In Your Face

In Your Face
Thought provoking opinions on topical issues.

Tuesday, December 14, 2004

Don't Dilute The Brand

My professional body, the Institute of Chartered Accountants (ICAEW), will be launching yet another campaign to persuade its 126,000 members to approve a merger with two other accountancy bodies in the UK (CIPFA and CIMA).

The ICAEW ruling council argue that:
  • The demographic skew of the ICAEW means that by 2023, half the membership will be over 55. The merger, in their view, will inject young blood into this dying organisation.

  • The merged body will be larger, and better equipped to address the issues facing accountants in the 21st century.

  • The merged body will be able to stand up to the UK’s other accountancy body, the ACCA. The ACCA is, for reasons that remain unclear, not participating in the merger talks.

  • The ICAEW argue that we have been down this route so many times before, there have been several merger attempts in the past that have been vetoed by the membership, that it is now time to make up our minds once and for all; ie vote yes.
To quote Margaret Thatcher:


The arguments put forward represent the same, tired old mantra recited by previous ICAEW councils. They failed then, and they will fail again to convince the membership that a merger is a good idea.

We, the members of the ICAEW, do not want or need a merger of incompatible bodies. The merger will “dilute the brand value” of the FCA qualification.

Rather like a poorly conceived marriage; forcing unequal, ill suited partners together is a recipe for disaster.

The membership of the ICAEW have strived long and hard to achieve their qualifications; yet the council of the ICAEW seek to fritter away the labour of years, like a gambler “blowing his salary” at the dog track. To accept the merger would, in effect, consign the members’ efforts to the dustbin of history.

To hand over control of the governing council of the ICAEW to a new body, will denude the current membership of its right to veto who can become an accountant.

The council has wasted far too much time and money over the years, in trying to persuade the members to vote for a merger. The time has come to stop this disgraceful waste of members’ subscriptions, and stop the merger juggernaut once and for all in its tracks.

The argument about demographics is spurious, and indeed a sad indictment on the “management” by the council of the ICAEW. The decline in “youthful” members is surely down to the decline in the attractiveness of the qualification, and the out of date “fuddy duddy” image of the ICAEW. These issues should be directly addressed by the council, not swept under the carpet in the guise of a merger.

Diluting the brand is not the way to address the fundamental problems facing the ICAEW.

Vote no to the merger.

I have set up a website, dedicated to fighting the ICAEW merger proposal, it can be accessed via

Please tell your friends and colleagues about it.

Friday, September 17, 2004

1984 – Twenty Years On

In Orwell’s chilling vision of the future of Britain, 1984, the Ministry of Truth was responsible for propaganda. Orwell illustrates this by describing the release to the media of news about the statistics for shoe production. The statistics showed another increase in production.

However, as the protagonist Winston Smith mused, no one knew if the statistics related to left foot shoes, right foot shoes or were for pairs of shoes; indeed no one knew if the statistics were correct and, most damming of all, no one cared.

In 2004 we find ourselves to be in a very similar position. There is a rumour, “doing the rounds”, concerning the latest figures released by the government about the number of homeless people living on the streets of London.

It seems that a “directive” was issued to all the homeless care centres in London, instructing them to hold a party for the homeless of London on the same evening.

The homeless were duly “rounded up” to attend this very philanthropic event. A good time, we assume, was had by all.

On the face of it there is nothing sinister, or worrying, about giving a little warmth and cheer to those on the lowest end of the social ladder. However, there is one piece of information that needs to be added to this “Dickensian tale” of generosity.

The night of the party was the night that statisticians were walking the streets of London, counting the number of people living rough on the streets. These statistics would then be compared to the previous count, to see if the government had reached its target of reducing homelessness.

Needless to say, because a large number of homeless people were attending the special party they were not physically on the streets at the time of the count. Therefore, the statistics for the number of people living rough on the streets of London showed a marked improvement. The government had reached its target!

It seems that Orwell’s vision, although it may have missed the mark by twenty years, has become reality.

Bliar and his team of cronies in New Labour are so adept at lying, that they know that they can do it with impunity; the lies are no longer reported, even when they are no one seems to care.

The result is that Bliar no longer cares what lies are told; so long as it serves the cause of New Labour, and their desire to cling on to power at whatever the cost.

Friday, September 10, 2004

The Rotten Core at The Heart of Britain’s Financial System

It is often assumed by both the public and the politicians that, aside from the occasional scandal such as the Maxwell fraud, Britain’s financial system is well run and relatively honest.

After all, the UK has a plethora of rules, regulations and watchdogs (such as the FSA) governing; the stock market, financial advisers, pensions, auditors and all the other components that go to make up the UK’s financial system.

However, I am firmly of the opinion that this “confidence” is based on nothing more than hubris; and that, in fact, we live in country that has a fundamentally rotten financial system.

I would like to cite a number of examples that support my view:

The Endowment Mis-selling Scandal

The endowment mis-selling scandal, of the late eighties and nineties, readily springs to mind as one of the major failings of our financial system. As has been well documented, the life assurance companies used the bull market to create a totally unsuitable, and useless product, that they aggressively sold in the manner of TV sets and washing machines to over 8 million unsuspecting home owners.

The theory being that the bull market would create high yield returns on this product; that would not just pay off the mortgages of the hapless holders, but would also give rise to a modest surplus. Needless to say, what the life assurance companies did not bother to clearly tell people was that their commission charges would rob the product of much of its initial value, and that their projections for growth were totally unrealistic.

It now turns out that the 8 million holders, of these white elephants, are facing shortfalls of over £40BN. Although, in theory the policyholders can try to claim compensation, the life assurance companies are using every excuse in the book to slow the process down in order to avoid paying compensation. To date a paltry £1BN has been paid to those seeking redress.

The FSA, although they offer some fall back position for those refused compensation by the life assurance companies, do not have any intention of “rocking the boat” too hard. The FSA refuse to acknowledge the fact that the life assurance companies perpetrated the greatest financial scandal in the UK in living memory.


Needless to say the results of the endowment policy mis-selling scandal have, coupled with the ill thought out tax raid by Gordon Brown on the pension’s industry, destroyed peoples’ confidence and willingness to invest in life assurance/pensions policies. The British people are facing a pension black hole that will leave the majority of pensioners, over the next few decades, living in penury. The politicians have failed the electorate, by allowing the electorate the self-delusion that they will forever have increasing standards of living without having to work harder. Instead of telling it straight, that people are going to have to work beyond what is considered to be the normal retirement age of 60-65, the government fiddles while “Rome burns”.

Corporate Governance

Corporate governance, so long thought of as being well established and effective in Britain, is failing lamentably. The boards of many companies are made up of directors and non-executive directors from a small clique of friends, and contacts in the City, who sit on each other’s boards. These people, instead of seeking to ensure effective and robust management in the interest of the shareholders, in fact more often than not sit passively; nodding through a host of half baked business plans, and the most greedy of executive remuneration packages.

I can certify that, more often than not, the primary qualification for being selected to serve as a non executive director (a position that in theory is meant to oversee the actions of the main board, so as to safeguard the interests of the shareholders) is that they have probably served in the same company before, or have certainly got “the right” connections. The concept of robust, proactive, independence doesn’t apply.

Directors of companies are routinely lambasted for awarding themselves, like pigs with their heads in the trough, inflation busting pay and pension packages. Politicians wring their hands, and shed crocodile tears, lamenting at this practice. However, once they have left ministerial office, each one of these “champions of the people” soon finds their way on to the boards of the companies that they were criticising.

