The audience was primarily internal auditors at my presentation this week at the 11th Annual Fraud Summit, held at the University of Texas at Dallas, where I teach, sponsored by the Institute of Internal Auditors, the Association of Certified Fraud Examiners, and Information Systems Audit and Control Association.
I talked about fraud and how as internal auditors there is a clear responsibility on our part to question what we see, if there is doubt, if something is not quite right, if something is not adding up. I mentioned that a large part of the financial crisis could have been avoided if the banks had followed their own published ethics policies and listened to their employees. And the fact that all of the large financial institutions which had either failed or been bailed out during the 2008 debacle had been given clean audit opinions, including Lehman Bros, Bear Stearns, Washington Mutual, Fannie Mae and Citigroup.
I asked, what about the auditors? Were they asleep at the switch or just plain stupid? Why did they not question if they had any doubts. And why did the banks and employees not follow their ethics policies? As the famous Dr. Dan Ariely, Duke University Professor and best-selling author, has observed, even if there is exposure to and training in ethics and codes of codes of conduct, if companies don’t truly expect people to act ethically, then you won’t get ethical behavior. The very lack of ethics and transparency certainly contributed to the problems.
I noted that I was quoted in the New York Times as saying that I believe corruption extends to the highest levels of government and that the large banks have a stranglehold on our country, and told them that the large banks were systematically gutting the provisions of Dodd-Frank which specifically relate to them.
I talked about my experience at Citi, told them of the many reports showing the breakdowns of internal controls which were not given to internal auditing as they should have been. And the out-of-policy risk conditions I’d repeatedly warned about also were not given to corporate risk and audit.
The list went on as I related the many instances where internal auditing, while performing their ’06 year-end audit, had stumbled over mortgage transactions resulting from senior management reversing my underwriters’ decisions on a large scale, allowing Citi to purchase huge pools of defective mortgages. I told them how our internal auditors had accepted the lame excuses management gave them and did not investigate further. And, I explained how auditing would have discovered some of the fraudulent activity going on if only they had asked further questions and probed deeper.
Of course, I mentioned my requesting a Congressional investigation and that many senators and members of congress on key committees were stonewalling my request. And I let them know about Bank Whistleblowers United and about our platform to return the rule of law to banking. I made them aware of the newly released Financial Crisis Inquiry Commission papers from the National Archives, the Rubin criminal referral and the second Citigroup criminal referral based solely on my testimony and evidence, and my concern at how little has been in the media about this.
It is silence that allows an organization to bend the rules. Silence on the part of the auditors, who know better, or who may have a slight doubt yet there is nothing illegal they can put their finger on, but they sense something is not quite right. Silence on the part of employees who may be afraid for their jobs. Silence on the part of management who may be individually profiting from the actions the company is taking.
I reminded them of their responsibility; that they have an obligation to call out when rules were being bent and they saw actions that might lead to another financial meltdown because of malfeasance, a mistake or just plain stupidity. It is silence that may lead to another financial crisis and so we must be vocal and loud and insistent in calling out financial wrongdoing that ultimately affects us all.
[tweetthis]”Silence may lead to another #financialcrisis. It’s time to be vocal!” ~ @RichardMBowen #2008[/tweetthis]
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