Thursday, 31 May 2012

Auditors must be held to account

The shareholder spring is the perfect time to challenge the poor performance of unscrutinised accountancy firms

Shareholder spring is in the air, with increasing numbers voting against fat-cat executive rewards for failure and mediocre performance. However, the same scrutiny is not being applied to the business advisers and consultants implicated in headline failures. They continue to receive huge financial rewards. Company auditors are good example.

PricewaterhouseCoopers (PwC), Deloitte, KPMG and Ernst & Young, collectively known as the Big Four accountancy firms, audit around 99% of FTSE 100 companies. These firms audited all distressed banks. At the height of the banking crisis they gave the customary clean bill of health to Northern Rock, Abbey National, Alliance and Leicester, Bradford & Bingley, HBOS, Lloyds TSB and Royal Bank of Scotland (RBS). Bear Stearns and Lehman Brothers went bust shortly after receiving the all-clear. A subsequent inquiry by the House of Lords economic affairs committee accused auditors of "dereliction of duty" (para 161) and "complacency" (para 167) and basking in a culture of "box ticking" (para 6) rather than delivering meaningful audits. Despite the damning criticisms, some partners in audit firms still charge over £700 an hour for their services.

In 2011, Barclays, the bank that forced the government to introduce retrospective legislation to combat its tax avoidance schemes, paid £54m to its auditors PricewaterhouseCoopers, including £15m for consultancy and advice on tax matters. PricewaterhouseCoopers, which once audited Northern Rock, collected another £48m from Lloyds Banking Group , including £10m for consultancy. HSBC has paid a whopping £56m, including about £8m for tax and consultancy services to its auditors KPMG, the firm that audited HBOS and Bradford & Bingley. RBS has paid £41m, including £7.4m for consultancy to Deloitte, the firm that audited Abbey National, Alliance & Leicester and Bear Stearns. Ernst & Young, the firm that audited Lehman Brothers, earned £36m in audit and consultancy fees from BP and another £28.5m from Aviva. At major companies, the fees paid to accountancy firms are larger than CEO salaries, but rarely attract sustained media attention.

The auditor dependency on companies for vast fees neuters any impulse to deliver an independent opinion on company accounts. No one at any accountancy firm is ever promoted for blowing the whistle on dubious practices of companies and losing a client.

At company AGMs auditors are appointed often without any discussion. The resolutions on auditor appointment are not accompanied by any information on the composition of the audit teams; time spent on the job, audit and consultancy contracts, information obtained from directors, list of faults found with company accounts, regulatory action against auditors or anything else that might shed light on the quality of audit work or conflict of interests. With weak accountability measures, auditors deliver little of any social value.

The charges of "dereliction of duty" and "complacency" have not led to any worthwhile UK reforms though there is plenty of spin about encouraging auditors to be sceptical and tweaking auditing standards. There is no scrutiny of the basic auditing model which requires entrepreneurial accountancy firms to somehow invigilate giant corporations. The success of auditors is measured by private profits and they have no obligations to the state, or the public, which eventually bears the cost of bailouts and fraud. This mutual back-scratching has been a key factor in the debacles at Enron, WorldCom, Lehman Brothers and the banking crash. Yet no real change is in sight.

The EU is proposing minimalist reforms to check the collusive relationship between auditors and companies. These include a ban on the sale of lucrative consultancy services to audit clients and forcing companies to regularly change their auditors. At present, FTSE 100 companies change auditors every 48 years on average. Inevitably, major firms are using their financial and political resources to oppose even these modest proposals.

Major accountancy firms have got used to collecting mega fees for failure and mediocre performance. Shareholders should check that by turning the spotlight on them and demand refunds for poor performance. The government should sharpen liability laws so that auditors are forced to make good the damage done by their silence.

This article first appeared on Guardian Comment is Free

Tuesday, 29 May 2012

Ed Miliband must be bold. The appetite for progressive politics is now huge

John McDonnell MP

Ordinary people need to create a climate of opinion against austerity that allows risk-averse Labour to be brave and radical

In a poll just released by Class, the new trade union thinktank, over two-thirds of people are unaware that 90% of the government's spending cuts have yet to take effect. With only 10% of the cuts in place, the poll confirms that people are already calling for alternatives to austerity.

When offered a menu of ideas associated with François Hollande as alternatives to austerity, the response is overwhelming. Ninety-five per cent supported a growth strategy to create jobs and reduce unemployment; 70% agreed with redistributing wealth from the richest; 74% supported the creation of a national investment bank to lend to businesses for growth; and 73% backed support for young people to go to college or university.

This is resulting in calls for Ed Miliband to be braver in advocating an alternative to austerity. This misunderstands the current Labour leadership and more importantly misjudges how it can be shifted.

Labour's leaders undertook their political apprenticeships at the heart of New Labour. The electorate's rejection of New Labour has enabled them to jettison some of the worst excesses of the Blair/Brown era but beyond the last trace elements of neoliberalism, they are dominated by electoral politics. No action is taken or policy advocated that may risk losing a vote.