Post Enron and Sarbanes Oxley the UK has, in its normal slow unhurried way, put together via the Higgs/Smith reports and the Combined Code a set of guidelines for companies and executives to follow with regard to corporate governance. However, it is not compulsory; all the company has to do, if it wishes to ignore these guidelines, is to write a few notes in the accounts.

Companies that are increasing their internal control and review procedures, not I may say because they want to, but because Sarb-Ox has forced them to; are complaining loudly about the increase in audit fees. It seems to me that it is not unreasonable that, because a greater amount of work is required to be done by the audit firms, they will have to charge more.

Audit Firms

Audit firms are not entirely immune from the rotten stench that emanates from the UK financial system. I well remember as a trainee auditor witnessing the booking of extra hours, that were not in fact worked, to the timesheet of a well known FTSE company; so that the audit fee could be justified to the FD of the client who, not unreasonably, had asked to see a breakdown of the hours worked.

A few years ago, audit firms, having felt the pressure of the market were forced to find ways to cut costs. Their brilliant and inspired solution was to create the concept of “risk management”, and audit only those areas that were deemed to be high risk; system compliance tests, which took up a lot of time, were thrown out of the window. The audit became a cheap and cheerful “risk management” exercise; whereby the real money was made by selling on added value services, such as consultancy.

In 2000 I attended, as an observer, an Arthur Andersen training course in Chicago; the mantra “forget about the audit, hard sell the high margin add ons” was pumped into the participants at every opportunity.

The consultancy advice usually given to the hapless client was to outsource mainstream functions such as; internal audit, tax and treasury to yes, you’ve guessed it the audit firms. I would say this, if Arthur Andersen had not been the first to “cop a fall” over lack of segregation of practices and excessive greed with its Enron and WorldCom debacle, then one of the other big firms probably would have done so.

Now they are forced to segregate services, and as such are reverting to the old “tick bash” routine in order to keep fee incomes high.

There is one other fly in their ointment. With the Enrons of this world came mega sized law suits, something that the accountancy firms and their insurance firms do not wish to pay for. This has caused something of a stand off with the government; Gordon Brown wishes for uncapped liability of audit firms, the audit firms are arguing for a cap. Their secret weapon is that if they don’t get a cap, they will dump certain “high risk” clients; this would leave the government with the responsibility for reviewing these companies’ books of account. In other words, the audit firms are holding the government to ransom; and trying to pass the risk of errors and omission in their working practices on to the shareholder and tax payer. Nice trick isn’t it?

The Stock Market

Those of you who are still not convinced that the financial system in the UK is rotten, should take a look at the stock market; and ask yourselves whether the ordinary investor, with a modest portfolio, can make money to the same degree as the big market players.

Monitor the swings and movements in the share price of any share, that you care to pick, over a few months; and watch the buys and sells preceding the announcement of any news that affects the share price, such as a take-over bid. In the majority of cases you will see that there are significant buys/sells (depending on the nature of the announcement), prior to the news being made public. That is not coincidence, but the result of the news being leaked to a few well connected “players” in the market.

When there is little news coming out about a company, more often than not the market makers will adjust the prices to shake out sellers or buyers; there is no reason for these price movements, other than to panic smaller holders into adjusting their portfolio which in turn generates commission for the market makers.

Consumer Debt

I will take as my final example the house price bubble that has grown over the last few years. As I write this, the effect of the recent interest rate rises by the Bank of England seem to be slowing the price rises down or indeed may even have pricked the bubble. The fact that this unsustainable rise could be allowed to continue for so long is damming in itself. However, the real issue is what has been sold on to the unsuspecting, and financially illiterate, consumers on the back of the bubble.

In the eighties, as already noted, we had endowment polices; now we have equity release schemes designed to consolidate credit card debt to encourage borrowers to borrow more, and spend on short term consumption. Borrowing long to spend short is recipe for disaster, as Weimar Germany and the world discovered to its cost in the 1920’s.

Loan companies have been allowed to aggressively target their advertisements at the most vulnerable, financially illiterate, people in society; without any regulatory interference. The interest rates on many of these debts bear no correlation to the risk profile of the loan. Instead they reflect the lending company’s “greed pricing grid”; which is the in house pricing model utilised by the lender to identify the maximum rate of interest that it can charge without losing customers to other lenders.

The result is that consumer debt in the UK now stands at over £1 trillion, which in my view is unsustainable. As house prices start to deflate many people will find themselves in a situation with negative equity; unable to move house, or restructure their finances. They will be saddled with an unsupportable level of debt for the rest of their lives.

Now, taking all of the above into consideration, do you feel that the financial system in the UK is well regulated and honest?

Thursday, August 05, 2004

The Diana Memorial Fountain – A Monument To New Labour

After considerable delays, and at considerable cost (approximately £3.6m), the Diana Memorial Fountain was recently opened in London amid much hyperbole and razzmatazz.

Its design, we are told, is unique and “cutting edge” in the world of fountains.

However, as with all “unique” and “cutting edge” architectural designs, the fountain has had its fair share of problems.

It has had to be shut several times since its recent opening; owing to leaves blocking the water outlets, and people falling over in it.

A minister in the Labour government rushed to the fountain’s defence, and blamed the public for not using it properly. Plans are now being considered for extra park patrols and inspections, in order to prevent people and dogs from paddling in the fountain.

This “mini fiasco” bears all the hallmarks of the New Labour approach to government:
  • The project was expensive and unnecessary, but it went ahead anyway.

  • When problems emerged, Labour sought to blame others; in this case they blamed the public.

  • The fountain design has not been well thought through, and is unsuitable for the environment in which it has been placed. There are numerous New Labour projects with that as an epitaph; the Dome, the invasion of Iraq, the PFI initiative and elected mayors readily spring to mind.

  • The fountain is a memorial to an individual who was famous because of her connections and celebrity status, rather than her contribution to society. New Labour attach themselves to vacuous celebrity icons, like a barnacle to the hull of a ship.

  • The solution to the fountain’s problems is to increase inspections and patrols. How very New Labour; when presented with a problem, such as education or health, their response is to smother it with inspections and statistical analysis and to regulate it to death.
In my view, the fountain has become a memorial to all that is shallow and inept about new Labour.

I suggest that it be renamed “Tony’s Folly”, a lasting monument to the architect of New Labour.

Saturday, July 24, 2004

The Butler Report

Lord Butler’s report has, much like the earlier Hutton report, exonerated the government and individual members of the government from blame; in relation to taking the UK to war on the false premise of Iraq possessing weapons of mass destruction (WMD).

Butler has achieved this neat side-step by working on two mistaken assumptions:

  • He has assumed, that with respect to the evidence on WMD; all parties and processes connected with the collation, processing and dissemination of the evidence functioned unsatisfactorily. Therefore, if all were to blame, no one individual could be held personally responsible or singled out for blame. He assumes that the UK government still operates under the principle of collective Cabinet responsibility.

  • Unfortunately, the pretence of collective responsibility has long since been abandoned by Prime Minister Blair; who has little interest in the seeking the approval or counsel of Parliament, or his colleagues in the Cabinet.

  • Butler also noted that if Prime Minister Blair had not really believed that there were WMD, then he would never have used that as an excuse for war. Butler holds to the belief that once the lie had come out, after the war, the Prime Minister’s position would have become untenable; ie it would have been irrational for the Prime Minister to lie.

  • However, Butler ignores one very salient point, that is exactly what has happened. There were no WMD, and the Prime Minister is having to explain how this “error of judgement” occurred.
Butler’s reasoning is honourably based, for he believes that public servants and politicians should act with honour and integrity.

