Welcome to this latest episode of The Bankers’ Plumber – Lessons Learned. In this episode, we will be talking about size. Size matters; it really does.
Inspiration for the thoughts I’ll share today came from the collapse of Wirecard, the German payments processor. A sudden announcement that nearly 3 billion Euro had gone missing and the company declares bankruptcy. Sudden yes, surprise no. My view is that this a case study in what happens when you get the basics wrong.
A word or two of thanks to the folks at TRG, the Realization Group, in London. They are a Financial Services & FinTech Marketing Agency who I have been working with for a couple of years, “Be visible, be found, be successful” is their tagline. Ok, today was about listening; that counts too. Colin Slight and team, your on-going support is really appreciated.
What are the Lessons Learned here?
Control. The basics matter. Evidence matters.Anybody who is tasked with verifying the items in the balance sheet, be they in internal control or audit function or be they external auditors, has to make sure they have irrefutable evidence directly from the source that confirms the balances. This applies whether they are assets or liabilities.
It is worth a wider look beyond just the Wirecard issue. My great friend Ranjit Guptara recently posted a great commentary on LinkedIn in which he asked “Quis custodiet ipsos custodes? Who Is auditing the auditors?”. This followed an article in the Times of London which reported that the UK regulator of auditors, the Financial Reporting Council, found one in three audits to be substandard. Not good and not good enough.
Size matters. Do you understand what is normal? Normal means what is typical in this situation. That will be based on currency, entity size and even time. A BlackRock money market fund that has $100 billion under management might just have cash at bank of 1%. Maybe. But, even then that money would be with a major bank or custodian and not with an escrow agent in Singapore.
Lastly
Short-selling is not a priori evil. It helps price discovery.
All of these observations build on the comments that my very first podcast guest, Barry Lewis, made:
You have to evidence that you are in control. A figure in a spreadsheet does not support a balance in the ledger – always demand to see the external proof that substantiates the balance.
Cash is King. The correct money in the correct bank a/c is the end goal
