The latest news headlines on issues and developments affecting the internal audit profession.
Sept. 25, 2020
U.S. banks and credit unions reported record levels of suspected business-loan fraud in the month of August, The Washington Post (paywall) reports. According to the Treasury Department's Financial Crimes Enforcement Network, there were 1,922 suspicious-activity reports involving business-loan fraud in this time period. This is about 14 times the monthly average for the six years beginning in 2014 — the earliest date for which data is available — and the fourth consecutive monthly record. Although the data does not cite the cause of the rapid increase, it does coincide with a wave of applications for both the Small Business Administration's (SBA's) $200 billion Economic Injury Disaster Loan program and $525 billion Paycheck Protection Program. According to the SBA inspector general, these programs have been the victim of "pervasive fraudulent activity."
On Tuesday, the World Economic Forum, in collaboration with the Big Four accounting firms, released a white paper (PDF) that recommends a core set of "Stakeholder Capitalism Metrics" and disclosures to promote consistent measuring and reporting on sustainable value creation. The metrics are organized under four pillars that are aligned with the United Nations' Sustainable Development Goals and principal ESG domains: governance, planet, people, and prosperity. "The metrics are deliberately based on existing standards," says the paper, "with the near-term objectives of accelerating convergence among the leading private standard-setters and bringing greater comparability and consistency to the reporting of ESG disclosures."
California is poised to become the first U.S. state to require that gay, lesbian, bisexual, or transgender persons be among the diverse groups required to be seated as corporate board members, according to a report by Agenda (paywall). The proposed law, Assembly Bill 979, was passed by the legislature in August; Gov. Gavin Newsom must either sign or veto the law by Sept. 30. Todd Sears, who founded the membership group Quorum, says the California bill is the first of its kind in including sexual orientation as a board demographic. Quorum is an association of 4,000 LGBT+ current or aspiring board members and other supporters.
The European Commission said it will appeal a court decision that Apple doesn't have to repay $15 billion in back taxes to Ireland. The appeal comes after the company scored a major legal victory in its long battle with the European Union's (EU's) executive Commission, which has been trying to rein in multinationals' ability to strike special tax deals with individual countries. The EU's General Court ruled that the Commission wrongly declared in 2016 that Apple was given illegal state aid when it struck the low tax-rate agreement with Ireland. The Commission said Apple used two shell companies in Ireland to report its Europe-wide taxes at low rates.
A new survey offers a glimpse at the economic damage COVID-19 has wreaked on U.S. families, with almost a third of households (31%) saying they have used up "all or most of their savings during the coronavirus outbreak," Forbes reported. Moreover, nearly half (46%) of respondents say that "at least one adult member of their household lost their job, lost their business, was furloughed, or had wages or hours reduced since the start of the outbreak." Conducted by NPR, the Robert Wood Johnson Foundation, and Harvard's T.H. Chan School of Public Health, the survey also revealed the skewed impact on U.S. families: More than half (54%) of households making less than $100,000 a year reported serious financial problems, compared to 20% of households making more than $100,000 a year. The survey also shows how the economic impacts vary by race, with only 36% of white and 37% of Asian households facing economic hardships, versus 72% of Latino, 60% of Black, and 55% of Native American families reporting serious financial difficulties. According to Forbes, the study shows the pandemic has had a significant negative impact on finances, health care, housing, transportation, and well-being nationwide.
Sept. 23, 2020
The IIA has formally launched a search for a new CEO, following the announcement in July that current President and CEO Richard Chambers will step down in March 2021. The Institute has retained executive search firm Korn Ferry to conduct a comprehensive search. "We are seeking a highly qualified and transformational leader who will build upon The IIA's strategic vision toward addressing the dynamic trends impacting internal auditors globally," said IIA Global Chair Jenitha John. Responsibilities of the CEO position include communicating and partnering with members, affiliates, and volunteers; advancing The Institute's core values; fostering innovation; and ensuring financial sustainability. Individuals who are interested in applying can learn more details about the position from Korn Ferry.
Following a spike in COVID-19 cases in the U.K., Prime Minister Boris Johnson has announced a series of new restraints aimed at reversing the trend, The Washington Post reports. These measures include mandating table service only for bars and restaurants, working from home if that is an option, and making mask wearing mandatory for retail workers, taxi drivers, bar and restaurant staff, and customers. "Now is the time for us all to summon the discipline and the resolve and the spirit of togetherness that will carry us through," Johnson said in a televised address. According to Johnson, the timeline for such restrictions to remain in effect is "perhaps six months." Applicable businesses, many of which were in the process of reopening, will be required to once again put their plans on hold and assure the health and safety of both their workers and customers.