Unfortunately they don’t.

Protecting individuals from specific blame is the act of an honourable man. Unfortunately, the politicians that he protects are not honourable; and have readily in the past sought scape goats to protect their own positions, when errors of judgement and incompetence threaten their privileged positions.

The argument that it would be irrational for Blair not to tell the truth, shows how little Butler understands Blair. Blair did not care whether there were WMD or not, the possibility of there being WMD was enough to use in his argument to take the UK to war.

Blair, as a lawyer, knew that whatever the outcome of the search for WMD he would always be given the benefit of the doubt; ie that he acted in the best interests of the country. It could never be proven that he had deliberately lied, it is after all still an essential part of the law that you are innocent until proven guilty.

I am afraid that Lord Butler, being a man of honour and integrity, inhabits a world that has long since ceased to exist; which is exactly why he was chosen to prepare the report.

An honourable man cannot be accused of deliberately colluding with the government in a cover up.

Wednesday, June 16, 2004

Confidence in the Financial System

Sir Richard Sykes, a "big player" in UK business circles and a leading government adviser, has published a report entitled "Restoring Trust; Investment in the 21st Century".

Sir Richard, worried about the small amount of money that people are putting away for their retirement, is trying to persuade investors to return to the UK stock market.

With the melt down in share prices in the first few years of the 21st century, the £40BN shortfall on endowment policies and the Enron and WorldCom scandals to name but a few; investor confidence has taken a battering over the past few years.

Sir Richard ought, in some respects, to be able to count on the help of the Financial Services Authority (FSA). Their primary function is to maintain confidence in the financial system in the UK.

One significant piece of the jigsaw that forms the financial system is the trading of shares on the stock market. Confidence in the working and price mechanisms of the market will minimise investors’ fears about investing in that market.

I have been watching the activities surrounding one particular share, with a degree of fascination over the past few months.

The share, which shall remain nameless, is highly volatile. Its trading range, in pence, has moved from below 10p to the high 70’s then back to the mid 30’s. All of this, in spite of the fact that the company has yet to earn single penny in revenue from its activities.

The main driving force behind the price swings have been:

  • Optimistic news releases via RNS and AFX notes.

  • Speculation by gullible fools.

  • Ramping and de-ramping (talking it up and talking it down), on the bulletin boards of financial websites.

  • Optimistic conversations, and emails, between the CEO and shareholders. The subjects of these "private exchanges" are then published, by the same shareholders, on the bulletin boards.

To some extent this will always happen in a free market. However, the degree to which this has happened with this share has given me much cause for concern.

Matters came to a head recently when a false AFX note, containing information that would have caused the share to leap, was posted on a bulletin board. On discovery that it was a fake, the poster claimed to have posted it as a joke.

Following on from that, the CEO in an email to a shareholder (the contents of which were naturally posted on a bulletin board), noted that he was fed up with the volatility of the share price; and that news flow would be staunched in order to stabilise the price, and remove the speculators from the share.

There are two possible scenarios, but only one conclusion, wrt this email.

  • The posting of this email, if false, means that the poster was trying to manipulate the market.

  • However, should the email be genuine; then it means that the CEO was trying to manipulate the market, via news management.

Either way, this is a very clear example of market manipulation; something which the FSA has an interest in stamping out, in order to maintain confidence in the financial system.

I applaud Sir Richard’s intentions. However, before trying to persuade investors to return to the market, he needs to ensure that shenanigans such as this are stamped out. In other words he needs to ensure that the FSA are proactively investigating occurrences such as the one I have just described, and taking action where deemed appropriate.

Tuesday, June 08, 2004

The Price of Petrol

The recent rise in the price of oil, to around $40 a barrel, has once again brought the price of petrol in the UK into focus.

There have been threats by various action groups to blockade the roads; in a repeat of the chaos that ensued a few years ago, when petrol prices hit new highs.

It seems that the hard pressed British driver, so we are told, will not tolerate petrol at 80p or more a litre. The argument is also made that, since over 50% of the price is tax, it is up to the government to keep the price down by reducing the tax.

Some politicians have jumped on the “petrol price bandwagon”, and expressed their support for the British motorist.

However, in my view, far too much time and effort is expended by politicians and the press in trying to placate the motorist.

Let us take a look at a few facts:

  • In real terms the price of petrol has remained, more or less, constant over the past 30 years. In other words, the motorist is no worse off now than 30 years ago.

  • Britain is a small overcrowded island of 58 million people. It seems that, despite the congestion of the roads and cities, everyone feels that it is their God given right to own and operate a car. Newsflash, it isn’t!

  • Oil is a dwindling resource, the more we use the less there is; by definition there will have to be some from of rationing. The most effective form of rationing is via the price.

  • Taxation on petrol is required to support the ever increasing demands of the electorate for better schools, hospitals and, dare I say it, more roads. It is time for the motorist to wake up, and realise that these thing have to be paid for. Therefore it is not unreasonable for the government to tax motorists, given the fact that they (the motorists) insist that every inch of the country be covered in motorways.

  • Cars are a blight on the environment, high petrol prices are a good way to make people think twice about using them.

  • The use of cars in the UK at the moment can be said, in many cases, to be unnecessary. The “school run”, in the mornings and afternoons, sees a multitude of unnecessary car journeys; as “little Johnny” is driven the few yards to school by his overprotective and doting mother. We are breeding a generation of fat, lazy and spoilt children. It seems to me that they, and the environment, would benefit immensely from them walking to school each day; rather than being chauffeured.

I am therefore very happy to see petrol prices rise in line with the price of oil.

Wednesday, June 02, 2004

The Current Situation in Saudi Arabia

The recent attack on the foreign workers in Saudi augurs ill for the future. Saudi Arabia, despite earning a good income from oil production, has a number of significant social/political problems that it needs to address.

These include the following:

  • Demographics, over 40% of the population are under 25 years old

  • Reliance on a single revenue source, oil is the sole revenue source for the Kingdom. Saudi has failed to develop any other form of revenue earning economic activity

  • High unemployment, Saudi relies on 6 million foreign workers to run its key industry. The result being that its own citizens are unemployed

  • Security, Saudi’s security services and armed forces are not “top rank”. This was very clearly demonstrated by the events over the weekend. Saudi relies on the USA to protect its borders

  • Democracy, this is in fact non-existent. Saudi has been ruled a by the House of Saud since the state was founded in the early 20th century

  • Human rights, Saudi has a very poor human rights record; eg women are not allowed to drive cars and people are still beheaded

  • Education, Saudi education is religious based and highly anti Western

The social and political problems within Saudi have provided a fertile recruiting ground for Bin Laden and his acolytes.

In my view, time is running out for Saudi Arabia. The Saudi government needs to address the above issues, with urgency, in order to avoid the significant and irreversible breakdown of law and order that is inevitable.

Failure to address these issues will ensure that the House of Saud is replaced by an extreme Islamic theocracy. This will not be good for either the Saudi people, or the oil-based economies.

Wednesday, May 26, 2004

The European Elections for the Invisible Parliament

The citizens of Europe are facing the joys of a European election in the next fortnight, when we have the opportunity to vote for our Members of the European Parliament (MEP’s). This provides an apposite opportunity to pose a few questions, I am happy to publish any replies:

  • What exactly do our MEP’s do?

  • Can you name one piece of legislation, passed by an MEP, that has had a positive effect on the way of life of the citizens of Europe?

  • Does anyone know the name, or party, of their MEP?

Despite the fact that the EU elections are only a fortnight away, I have not received a single solicitation or piece of information from any of the candidates standing; telling me about themselves, or their policies.

