Are auditors worth it?

Talking about enforcing the system, I’m reading the Financial Reporting Council’s annual report about auditors of banks. Yes, I am that sad. The report notes that, across the UK’s seven biggest auditing firms, almost 30% of all bookkeeping was below par. It makes you wonder how they get away with it.

What interests me here is that banks and fintech firms face the same issues as companies like Wirecard, where the auditors failed big time.

Auditing.

What is it?

It’s meant to be keeping the company clean and straight.

Is that what it does? No.

What it does is what it’s paid to do, which is agree the company is clean and straight as long as it pays the bill.

Now I know I should not attack these guys, as they are my best customers, but it does seem that many auditors are not doing the job they should do. It’s like compliance, money laundering and other areas. There are always ways to buck the system, and banks buck the system too.

On the one hand, we have two people for each employee checking what they are doing – the compliance person and the audit person – whilst, on the other hand, we have three people for each employee trying to break the system – the hacker, the money launderer and the criminal.

There’s tension in the system and a ghost in the machine. What’s the answer? There isn’t one as it goes to back to the core of humanity and the friction of chaos versus order.

There will always be criminals and those who want to break the system; but there always be a system and those who organise it. That is the core of humanity.

Thing is that we have this multitier system in banking. We have government, regulators, auditors, compliance and banking. How effective are these tiers and layers of oversight? I’m not sure.

The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars. [United Nations]

The implication is that it’s easy to buck the system. The answer is that it’s true, if you know how the system works.

Luckily most people don’t know how the system works as, if we all did, the system would no longer work.

Maybe that’s the secret: you can comply, be audited, run with the system and find the wiggle room where you need it. You then use the wiggle room to buck the system and make a buck.

Final thought. One of the books that most of us in finance have read is Michael Lewis’s Liar’s Poker (it’s a good read although now dated a bit). My lasting memory of this book was the legal counsel telling the bank executive that his job was to find the chinks in the regulator’s armour. This is what banks do. It is what we do. We walk the line between right and wrong.