Corporate Governance: Fraud Clouds Over Asia

by Cesar Bacani, 05 September 2009

When the Hong Kong government took over insurance company Anglo Starlite in May, police arrested the founder and two board directors – and the company’s accountant. Anglo Starlite has been accused of forgery and false accounting.

When Hong Kong conglomerate Citic Pacific revealed potential losses of as much as HK$15 billion from foreign exchange bets that went awry last October, finance director Leslie Chang Li Hsien and financial controller Chau Chi Yin stepped down.

The most high profile fraud case, so far, is Satyam Computer Services in India. When it was revealed in January that more than US$1 billion of the company’s revenues were faked, among those arrested was the CFO – and the company’s external auditors.

A multitude of sins goes undiscovered and unpunished when times are good. But when economies turn sour, which is what is happening today, corporate fraud big and small suddenly pops up in newspaper headlines.

It’s no use for finance professionals to say they had nothing to do with the fraud or that they did not know there was malfeasance. CFOs, financial controllers, chief accountants, internal auditors, even external auditors, rightly or wrongly – all are held responsible for ensuring above-board financial management in their company.

So what can finance professionals learn from Satyam and other recent scandals? “If it sounds too good to be true, that’s a red flag,” says Annie Chan, managing director at Mazars Corporate Recovery & Forensic Services in Hong Kong.

When this reporter interviewed Satyam CFO Srinivas Vadlamani in 2005, he predicted sales of US$1 billion that year, meaning a steep rise of 32% – at a time when sales growth at the bigger outsourcing companies like Infosys and Wipro were slowing. Says Chan: “If out of the blue a company’s revenues increase substantially and much higher than its competitors, then you would ask: ‘Is it reasonable?’”

If the company does not have adequate internal controls, that’s another warning sign, says Anita Hou, director of forensic and investigation services at Grant Thornton in Hong Kong. “The corporate culture of the company is also important,” she adds.

Martin Cubbon, group finance director at Asian conglomerate Swire Pacific, agrees. “Unfortunately, human nature being the way it is, there will always be some abuse,” he says. “These things are better addressed by establishing a [company] culture that shames people into acting properly.”

Be extra vigilant if you work in a family-owned company, says a finance professional in the Philippines who asked not to be identified – he is CFO of such a firm himself. “I’m not saying my employers are doing something wrong; the family executives are highly ethical, in fact,” he clarifies. “But when push comes to shove, you wonder whether the family managers will be treated differently from the professional managers.”

At Citic Pacific, the director who oversaw the finance function kept her job, not let go like Chang and Chau were. She is the daughter of founder Larry Yung, who was finally replaced as chairman in April.

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