Friday, 19 March 2010

The buck starts here

There was something rotten in the Anglo Irish Bank otherwise it wouldn't have made a £3.7bn loss in the six months to March 2009. When large organisations fail it is reasonable to say that the responsibility ultimately, if not directly, lies with the chief executive: the buck stops here, in other words. In the case of the Anglo Irish Bank, however, it may well be more the case that the responsibility for its extraordinary banking failure starts at the top rather than ends there.

Sean FitzPatrick resigned as chairman of the bank in December 2008. He has apparently admitted concealing millions of euros of personal loans that he and others received from the bank. Last week Mr FitzPatrick told the bank he could not repay 70m euros. Those losses are a tiny fraction of the bank's total result but they came about from very much the same cause which was that Anglo Irish was lending to borrowers, in this case the bank's chairman, who then gambled the bank's money on the explosive bubble in the Irish property market. Concealing the loans was dishonest but lending to property speculators was just extremely bad banking. If I was an Anglo Irish shareholder, which now includes every citizen of the Republic of Ireland, I would want this particularly unsuccessful banker to pay with a pound of his flesh.

As if this wasn't bad enough the BBC report further alleges the recording of a huge loan from another bank as a customer deposit. As an accountant this to me was the greatest crime of all. Sean FitzPatrick and his staff believed, or at least hoped, that their lending would be profitable. When they deliberately misrepresented a transaction in the books, on the other hand, they destroyed the credibility of those accounts altogether and all subsequent dealings with the bank were based on a lie. And, make no mistake, company accounts may be written in a language that not everyone understands but the difference between truth and a lie an be as clear in bookkeeping as it is in any other form of communication.

Learn how to maintain accounts that are truthful and accurate with an online course from the Accounting and Bookkeeping College.

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