The U.S. Justice Department (DOJ) will meet with state attorneys general starting this week to present its legal case against Google, the final step before filing a lawsuit against the company. The department is expected to focus on how the tech giant uses its search engine to stifle competition, according to The New York Times (paywall). The scope of the lawsuit is narrower than had been envisioned. The DOJ also investigated Google's reach in ad technology and how the company prices and places ads across the internet. But in an effort to file a case by the end of September, the DOJ decided to pick the piece that was furthest along in development and that it felt could best withstand a potential court challenge, The Times reported.
Chief executives of some of the biggest banks are taking steps to remedy racial imbalances in their workforces and lending practices, according to Bloomberg, which hosted its Equality Summit today. The news outlet reported that Citigroup Inc. will spend $1 billion over the next three years to help close the racial wealth gap, with more than half of the funds supporting homeownership for people of color and affordable housing by minority developers. However, Bank of America Corp. CEO Brian Moynihan warned that financial firms cannot solve inequality on their own and called for a "catalyst" from public officials. Earlier this month, Sheila Clark, a senior official at the U.S. Federal Reserve said the Fed wants the banks it oversees to provide more information on what they're doing to promote racial and gender diversity. Recently published Citigroup research (PDF) found that during the past 20 years, race-based inequalities shaved about $16 trillion from U.S. gross domestic product.
The organizers of the Mobile World Congress (MWC), the telecommunications industry's biggest annual gathering, said they are postponing next year's event to late June to make it possible to convene safely despite the COVID-19 pandemic. MWC 2021, which attracts more than 100,000 attendees, had been scheduled for early March. It will now be held in Barcelona, Spain, from June 28 to July 1 and will include a bigger virtual component as well as face-to-face events. This year's event was cancelled at the last minute as the coronavirus spread around the world. Organizers also said the Chinese edition of next year's MWC will be held in Shanghai on Feb. 23–25.
Sept. 21, 2020
Thousands of leaked documents reveal how some of the world's biggest banks have for years facilitated the movement of dirty money. The documents are part of a collection of files belonging to the U.S. Federal Crimes Enforcement Network (FinCEN) shared with hundreds of journalists. Although these documents do not constitute evidence of wrongdoing, Business Insider reports, they do alert regulators and law enforcement to things that should be investigated. For example, according to the report, banks such as Deutsche Bank, HSBC, and JPMorgan Chase engaged with and facilitated the movement of criminal money — approximately $2 trillion in total — even after suspicions were raised. Even more concerning is the fact that the leaked documents only represented 0.02% of the total findings, so they may reveal only a small fraction of the wrongdoing found by the FinCEN. Following such leaks, internal auditors in the finance industry should be more concerned about suspicious transactions.
With stock futures on the S&P 500 down 7.3% after a Sept. 2 high and the Nasdaq 100 12% lower, strategists quoted by Bloomberg (paywall) see bearish signs in U.S. equities markets. "Negative momentum signals suggest stocks are likely to remain in a period of weakness in the near term as rotation to new cyclical leadership from technology combines with election jitters to weigh on risk tolerance," Michael Casper, Bloomberg Intelligence strategist wrote in a note. The bearish outlook has coincided with U.S. equities entering a seasonally weak and volatile month, as well as investor anxiety over the U.S. presidential election, congressional deadlock over the next stimulus package, extended coronavirus lockdowns around the world, and a new investigation by the International Consortium of Investigative Journalists of possible criminal global banking activity, says Bloomberg (paywall).
Two recent studies deliver more bad news to airlines: Contact trace analyses of people with COVID-19 on international flights confirm that the virus is transmissible on long-haul flights, according to an article in Forbes. One of the studies, which analyzed a flight from London to Hanoi, Vietnam, concluded that such flights have "the potential to cause COVID-19 clusters of substantial size, even in business class-like settings with spacious seating arrangements well beyond the established distance used to define close contact on airplanes." On that flight, 12 people sitting in business class in the vicinity of a COVID-19 positive patient became infected with the virus. Both studies appeared in the journal Emerging Infectious Diseases. Forbes noted that the subjects of the study were flying in March, prior to mask mandates on most flights.
Kailash Satyarthi, who was awarded the Nobel Peace Prize for his work in rescuing thousands of children from slavery and trafficking in India, said in a Reuters report that he fears his work could be undone as the COVID-19 pandemic forces children back into labor. The pandemic's economic impact has forced millions of Indian families into poverty, putting pressure on them to send their children to work to make ends meet. Child laborers in India work in a variety of industries including brick kilns, carpet-weaving, clothing manufacturing, and fisheries. Internal auditors of organizations doing business in India should review the organization's labor practices there as well as those of India-based suppliers.