 28). Bankwest business banking terms likened to Monty Python skit. Www.abc.net.au. https://www.abc.net.au/news/2018-05-29/banking-royal-commission-live-blog/9810698

Law, P., & Yuen, D. (2019). Financial analysis and corporate governance of AA: A case study. Corporate Ownership and Control, 16(2), 19–24. https://doi.org/10.22495/cocv16i2art2

Lynch, N. (2018, May 31). CBA’s BankWest takeover debacle and APRA’s “appalling” regulatory fail. Michael West. https://www.michaelwest.com.au/cbas-bankwest-takeover-debacle-and-apras-appalling-regulatory-fail/ Morris, J. (2015, November 17). Commonwealth Bank threw its customers under the bus. The Sydney Morning Herald. https://www.smh.com.au/business/cba-threw-its-customers-under-the-bus-20151116-gl0411.html

Ramos Montesdeoca, M., Sánchez Medina, A. J., & Blázquez Santana, F. (2019). Research Topics in Accounting Fraud in the 21st Century: A State of the Art. Sustainability, 11(6), 1570. https://doi.org/10.3390/su11061570

Staff, R. (2019, November 27). Factbox: Five years of Australian finance scandals. Reuters. https://www.reuters.com/article/us-westpac-regulator-factbox-idUSKBN1Y109M

Toms, S. (2019). Financial scandals: a historical overview. Accounting and Business Research, 49(5), 477–499. https://doi.org/10.1080/00014788.2019.1610591

Tutino, M., & Matteo Merlo. (2019). Accounting fraud: A literature review. ResearchGate; Virtus Interpress. https://www.researchgate.net/publication/330697764_Accounting_fraud_A_literature_review

van Driel, H. (2018). Financial fraud, scandals, and regulation: A conceptual framework and literature review. Business History, 1(1), 1–40. https://doi.org/10.1080/00076791.2018.1519026