The Labour leadership will only move and take a stand on an issue if it is risk free and perfectly safe to do so. We saw this over the issues of bankers' bonuses, corporate ethics and Murdoch.
So the strategy for those that want Miliband to be bolder in seizing the moment against austerity is for us to make the issue safe. Our aim must be to create a climate of opinion that enables Labour to shift to the higher ground just as Jean-Luc Mélanchon helped create the demand for radical change that secured Hollande the presidency.

The polls are showing that this potential exists as other evidence emerges showing that people are looking for an alternative that goes beyond current Labour rhetoric of just cutting less deep and less fast.

Recently I blogged a statement called A Radical Alternative to Austerity. It went viral on blogs and Twitter, securing large numbers of supporters. It was not meant as a definitive statement but a broad depiction of a radical alternative.

Like many others I share the view that there is no lack of wealth and resources in our country that we can draw upon to tackle this recession. The problem is that this wealth and these resources are held in the hands of too few people and are not being used productively to create the growth and jobs we need.

The introduction of a limited range of redistributive measures would release the funds we need from those most able to pay and who have profited most out of the boom years. This includes a wealth tax on the richest 10%, a Robin Hood tax on financial transactions, a land value tax, the restoration of progressive income tax and a clampdown on tax evasion and avoidance.

We can get people back to work and earning a decent living by investing the resources released in modernising our economy, its infrastructure and our public services. Instead of cutting and privatising our public services, we could invest in house building, in universal childcare, in the NHS, in creating a national caring service, in our schools and colleges, in our transport infrastructure, in alternative energy and in the extension of broadband. We could establish a national investment bank with the resources levied from the banks so that there is no shortage of funds to lend for manufacturing growth and research and development.

We can address the inequalities disfiguring our society. For those at the top this means limiting the high salaries to no more than 20 times the lowest paid in any company. It means replacing the minimum wage with a living wage and a living pension and living welfare benefits, reducing the working week to 35 hours, closing the gender pay gap, controlling rents and energy prices and restoring rights at work. For young people it means a guaranteed job, apprenticeship, training or college place for every young person with the burden of fees abolished.

By demonstrably signing up for the radical alternative, we can all make it safe for Miliband to seize the moment.

Monday, 21 May 2012

Workers' rights under attack again

John Millington

Ministers looked set to unleash yet another assault on workers' rights on Sunday after an influential venture capitalist released a report calling for changes to employment law.

In his "bonfire of regulations" multi-millionaire Adrian Beecroft calls for firms to be given more flexibility to make redundancies, and for the government to rip up equality legislation to supposedly promote "job creation."

According to the Sunday Telegraph, the reforms urged by the Conservative Party donor include:

- An end to a mandatory 90-day consultation period when a company is considering redundancy programmes. Instead he will suggest a 30-day period and an emergency five-day period if a company is in severe distress.
- A cap on loss of earnings compensation for employees who make successful unfair dismissal claims. Payments can often total hundreds of thousands of pounds.
- Major reform of the rights that workers are allowed to "carry" over to new employers when they are the subject of a takeover. The transfer of undertakings rights can currently create major disparities between workers within companies.
- Scrapping provisions in the Equality Act which make employers liable for claims from employees for "third party harassment," sexist comments to staff in a restaurant.
- Shifting responsibility for checking foreign workers' eligibility to work in Britain from employers to the Border Agency or the Home Office.

But the controversial report will meet strong opposition from trade unions and has already prompted criticism from the Tories' coalition partners.

A senior Lib Dem who did not want to be named dismissed the 15-page document as "not methodologically rigorous" and merely the view of "one man."

And Left Economics Advisory Panel co-ordinator Andrew Fisher told the Star: "It is becoming increasingly apparent to more and more people that the coalition government is using the economic crisis as a smokescreen to dismantle and privatise public services, and unpick workers' rights.

"With unemployment at over 2.6million and underemployment at 6 million, it is a heartless government with a failed ideology that believes making it easier to sack people is the priority."

This article first appeared in the Morning Star

Sunday, 6 May 2012

Jobless figures 'are only going to get worse'

From the Morning Star, by John Millington

Unemployment will continue to rocket for another five years according to a damning new report out tomorrow.

The Centre for Economics and Business Research predicts that Scotland could see its unemployment rate hit 9.7 per cent by 2016, the highest rate since the recession of the early 1990s, and in Wales unemployment could reach 10.5 per cent, the highest since records began in 1992.

North-east England, which heavily depends on public-sector jobs, is also expected to be badly affected.

The report also found that the south-east and east of England and London are the only regions likely to see unemployment drop.

Report author Rob Harbron forecast "five more years of pain" across Britain "with unemployment continuing to rise in almost every region.

"Family budgets are being squeezed between the pressures of rising unemployment, low earnings growth and stubbornly high inflation."

Left Economics Advisory Panel co-ordinator Andrew Fisher told the Star: "The mounting evidence is now incontrovertible. Austerity is failing all around Europe and voters are rejecting it.

"There is now a huge responsibility and urgency for Labour to start putting forward a clear alternative."