We pay these people a more than generous salary and expense allowance, and they have a far better standard of living than the majority of the citizens whom they represent. Yet they choose to remain invisible.

The staging of the elections for the “invisible parliament” costs the European taxpayer a very large sum of money. Yet we see no return on our “investment”.

I, for one, intend to register my protest at this insult to democracy; I do not intend to vote.

I recommend that every like-minded citizen of Europe follow suit.

Tuesday, May 18, 2004

Iraq, What Needs to be Done

The situation in Iraq is, to put not too fine a point on it, a real mess.

Despite President Bush proclaiming, “mission accomplished” in 2003, the ongoing bombings and attacks on coalition personnel prove otherwise.

The situation has not been helped by the disclosure of USA troops abusing prisoners. Quite how the military and politicians thought that this was a good way to extract information is beyond me.

It is fair to say that as a result of this, the American brand image is at an all time low.

The USA and coalition are now faced with some tough decisions. The easiest option would be to cut and run. In the short term, this would save coalition lives. However, in the long run it would be disastrous:

  • Iraq would descend into even more chaos, and many thousands more Iraqi civilians would die; as various factions fight it out for control.

  • The temptation for other countries in the region to interfere would be great. Before long, the Middle East would dissolve into chaos and war.

  • The oil supply to the rest of the world, would be threatened; and the world economy would sink into recession.

  • The terrorists would be emboldened by the withdrawal, and step up their attacks elsewhere.

In short, withdrawal is not an option.

Here’s what needs to be done; it is neither palatable, nor easy:

  • Stop abusing prisoners.

  • Punish those responsible for the abuse, and those who gave the orders.

  • Get the power back on in Iraq.

  • Remove the military control of the procurement and funding allocation process in Iraq.

  • Install a civilian administration as soon as possible in Iraq.

  • Leave as soon as all the above have been done.

  • Reduce the West’s reliance on oil.

It’s going to be a long summer!

Friday, May 07, 2004

The Photos of Torture in Iraq

The pictures coming out of Iraq, alleging the torture and abuse of Iraqi prisoners by British and US servicemen are a matter of great concern and shame; if they are proven to be true.

The US and British governments are currently investigating the accusations; and have let it be known that should the accusations be proven, the perpetrators will be punished.

The question is how far up the chain of command will the recriminations go?

No doubt the men and women on the field, who are in these photos, will be punished. However, it is extremely unlikely that they were acting without the direct encouragement of more senior personnel and other agencies.

Will these people and agencies be investigated and punished?

There is also a more troubling question; the young men and women in the US and UK armed forces were sent into Iraq on the pretext of stopping the spread of WMD, and reducing the risk of terrorism spreading.

The senior politicians in the US and UK, specifically President Bush and Prime Minister Blair, made it very clear that the mission was one of “Good vs. Evil”. Those sent into Iraq were, in my view, “pump primed” by Bush and Blair to believe that in effect they were fighting for the very existence of the West’s way of life.

Under those circumstances it is quite possible that, many miles from home in an inhospitable country, the young men and women of the armed forces may act with an almost zealous fervour to achieve their mission.

In other words, they were acting out the roles scripted for them by the politicians.

Bush and Blair need to keep this in mind when they next make moralistic pronouncements about events and countries.

Additionally there are a number of uncomfortable questions arising from this disgrace:

  • If the scenes of abuse have come as a total surprise to President Bush and Prime Minister Blair, then the chain of command and control has suffered a catastrophic failure. The responsibility for this failure rests with those at the top of the chain.

  • If the scenes of abuse have not come as a surprise; then it means that either these acts were being perpetrated on the express/implied orders of Bush and Blair, or that they were informed of it some weeks/months ago before the newspapers published the story. In which case Bush and Blair are guilty of suppressing a scandal that should have been placed in the public domain, as soon as it had been discovered.

Either way Bush and Blair need to consider their positions. The credibility of the coalition forces, and the last shred of justification for the invasion of Iraq, have been blown away by this scandal.

Meanwhile the people of Iraq must be wondering if they are, in fact, any better off.

Tuesday, April 27, 2004

The Penny Has Finally Dropped

I see that there was a “dust up” this weekend, at the G7 talks, between the President of the European Central Bank (ECB) and the finance ministers of France and Germany.

The leaks from this meeting suggest that the finance ministers are more than a tad “peeved” at the ECB’s refusal to cut rates.

The finance ministers know that they are unable to kick start their sluggish recession bound economies, as long as Europe’s interest rates remain at the current levels.

Jean-Claude Trichet (President of the ECB) knows that as long as it is the ECB’s mission to take a European wide view with regard to inflation, he cannot reduce interest rates at the behest of France and Germany.

Gordon Brown (the UK’s Chancellor of the Exchequer) can look on with a smile of smug self-satisfaction. The UK remains outside of the Euro, and therefore outside of the remit of the ECB.

I have noted before that the European Union cannot succeed in micro managing the economies of its member states (see The Impact of The Euro); as long as there is a single currency managed by a central bank. In my view the EU, in its present form, is destined to fail.

It seems that the finance ministers of France and Germany have only just realised this. The “penny has finally dropped”.

Thursday, April 22, 2004

Preventing Cheque Fraud, It’s Not Rocket Science!

This week in the UK, Joyce De-Laurey was found guilty of stealing £4.4M from Goldman Sachs.

It transpires that the former secretary accumulated her “nest egg”, over a period of 14 months, by forging the signatures of two senior members of Sachs on cheques and wire transfers.

The money was used to finance a lavish lifestyle enabling her to purchase, amongst others, a villa in Cyprus for £750K, £56K of Cartier “goodies” and £20K of items from Harrods.

I have had many years international experience running internal audit departments, and investigating frauds (see resume); and am constantly surprised as to how lax some companies’ cheque authorisation procedures are.

It seems an opportune moment to remind those in business of some of the basic controls that should be in place, in order to minimise the risk of fraudulent payments (note this list is not exhaustive):

  • There should be a hierarchy of cheque signatories. The larger the amount, the more senior the level required to sign.

  • Cheques over a certain predetermined limit should have at least two signatures.

  • Cheques should never be drawn without a cheque requisition being signed by a responsible official, who does not sign the cheque.

  • Cheque requisitions should be supported by documentary evidence, eg invoice/purchase order.

  • Transaction summaries of cheque payments should be routinely reviewed by internal audit.

  • Transactions over and above a predefined norm should be checked by internal audit.

  • An up to date cheque signatory list should be maintained, showing limit/authorities etc.

  • The bank should be encouraged to proactively query suspicious transactions.

  • Bank reconciliations should be performed regularly, and be up to date.

  • All directors’/senior managers’ personal accounts should be thoroughly reviewed by internal audit on a regular basis.

  • Finally, and this really ought to have rung alarm bells at Goldman Sachs, where an employee starts to display ostentatious signs of new found wealth; identify the source of this wealth.

As you can see, the above points are not rocket science. However, I would bet good money that many companies, not just the hapless Goldman Sachs, may not have all of these procedures in place.

Wednesday, April 21, 2004

What Use Are the Olympics?

The Olympics are soon to be foisted upon us again. I confess that I have little interest in sport, and find the “over the top” enthusiasm and saturation coverage by the media of this four yearly event to be tedious in the extreme.

This time it is the turn of the “lucky” Greeks to host this sporting extravaganza.

The modern Olympics, a far cry from the games envisaged by the ancient Greeks, are in my view a complete waste of time and money:

  • The hapless cities that host them are turned into a traffic congested hell on earth.

