3. HIH INSURANCE: A STORY OF CORPORATE COLLAPSE
HIH Insurance was once Australia’s second-largest general insurer with net assets amounting 939 Australian Dollar. The company was placed into provisional liquidation with debts amount $3.6 billion to $5.3 billion. Failings in corporate governance, regulation and auditing and along with poor management decisions have been attributed to the cause of the collapse.
This analysis will discuss the collapse of the HIH and the activities undertaken which
led to the demise of the company. There will be an analysis of the auditor’s role in
the collapse and reasons as to why they may not have identified the fraud and finally.
Conclusions look to implications of these actions on the part of management, boards
and of course, the auditor.
3.1 Background: HIH Insurance
HIH Insurance was established in 1968, when Ray Williams and Michael Payne
incorporated MW Payne Liability Agencies Pty Ltd to the underwriting insurance
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business in Australia. Williams and Payne were both directors of the company and
Williams held the position of CEO (Owen, 2003). The company’s sole business
activity was the writing of workers compensation insurance in the Victorian market
and, as this became a very successful business operation, it led to the expansion into
other states within Australia. In 1971, a British Insurer, CE Heath plc, acquired MW
Payne Liability Agencies Pty Ltd; however Williams continued to act as director and
chief executive (Figure 1).
In 1985 and 1986 legislative changes to workers compensation insurance in Victoria
and South Australia had dramatic effects on the insurance industry and resulted in
reduced business (Owen, 2003). The company reacted with a diversifi...
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... profession and recommended that the Corporations Act 2001
and the Australian Stock Exchange listing rules be amended (Mirshekary et al, 2005)..
Justice Owen presented his findings in the report to the Royal Commission regarding
the breech of independence and concluded that the combined effect of the features of
the relationship between Anderson and HIH gave rise (or would give rise to those
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aware of the relevant facts) to a perception that Anderson was not independent of
HIH. While a close analysis of the conduct of the 1999 and 2000 audits reveals no
reason to conclude that Anderson’s independence was in fact compromised (Owen,
2003), their apparent lack may have affected the quality of the work performed on the
audit of HIH. This may have also contributed to HIH’s ability to carry out aggressive
accounting practices which lead to its demise.
WHAT WAS THE HIH BOARD DOING WHILE THIS SAGA WAS GOING ON? WHAT SHOULD THEY HAVE DONE?
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
Is there a private cause of action for violating Texas Insurance Code § 1271.155 and 28 Texas Administrative Code § 3.3725, both of which require payment of the “usual and customary rate” for emergency care provided by an out-of-network provider? If not, is there another vehicle to pursue the violation of those statutes?
Health insurance is very important in life. It is for this reason that insurance companies have designed different types of insurance as a strategy to provide services to all categories of people. Before purchasing insurance for an organization, there are considerations that should be put in place in deciding the best insurance for the employees. One of the most important factors is the number of employees. The mode of employment also matters, such as whether employees are full time or part time.
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
We have chosen a company called Medlife Insurance LTD. This company deals with financial services, within that with life insurance. Marketing Financial Services Presentation Introduction: We have chosen a company called Medlife Insurance LTD. This company deals with financial services, within that with life insurance. It is part of a “network” of companies that sell life insurance and to be able to give a whole picture of the company’s activities we will introduce some of it’s partner companies as well.
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
A fraud is a dishonest act by an employee that results in personal benefit to the employee at the cost to the employer. The most important elements of fraud are opportunity, Financial pressure and Rationalization. When opportunity is available to a person or a group, and they may be driven by financial pressure or driven by the power of money, he or she look for excuse to the dishonest act and commit the crime. (Kimmel, weygandt, kieso, 337) We are quite frequency overwhelm by the fraud reports.
The scope of my study is to understand different kinds of frauds happening in this industry.
There has a certain situation that will occur this opportunity such as monitoring of management is not effective, complex organisation structure, and internal control components are deficient. In Cendant case, the CUC made various adjustments to incorporate the misstatement into the general ledgers and this causes the opportunity to fraud happens.
Exercise of “reasonable skill, care and caution” varies according to situations (Lopes, J. in Kingston Cotton Mill Co 1896). Nevertheless, to achieve such in performing an audit, its an auditors responsibility to comply with the requirements cited in ISA (NZ) 200, as follows (1) Ethical requirements
...et al 2008 ). These losses increase duo to the accessibility of modern communication which creates easy opportunities of fraud even to non-specialists and this happens because of the difficulty of identifying the offender and the lack of laws to punish him. Fraud threats the information security of governmental or financial organizations such as banks. Exorbitant amount of money is spent to reform the system , to retrieve information or to buy and use of new programs which have a high level of security. The intuitive expectation, these organizations raise the price on the citizens and the consumers to compensate the loss, which means a large charge is paid by customers because of the mistake that they do not do it. Online fraud may force citizens to pay higher cost ,so it can cause the loss of financial justice in societies duo to modern communication.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.