Shipton lingers, leaves ASIC

Tom Ravlic

Few things could top what the Australian Securities Investments Commission got in the report into the well-publicised saga of payments made to former deputy chair Daniel Crennan, and also the current chairman, James Shipton.

The payment in Shipton’s case related to tax advice that he had received from KPMG, the global accounting firm, during the process of relocating back to Australia to assume the role as top corporate cop. The A$118,557 for tax advice has been repaid by the ASIC chairman, who will leave the role in three months even though the report did not make any specific adverse finding.

Crennan’s payments related to accommodation and he paid back the $69,621 that was paid by ASIC related to accommodation expenses. Crennan brought forward his departure from the Commission last year.

It was recommended that Treasury seek further legal advice in relation to Shipton’s conduct in these circumstances and that advice was obtained, according to Federal Treasurer Josh Frydenberg.

“After considering Dr Thom’s report and supplementary legal advice provided to the Treasury concerning these matters, I am satisfied that there have been no instances of misconduct by Mr Shipton concerning his relocation arrangements, including ASIC’s payment for tax advice resulting from his relocation to Australia in early 2018, nor have there been any breaches of applicable codes of conduct,” Frydenberg said.

Crennan has gone and Shipton is in the departure lounge awaiting the appointment of his successor, so what next?

Any corporate risk management officer would raise their eyebrows when they read some of the recommendations of the report into the internal workings of the corporate cop.

Let’s take the fact that ASIC, according to the report, failed to move ‘more swiftly’ to address issues raised by the Australian National Audit Office, the auditor for government entities (including ones that police auditors), related to accommodation payments made to Crennan.

The ANAO suggested ASIC seek counsel from the Remuneration Tribunal on the classification of payments and whether “they fell within the Remuneration Tribunal Determination”.

ASIC did not make a decision on that ANAO recommendation until 13 months later.
Remember that this is the body that polices both the quality of financial reporting and conducts inspections of audit firms.

The review also revealed that ASIC’s audit committee did not monitor the state of play with the recommendation related to the seeking of advice from the Remuneration Tribunal because it related to an observation and not a finding.

Seriously?

The corporate regulator’s audit committee did not look at these issues of allocation of taxpayers’ resources because the description or status of an issue was an observation and not a finding?

Can you imagine the belting a listed company would get from the media, institutional shareholders and others if it was revealed it failed to take action on the recommendation of an auditor that was sound?

All hell would break loose and people would rightfully question why an audit fee was paid if an entity was not going to be taking notice of what the auditors pointed out.

The review was told by the commission that all ANAO recommendations would be the subject of audit committee oversight and that ASIC was contemplating the development of a central risk and breach register that identifies which parties own a problem and who has accountability for its resolution.

This is risk management 101 and should already have been in place. Any organisation without a proper risk management matrix that identifies issues and the person that is monitoring them is asking for trouble.

Recommendation 8 is also worthy of mention. The commission is asked to develop internal policies regarding the payment of expenses of commissioners. This would include the setting of thresholds and special rules for situations where some additional process might be required.

That recommendation also says ASIC should have a process in which the Commission gives a green tick to expenses beyond a set dollar threshold and sensitive expenses and that there be a chairman’s sign off for the expenses of other commission members.

It is suggested that a deputy chair’s approval must be given to expenses related to the big kahuna at the top.

This report is a lesson to everyone and not just the corporate regulator, although ASIC is the party that has lost some skin in the public domain as a result of what the report has noted.

Internal controls are important and should be observed. Any observations or findings made by auditors are paid for and they ought to be the responsibility of a party to monitor and report on progress.

A report like this is a kick in the guts for the corporate regulator because of the work that it does in the area of law enforcement.

The sooner it tweaks its processes, the better for all concerned.