  • A media circus descends on the city and occupies every hotel, bar and restaurant; displacing the local citizens.

  • Despite the hype and media splurge, those that host the event rarely see a profit.

  • The security risks these days far outweigh the benefits; viz the pipe bombing in Atlanta in 1996, and the terrorist atrocity in Munich in 1972. Goodness only knows what is being planned by the fanatics and scum for the 2004 games.

  • The athletes themselves, instead of being fine examples of the human body in its natural form, are in fact pumped up products of illegal steroids and substances. So much for promoting health, fitness and vitality!

  • Some athletes so grotesquely abuse substances and their bodies, in order to make their mark on the Olympics; that even their gender is called into question.

  • The games, originally designed to promote friendly competition between rival nations, are used as a massive propaganda tool by the host countries to promote their own vision of society. Witness the Munich Olympics of 1936, or the tit for tat boycotting of the Olympics by the USA and USSR in the 1980’s.

I for one will be doing everything possible to avoid reading about them, or watching them, when they start later this year.

They are, in my opinion, of little value or purpose.

Thursday, April 15, 2004

You Get What You Ask For

I note that my previous article, "The Merging of the Customs and Inland Revenue", seems to have been rather prophetic; with regard to the inability of politicians to manage IT projects.

An article in Wednesday's Times notes that owing to the slipshod vetting of tenders; the UK tax payer has been landed with a cost over run of £150M, relating to a contract with an IT agency that vets people working with children and the vulnerable.

It seems that the number of people using this service was massively underestimated. A classic mistake often made when defining the usage requirements of new IT systems.

The politicians thought that they were being clever in contracting with the company that offered the lowest bid.

However, that bid was based on low usage figures which were in fact wrong. The actual figures, which were much higher, have resulted in a significantly higher variable running cost.

Be careful when vetting tenders, you get what you ask for!

Tuesday, April 06, 2004

The Merging of the Customs and Inland Revenue

Gordon Brown, in his recent UK budget, announced that the offices of Customs and Excise and the Inland Revenue would be merged. The timescale for this is estimated, by KPMG tax chief Laughlin Hickey, to be around five years.

The disruption and chaos to the UK tax and VAT systems, that it will undoubtedly cause, is beyond measure. Needless to say, the overburdened tax payers will bear the brunt of the chaos.

One area that will undoubtedly cause the most difficulty will be the merging of the departments’ computer systems. As anyone who has managed an IT changeover knows, the process of upgrading or changing an IT system needs to be carefully planned controlled and monitored.

Many private sector firms find IT system changes to be unexpectedly costly, both in terms of time overruns and money expended trying to fix “bugs” etc; which were not expected at the planning stage. The history of public sector IT changes is littered with even more expensive failures, the IT upgrade of the air traffic control system is one such example of poor planning and control.

This seems an apposite time to remind IT managers (and the Treasury) of the basics of planning, and managing, a successful IT change.

Here is a very generic checklist, which can be used when reviewing the merits/demerits of a new IT system. Note, it is very basic, and is not intended to be comprehensive.


  • System/user specification - compared with standard Internal Control Objectives. Is the package in conformity with company recommendations?

    • Is the system being taken "as delivered" or is it being customised?

    • if so, additional development costs and timescale

    • if so, implications for system size and response time

    • use of PC packages to replace or supplement larger systems

    • are features being lost which will have to be replaced e.g. inputs to planning at head office level.

  • Cost rentability/payback savings:

    • what are the alternatives?

    • have all costs been identified and included e.g. incremental licence fees?

    • has the in house IT department been permitted to bid for service and have cost-comparisons been prepared on a rational basis?

    • downsizing risks.

    • cost implication for remaining users.

    Interfaces to other systems

  • Organisational issues:

    • user profiles set up to reflect organisation.

    • discipline in manufacturing environment.

    • is integration within the package matched by an integrated approach to the implementation?

    • is system ownership/module ownership clearly defined?

    • is the role of Data Administrator defined?

    • is there sufficient local expertise for a stand-alone IT dept. especially if there is a change to unfamiliar hardware and operating system?

  • Controls

    • Security and disaster recovery.

    • what is covered by a Service Contract with the in house IT department, and what is a local responsibility e.g. order desk terminals?

    • Maintenance/support:

    • costs of third party support

    Internal Control Checklist

    This checklist covers the key issues which will arise from the initial review of the application.

  • Access controls:

    • Validation checks:
    • both within the system and by responsible officials e.g. credit referral

    • All points of data entry identified/controlled

    • Clearance of rejected data/dump accounts:

    • clearly defined who should receive the data

    • timescale for reacting to that data

    • escalation procedure if a serious problem manifests itself

    • log for registering error reports and their disposal

  • Processing/proving checks (closed loop):

    • goods movement:

    • consider all aspects of logistics chain e.g. is material removed by Quality Control?

    • identify exit and entrance points.

    • Are transactions registered in correct chronological sequence e.g. if work in progress is back flushed before stores issues are booked, there will be an apparent negative consumption.

    • Does opening balance plus each class of transaction produce an amount equal to sum of closing balances on stock file?

    • Does opening balance of debtors plus each class of transaction produce an amount equal to sum of balances on sub-ledger?

    • Does same logic apply to accounts payable sub-ledger?

    • Batch thinking can be usefully carried over to modern packages when considering completeness of processing.

  • Exception reports:

    • responsibility for acting on them

    • Authorisation of sensitive transactions e.g. special discounts, credit notes, write offs/ons, adjustments. VAT implications.

    • All physical points of despatch identified and controlled, including direct deliveries. Proof of despatch to and receipt of goods at remote sites e.g. telecommunication infrastructure project.

  • Exceptional transactions outside normal system parameters:

    • one-offs, manual dockets, specials, projects, tooling charges.

    • Cancellation/reversal of transactions. Authority and method of booking e.g. tends to be basic data capture as distinct from system-generated transactions. Effective communication of effect on net net turnover.

  • Master data file maintenance:

    • customer, product, price files, vendor record, classification of accounts.

  • Bill of Materials:

    • completeness and accuracy.

    • Processing/job dependency sequences control. Quality of user manual - are dependencies explained?

    • Interface/reconciliation of operational system with financial accounts - nominal ledger:

    • order processing, goods movement, accounts payable, accounts receivable, cash

    • Month end/year end procedures. Closing off and archiving procedures.

    • Ability to restore. Initialisation of new accounting period.

    • Initial transfer/loading of files from previous system including manual systems. Are front-end validations/checks being used or by-passed? If latter, will copied over data be regarded as corrupt by new package?
      Watch for reversible entries when transferring over a trial balance.

  • Goods Received Note/Receiving Report clearance:

    • age listing and price difference analysis.

    • Audit trail/history records:

    • days/months available on screen?

  • Back-up/contingency planning:

    • risks prioritised

    • disaster recovery plan

    • Control of change management. Implications for software and organisation. Will home-grown changes make it impossible to take new releases of third party software?

    • Is there an ability to fix problems locally or is all technical expertise in, say, the USA of Germany? If overseas, what is response time?

  • EDI links with suppliers and customers:

    • cost benefit of reducing goods movement pipeline but need to minimise exposure to hacking.

    System reporting

    • Do people get the reports they need and does the IT department know the distribution list?

    • Does the package provide an addressing facility; do not take it for granted that it will.

    • Are the reports acted on and/or do staff know what to do with them?

    • Training of operators and users. Are features understood and are they being used cost-effectively? Are staff working around the system e.g. is it in danger of migrating to PC spreadsheets?

    • Control of charges from software houses for maintenance and development. Proper contracts in writing and proper system for screening orders for change requests.

