The IOOF circus is back in town and the performance of the stars promises to be even more entertaining than last time.
The story so far. In December 2014, an employee of IOOF, which runs the second largest non-bank financial planning network in Australia, contacted the Fair Work Commission with allegations of misconduct at the firm, including front-running, misrepresentation of performance figures and faulty research reports. IOOF management hired PWC to ‘independently’ investigate these allegations, and when no misconduct was discovered, the whistle-blower was fired in May of this year.
That would have been that, had it not been for Adele Ferguson of Fairfax Media. This one-woman financial regulator was approached by another IOOF employee with allegations similar to the original and after Fairfax published the details, the IOOF share price went into free fall. The redoubtable Ms Ferguson has stayed on the case ever since, continuing to reveal even more unsavoury details of this affair.
The Senate Economics Reference Committee has subsequently held public hearings into IOOF, as part of its Scrutiny of Financial Advice Inquiry, and as each question is answered a thousand more are raised. At a previous hearing, the IOOF CEO, Chris Kelaher, had used the PWC report to deflect questions from the Committee, insisting that the company had been given a clean bill of health by the independent investigator.
But last week, the Committee made public the PWC report and it turns out that bill of health was not so pristine after all.
The value of PWC’s investigation can be gauged by the extensive use of quotation marks in the media around the word ‘independent’. Of course, all investigations are constrained by their terms of reference and PWC’s terms for this investigation were extremely narrow, restricted for example to events since 2009, when many of the original allegations covered the period prior to that. PWC were not afforded access to freely interview staff but were restricted to two senior compliance and investigations officers, who had been involved in prior internal investigations.
Given the lack of new information which they had to work with PWC concluded, not unsurprisingly, that they had found nothing new. To put it charitably, PWC appears to have overtaken Tide in being able to ‘wash whiter’.
There are a myriad of questions that will arise from the PWC report over the next few weeks in the Senate’s Hearings. But one that jumps out is whether there was any conflict of interest for PWC in undertaking the ‘independent’ investigation?
In its official Whistleblower Policy, IOOF states that the ‘Whistleblower Officer’ is ‘PwC, [and?] currently the IOOF internal auditor’. In fact, the policy points out that PWC actually runs the whistle-blowing hot-line for IOOF on a contractual basis. PWC were therefore on both sides of this investigation.
However, this possible conflict of interest is not referred to in the PWC report. Why is this a possible conflict of interest? Simply because, the investigation was into allegations made by a whistle-blower.
If right-hand PWC (whistle-blower officer) knew details of the whistle-blower’s allegations, then the left-hand PWC (investigator) should have had unfettered access to them. If not, that might suggest that right-hand PWC may not be a very good whistle-blower advocate, which would embarrass left-hand PWC. Either way PWC did not think it necessary to report any potential conflict of interest, although the investigation was into, among other things, conflicts of interest.
The PWC report also notes that the head of Human Resources at IOOF had requested further information from the whistle-blower on the allegations, but the whistle-blower had declined to provide them. The report did not say whether the head of HR had asked the questions in her role as HR manager or as Whistle-blower Protection Officer, as they are indeed one and the same person. There appears to be another conflict of interest here, this time within IOOF, where ‘protection’ is being afforded by the person who might (and indeed probably did in this case) end up firing a whistle-blower.
A question that might be asked is – what was the corporate regulator ASIC doing while the PWC report was being undertaken?
Although ASIC has not released a statement concerning an official investigation into IOOF, the regulator has been reported as saying that an investigation is underway. Why the secrecy? A clear statement by ASIC that IOOF was being investigated would surprise no one. It would elevate the importance of the investigation, of course, but again that is probably overdue.
When, belatedly, ASIC does announce what it is planning to do to get to the bottom of the allegations against IOOF (and it must be remembered that they are only allegations at this stage), it needs also to consider its own regulations on whistle-blowing to ensure that valid allegations of financial misconduct are brought to light. Support for whistle-blowers is essential to ASIC’s role as the Conduct Risk regulator in Australia otherwise misconduct will continue to get buried.
Now that the issue is out in the open, ASIC could use IOOF as an example to all other financial institutions of the consequences of not having a policy that protects the whistle-blowers who have the courage to bring misconduct to the regulator’s attention.
As for PWC, they should ask themselves - is there anything they won’t put their name to just to earn a fee?