    Monday, March 29, 2004

    The Lesson of History

    I understand that Tony Blair is “dismayed” that President Bush has rejected the UK’s call for an American led monitoring force, to be deployed as a buffer zone between Israel and the Palestinian Authority.

    The rationale for Tony Blair’s proposal was based on the knowledge that Israel would never accept a UN led force.

    However, he ignored the other side of the equation; namely:

    • The USA already has large numbers of its forces committed around the world, eg Iraq to name but one place, these commitments are overstretching its resources.

    • President Bush is standing for re-election, and will do nothing to antagonise the Jewish vote.

    In view of the above, the USA would not have deemed Tony Blair’s proposal to be in its interest; no matter how well intentioned. Therefore it rejected it.

    PM Blair felt, that after his support for the US invasion of Iraq, he was owed some form of payback. He ignored the lesson of history, that when dealing with the USA, the USA will always do whatever is in its own national self interest.

    This is as true today, when dealing with President Bush; as it was in the Second World War when dealing with FDR, or during the Suez crisis when dealing with Eisenhower.

    I do not understand why Blair is “dismayed”, ignore the lesson of history at your peril.

    Tuesday, March 23, 2004

    Parmalat, a Warning to Directors

    I recently wrote an article entitled “Parmalat, Europe’s Enron”, about the Italian dairy company which is accused of falsifying its accounts.

    Since that article was written the wheels of Italian justice have been set into motion, with a fast track prosecution being initiated.

    However, what is of more interest is the action being taken by the creditors of Parmalat. They are not content with waiting for their own country’s legal system to bring them justice, and more importantly compensation, for the money that they claim that they have lost as a result of the alleged fraud.

    Instead they have initiated a class action using, not an Italian firm of lawyers, but an American firm Milberg Weiss (details of the class action can be viewed via this link Milberg Weiss). Even more interestingly the class action is citing American law, not Italian law. The rationale being that as Parmalat traded in the USA, and allegedly presented falsified accounts, then USA law has been breached. A case can be made by non US creditors for compensation, using the US legal framework and lawyers who are vastly more experienced at bringing class actions.

    This, in my view, is a natural development of the Sarbanes-Oxley legislation (introduced post Enron); which imposes tough reporting requirements on directors of US companies, and those companies that have US subsidiaries or listings in the US.

    Directors who believe that they are not affected by the tougher regulatory regime in the US, simply because their company is listed in Europe, are deluding themselves. The less robust legal framework of Europe will no longer protect those who, either deliberately or through incompetence, cause investors and creditors to suffer significant financial losses.

    The Parmalat case should be seen as a wake up call to those directors who are in denial about Sarbanes-Oxley. Lax reporting, poor internal controls and weak corporate governance will no longer be tolerated; you have been warned.

    Saturday, March 06, 2004

    Characteristics of an Effective Audit Committee

    I read with interest the “goings on” at Shell last week. The Chairman, Sir Philip Watts, was forced to resign on Wednesday. This was the culmination of a chain of events that started when Shell announced, on 9th January, that it had reduced its proven oil and gas reserves by 20%.

    Various groups and events led to the departure of Watts. However, it is reported that the final push came from the internal audit committee; which advised the board that management changes were needed.

    During my career (see my resume), I have set up a number of audit committees around the world, and have been involved with others. I was therefore pleased to see an audit committee proactively asserting itself, and being listened to.

    I would like to take this opportunity to remind those less proactive audit committees, and less supportive boards, as to what in my opinion (based on my experience) constitutes the top ten characteristics of an effective audit committee:

    1. The audit committee must be independent, members should not have previously held executive positions in the company for which they sit on the audit committee; eg the chairman of the audit committee should not have previously been the finance director. The company should not use the audit committee as a paid retirement home for previous directors.

    2. The audit committee should be suitably qualified and experienced, at least one member should hold a relevant financial qualification; so that they can at least understand the intricacies of the company’s accounts.

    3. The audit committee should present a report in the year end accounts, as to the quality and effectiveness of the internal controls and risk management process.

    4. The audit committee should be prepared to take a stand against the board on matters of significance, and resign if the board does not take the appropriate corrective action.

    5. The members of the audit committee should be up to the job, they should not hold an excessive number of other positions. Those that, through age, fall asleep during the meetings should be retired. Do not think that this is an exaggeration, I personally have witnessed this occurrence.

    6. The audit committee should have free and unfettered access to the internal auditors and external auditors of the company, as well as the board and management of that company.

    7. The role and scope of the audit committee should be laid down in a charter, which should be signed by the board and distributed within the company.

    8. The internal audit department should report directly to the audit committee. Dual reporting lines, to eg the Finance Director, do not work.

    9. The audit committee should be responsible for assessing the quality and effectiveness of the internal audit department and external auditors. The committee should be able to make changes, as and when required, to the scope and providers of the audit (both internal and external) coverage.

    10. The audit committee should be responsible for the budget of the internal and external audit coverage. I have witnessed a situation where neither the board nor the audit committee held the budget; needless to say this did not work.

    This list is not intended to be exhaustive. However, it can be used as a starting point to establish an effective and respected audit committee that adds value to the business.

    Wednesday, March 03, 2004

    A Simple Guide to Investing

    I have been reading the posts on one of the threads of a bulletin board, hosted by a popular UK financial website, with interest and alarm over the past few weeks.

    The thread relates to a company that listed in the last year. The shares of the company have enjoyed a dramatic 3000% rise in value over this period.

    Needless to say, the thread relating to this company has been very active as of late; as more people are drawn in by the idea of making a "fast buck".

    There are a number of people posting on this thread who, by the grace of God, seem to feel that they have been gifted with second sight.

    They routinely, via goat's entrails and runes (I assume), make bold predictions as to the upward price movement that they expect the stock to make over the coming days. In the last fortnight or so, as the speculative bubble begins to burst, these predictions have been wrong.

    The price has started to dip, and there are a number of "investors" who (I suspect bought in at much higher levels) will get their fingers "badly burnt".

    This is a more extreme example of the daily ebb and flow of share prices around the world. However, it serves to highlight a number of common characteristics of some "investors" and the "techniques" that they apply when investing money in companies:

  • It is apparent that many of the investors in this share have not the slightest understanding, or knowledge, about the company or the industry in which it operates.

  • The slightest hint of positive news concerning the company, or its area of operations, is seized upon as an omen that the stock will double in value.

  • Individuals who post warnings about the risks involved are shouted down with vitriol, and denounced as "de-rampers" (people who deliberately seek to drive down a share price, in the hope of making money).

  • Certain posts pertaining to contain "facts" and information are, at best, dubious and worst dishonest.

  • The average investor appears to have a limited time horizon, extending no further than 2 weeks. This is usually the length of time that they have to pay for the shares that they have purchased.

  • The desperation to make a "fast buck" suggests that some are in serious financial difficulties.

  • The atmosphere on this bulletin board is more akin to a casino or racetrack, rather than an investors?f discussion forum.

  • In short it is apparent that these people have not a clue about what they are doing. They are no better than an ill informed, and reckless, gambler staking all on the spin of a roulette wheel.

    My advice, for what it is worth, to those seeking to invest in companies is as follows:

  • Never make any investment without consulting a suitably qualified independent financial adviser.

  • Never invest what you cannot afford to lose. Investments can go down as well as up!

  • Do not put all of your eggs in one basket; spread the risk.

  • Never invest for short-term gain. Life is full of uncertainties; you must assume that you may have to hold for two or more years before seeing a decent return.

  • Be prepared to cut your losses and sell, before you lose everything.

  • Research, research, research; learn all there is to know about the company, and industry in which it is operating in, before you part with any of your hard earned money.

  • Test your investment policy first, before putting down hard cash; see if you really do know what you are doing.

  • Note that this advice is based purely on my own opinions, observations and experience. It is not exhaustive, and should not be used solely as a basis for any investments that you may be considering to make in the future.

    Wednesday, February 25, 2004

    Paranoia Over the Enlarged EU

    As from May 2004 the EU will be joined by a number of countries from the old Soviet Bloc including; Latvia, Lithuania, Estonia and Poland.

    Predictably, certain elements of the British press have whipped up a frenzy of fear and loathing.

    We are told that we can expect thousands of economic migrants "swamping" our overstretched infrastructure, and taking our hard earned benefits away.

    Well, let me shine a little light of reality on this "paranoid claptrap". I have travelled many times to many of these countries, including the Baltic States, on business. In my opinion, this country could do a lot worse than have a wave of immigration from the population of these countries.

    The people of these countries have a number of admirable characteristics, including:

  • A high level of education

  • A good grasp of English, among many

  • A desire to shrug off the restrictions of the old Soviet era, and a welcoming attitude to change and progress

  • A desire to work hard to better themselves

  • An inspired entrepreneurial streak, that the UK could most certainly do with

  • Aside from the benefits of the citizens of these countries choosing to make their homes in the UK, there are other benefits of enlargement:

  • The enlargement of the EU will open up previously closed markets, hence creating an opportunity for economic growth.

  • The ex Soviet economies are ripe for Western entrepreneurs to set up businesses, and earn healthy revenue streams which benefit all.

  • It may be that given the opportunities available in these countries, some British citizens will emigrate there instead.

  • I certainly enjoyed my time when I was there and, if a good opportunity arose, may well do the same myself.

    Thursday, February 19, 2004

    Something that Really Scares Me

    I am, like all other humans, subject to feelings of wariness about certain behaviour traits that do not necessarily fit in with my own.

    Taking a look at my own habits, and traits, I categorise the following as causing me “mild” wariness:

    · I am a sociable person, who enjoys a sociable drink; consequently I am a little wary about people who do not drink socially.

    · I am not a religious person, and although I respect everyone’s right to follow and practice their own religious beliefs; I am wary of those who inflict their beliefs on others.

    · I am of the school “work hard, play hard”; consequently I am wary of those, fit healthy adults, who habitually retire to their beds early.

    It is publicly recorded that President Bush:

    · Does not drink

    · Holds compulsory morning prayer meetings for all his staff

    · Tries to be in bed by 21:30

    Now, that really scares me!

    Tuesday, February 17, 2004

    Scandinavian Airlines-an Object Lesson in Management Motivational Techniques

    Scandinavian Airlines (SAS), like many other airlines around the world, have been having a tough time recently. Sales revenues have fallen as a result of a number of factors, including:

    · The world economic slowdown

    · Declining travel due to the impact of 9/11, and repeated terrorist threats

    · Competition from cheap fare budget airlines.

    In response to the decline in revenues, SAS have been looking for ways to save money. One particular initiative was to ask their loyal staff to take a pay cut of 10%.

    One the face of it this, if the situation warrants it, is a sensible measure. Far better for individual members of staff to take home less in their pay packets, than to find themselves un-employed.

    However, although the pay cuts were to be for all levels of staff from the most junior to the most senior; there was a glaring anomaly, which made this gesture of communal Scandinavian self sacrifice not as altruistic as it first may appear.

    For you see the senior management were, despite the fact that the airline is losing money, still going to receive their bonuses; which, in some individual cases, would be more than the salaries of some of the lower ranks. It would seem that some, as the saying goes, “are more equal than others”.

    This cost cutting measure has not, from what I understand, been enough. It seems that the staff at the call centre office in Stockholm have been told that it will be closed. They have not, at the time of writing, yet been told what will happen to their jobs or what severance pay they will receive if there is no alternative offer of employment.

    Needless to say morale in the office has hit an all time low, uncertainty over the future of your job is a very soul destroying emotion.

    Recognising this SAS senior management, in their infinite wisdom, organised a meeting on the 12th of February. The hapless staff, needless to say, should have been given some more factual information about their fate.

    Apparently, this was not the case. Instead they were treated to a course on how to handle personal crises and the effects of stress, eg loss of sleep and anxiety. These effects they are undoubtedly aware of already; although maybe the directors of SAS have yet to feel any stress, and would have benefited from attending the course instead.

    However, the ever sympathetic and employee focussed management of SAS did show some empathy towards their employees. It being so close to Valentines’ day, they gave each member of staff a piece of Valentines cake.

    Now there’s an example of a great management motivational technique!

    Saturday, January 31, 2004

    Don’t Be So Cocky

    The Hutton report, the gestation period of which was almost akin to that of an elephant, finally entered the public domain on Wednesday. Readers of The Sun were treated to a sneak preview a little earlier.

    Hutton, as we all know, kept very strictly to the parameters of his enquiry; and did not comment on the reasons as to why the British government decided that Saddam Hussein was a greater threat to world peace than say, North Korea, Iran or Osama.

    He exonerated the government from any wrongdoing over the death of Dr Kelly; instead he laid significant blame on the BBC’s handling of the reporting of the alleged “sexed up dossier”.

    As at the time of writing, three central characters in this sorry tale have resigned; Gavyn Davies (Chairman of the BBC), Greg Dyke (Director General of the BBC) and Andrew Gilligan (the reporter who wrote the dossier story).

    I do not propose to comment on the quality of the Hutton report, its conclusions or on the actions of the BBC.

    However, I will make a few observations:

  • Within 48 hours of the release of the report; we see that three people have resigned, of their own accord, and with as much honour as one could expect under these circumstances.

  • Alastair Campbell, Tony Blair’s’ ex spin doctor, rushed to the airwaves (almost punching the air with joy) to decry the BBC; and to express an almost gloating satisfaction over the report.

  • Tony Blair managed to restrain his comments, but his grin said it all.

  • The Labour Party in the House of Commons on Thursday did not contain their utter glee at the outcome; and barracked Michael Howard (leader of the Conservative Party), hissing and booing as he tried to speak.

  • We see here two contrasting outcomes; resignation with honour at the BBC, cockiness and arrogance from the Labour Party.

    I would remind the Labour Party of the following:

  • How many politicians have resigned with such good grace, and with such speed when their judgement/performance has been criticised? Normally they have to be dragged, kicking and screaming from office.

  • Arrogance and cockiness tend to come before a fall.

  • Beware Tony, don’t be so cocky.

    Thursday, January 22, 2004

    Lions Led by Donkeys

    We are George and Tony’s army posted far away,
    We are fighting for their democratic way.

    We are lions led by donkeys

    Sent off to a country called Iraq,
    Told by our leaders we would make our mark.

    We are lions led by donkeys

    Saddam was a man of great cruelty,
    We were told he sought WMD.

    We are lions led by donkeys

    We went into battle brave and bold,
    Never shirking or moaning, but doing as we were told.

    We are lions led by donkeys

    Planning was perfect, aside from a key element,
    There was a fatal shortage of equipment.

    We are lions led by donkeys

    We have lost some friends and comrades,
    As hope of finding those weapons of destruction fades.

    We are lions led by donkeys

    We are here to help the Iraqis, so they say,
    If so, why do they shoot at us night and day?

    We are lions led by donkeys

    Post war planning, if any, has gone awry,
    And day to day more are condemned to die.

    We are lions led by donkeys

    Now tell us Mr Bush and Mr Blair,
    How long are we to be involved in this affair?

    We are lions led by donkeys

    To view the picture which accompanies this please click Lions Led by Donkeys

    If you would like to buy the T shirt please visit The Emporium

    Tuesday, January 20, 2004

    It’s a Dirty Business

    Geoff Hoon, the ever popular and well respected UK Defence Secretary, finds himself in a rather unusual position.

    He is being called upon to resign by Samantha Roberts, widow of Sergeant Roberts (who was the first British casualty of the Iraq war), for failing to ensure that there were sufficient supplies of body armour and other pieces of kit for the troops.

    However, despite this, Hoon still “enjoys” the support of the Prime Minister. Indeed, he has a guarantee that he will not be called upon to resign.

    This guarantee, in political terms, lasts a very long time; one week to be precise. In one week’s time (on the 28th of January), the Hutton report into the suicide of Dr David Kelly will be released.

    It is widely expected that the report will be less than “flattering” to the government. In view of this, Tony Blair knows that there will have to be a fall guy; who will have to resign and take the blame.

    Heaven forfend that it would be Tony himself!

    Therefore, Hoon has been lined up to take the blame and resign. Obviously he can’t resign if he has already resigned over the Sergeant Robert’s affair. Hence the one week guarantee.

    This sorry little episode proves the point that politics is a dirty business; but that is more of a reflection on those who seek power and high office, rather than on the concept of public service.

    Wednesday, January 14, 2004

    The Tax Gluttons

    Gordon Brown, Chancellor of the Exchequer, is faced with an ever widening gap between tax revenues and fiscal expenditure.

    We provide an exclusive insight into the regular discussions, about this issue, between him and Tony Blair.

    Please click Tax Gluttons to take a look behind the scenes.

    This exclusive image can be purchased from in the form of a pack of six greetings cards.

    These are available from The Emporium

    Saturday, January 10, 2004

    The Electric Commode

    Following the request by the USA that passengers are to remain seated whilst flying in US airspace; the designers at have come up with a revolutionary seat design to accommodate both the needs of passengers and the US requirements.

    To view the design, please click the Electric Commode.

    You can buy a set of six postcards featuring this design from The Emporium

    Wednesday, January 07, 2004

    Tony Blair’s Great Political Wheeze

    First a little history lesson; back in 2000 London was about to elect its first ever mayor. At that time one of the prominent candidates was Ken Livingstone, who was a member of the Labour party.

    However, all was not well between Ken and Labour; after some internal “discussions” Labour decided to expel Ken. Tony Blair then appeared on TV to make a statement robustly extolling the virtues of a “Ken free” Labour party; he noted that it was absolutely the right thing to do.

    Undeterred, Ken decided to stand for mayor as an independent candidate; Labour put up the hapless Frank Dobson as their candidate. Needless to say Ken stormed home, and has been in office for the past four years.

    Faced with a new election, Labour initially put up a non entity whose name escapes me. However, Tony and his team knew that Ken was most likely to win again as an independent; therefore they had to find a solution.

    An idea came to them that was brilliant in both its simplicity, and effectiveness; why not make Ken a member of the Labour party again!

    Arms were duly twisted, the non entity Labour candidate gracefully stepped aside (no doubt she will appear as Ken’s running mate); and Ken was readmitted to the Labour party yesterday. However, not all were happy, I understand that at the vote John Prescott (who actually has some principles) was said to resemble a man eating a mouthful of wasps.

    Tony and his chums have said that Ken is now back in the fold, and “on message”. Ken, in a rather Delphian manner, said that the mark of loyalty is being able to tell someone when they are wrong. In other words he will, quite rightly in my view, continue to do and say exactly what he wants.

    This political wheeze by Tony, may in fact be the straw in the wind of something much larger. If you can make the likely winner of the position of London mayor a member of the Labour party; why not apply this to a larger event, such as a general election?

    In other words, why not make every Conservative and Liberal Democrat a member of the Labour party as well?

    This will have the effect of nullifying the need for any future elections, and making Britain a one party state; something that Tony has in fact wanted all along.

    Nice one Tony!

    Monday, January 05, 2004

    The Hidden Dangers of Offshore Companies

    As I noted in my article “Parmalat, Europe’s Enron”, I am highly suspicious of organisations that make use of offshore companies in their company structure.

    During my years as an accountant, head of audit and head of fraud investigation (see my resume) I have come across numerous examples of offshore structures based in eg; the Caymans, Bermuda, Luxembourg and Jersey.

    As far as I can see there are only five reasons why an organisation would wish to use an offshore company:

    1. The “less than demanding” accounting rules, and reporting requirements, of the offshore base enable the company to “hide” transactions and relationships that it does not wish the outside world to see.

    2. The tax regime of the offshore base enables the organisation to avoid tax that it would have to pay if it resided elsewhere. Note, tax avoidance is perfectly legal.

    3. The tax regime, and the “less than demanding” accounting rules, of the offshore base enables the organisation to evade tax that it would have to pay if it resided elsewhere. Note, tax evasion is illegal.

    4. Loading the organisation chart with numerous offshore companies, which have complex cross holdings in each other, leads to an unnecessarily complex and difficult to understand organisation. This enables the organisation to hide fraudulent transactions.

    5. Offshore organisations, if the share holdings are engineered in a particular way, can be excluded from the organisation structure which is disclosed in the public accounts.

    I have the following advice for investors, regulators, employees, auditors and tax investigators:

     Carefully study the structure of the companies that you are dealing with, ask if there are offshore companies.

     Where there are offshore companies, make sure you understand their role and their place in the organisation as a whole.

     If you do not understand the structure of the company, or the role/purpose of its offshore holdings then treat it with extreme caution.

    I have the feeling that the regulatory environment will tighten over the next few years, making it increasingly difficult for companies to use these dubious structures.

    Sunday, January 04, 2004

    Parmalat, Europe’s Enron

    The fraud at Parmalat (once Italy’s largest dairy company) is said to be Europe’s Enron. It seems that payments were siphoned off from Parmalat to prop up a failing travel business, which was owned by the founding family.

    The fraud was “hidden” from the gaze of the outside world by using two sets of books; and by falsifying the accounts of Bonlat, a Cayman Island subsidiary (I really do not trust companies that use offshore accounting; take a very long hard look at any company that employs this practice see "The Hidden Dangers of Offshore Companies").

    Bonlat claimed to have £2.7BN deposited with the Bank of America; however, this turns out to be no more than false accounting.

    One interesting aspect of this case is the order alleged to have been given by Luciano Del Soldato, a Finance Director in Parmalat, to Gianfranco Bocchi a Parmalat executive. By all accounts, Soldato ordered Bocchi to destroy the computer that housed the false accounts of Bonlat with a hammer.

    At first sight this may seem “a tad extreme”; after all, those denizens of probity at Andersens and Enron only ordered that documents be shredded when the outside world started to investigate their nefarious activities (see In Place of Strife). However, as an experienced fraud investigator I can tell you that this was in fact an eminently sensible order.

    Computers have an annoying habit of recording all activity on their hard disc. Although they possess delete buttons which, when the innocent user presses them, “delete” the file from the visible area of the system; the reality is that the crafty computer still stores the information on its hard disc. Any self respecting IT hacker, or professional can resurrect this data in a matter of hours.

    To counteract this problem, anyone who wishes to erase traces of data from their computer systems must destroy the hard disc with hammer and fire; ie crush the hard disc then burn it. Soldato’s orders were not extreme, he knew exactly what he was doing.