Podcast Transcript
Therese Raft
Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.
Today I am joined by Katherine Shamai, a Risk Consulting Partner from our Melbourne office. Katherine specialises in governance, compliance, internal audit, and risk management. Today we’re going to be talking about some hot button issues including money laundering, payroll errors and modern slavery. Welcome Katherine!
Katherine Shamai
Thank you.
Therese Raft
We're here talking about some pretty big issues. For everyone listening, whose problem is this? Is it just for Boards? Is it yours as a professional in the space? Is it mine as an individual?
Katherine Shamai
I think it's everybody's problem, but we take a different lens to it at different points in time and different perspectives, depending on the time of day. It's a lot clearer for organisations. It's about compliance, having the right process and controls in place and making sure they're working effectively. And if you want to take it a step further, it's about being good corporate citizens. It's about taking those principles and compliance and taking a step further and doing a little bit more to be proactive. And when you consider, you know, whether something is an integrity or ethical kind of matter you think about, you know, a couple of questions, to sense check whether you're on the right track.
And the questions I often use when we do fraud awareness training is, you know, would your grandma be happy to read that on the front page of a newspaper? How would this affect your co-workers or team morale? Is that an organisation you're proud to be associated with? Would you put their name on your resume if you left the organisation? And if you consider these issues as a Board member or a member of executive or management, they can have very real consequences, which we've seen over the past 12-24 months, where, you know Board members or executives have been terminated across a wide range of organisations.
But I think there's also a personal implication in all of this, and it applies to principles like privacy, and even money laundering, I think. Typically, people think money laundering is a big organisation issue, whereas there are personal implications. An example is cuckoo smurfing. So the term has been used recently in the press and it’s where money launderers use accounts to deposit money and clean proceeds of crime. And how that works in a personal sense is there's been cases where individuals have had, um, funds transferred from overseas and money launderers, diverting those funds and mixing it in with proceeds of crime. And when it arrives at their bank account, it's been seized by the federal police as proceeds of crime. And whilst from an ordinary person's perspective: hang on, that's money that somebody has transferred to me overseas legitimately, um, from a technical sense, its proceeds of crime because it's been, I guess, tampered with by money launderers.
Therese Raft
That is slightly terrifying. Cuckoo smurfing. Never heard that before. Um, one of the things that you just said - and I'm quite taken with this term now - is what it means to be a good corporate citizen in today's age. In 2021 what does a good corporate citizen actually look like?
Katherine Shamai
It's a really good question. I think there are obviously different definitions of what a good corporate citizen looks like, but I think there's – whichever way you slice and dice it – there's a growing demand from the community on being a good corporate citizen. Um, and I think it's like I said before, it's about being more than just being compliant. It's about behaving with integrity. It's doing the right thing without anybody looking or prompting. Um, it's thinking about your reputation and your standing in the community and in the market. And it can actually influence whether others want to do business with you.
I'll take an example of a recent piece of legislation. So the Payment Times Reporting Act was introduced in November 2020. And it's a really good way to illustrate the idea, so that while the Act came in in November 2020 there were activities before that, that kind of more fell into that bucket of good corporate citizenship. The legislation is designed to protect small businesses and their cash flow by applying transparency to how big businesses pay their small business suppliers and on what kind of payment terms. Apart from transparency, it’s also to encourage big businesses is to pay a small business in a timely manner because this is going to be publicly available information potentially. Whilst that's the compliance aspect of it that you know your reporting this and you're paying your small business suppliers according to the payment terms you've agreed or is commonly accepted in your business.
An example of good corporate citizenship is, for example, BHP. At the beginning of the COVID pandemic in March, they announced that they would pay the small business suppliers with payment terms of seven days rather than the traditional 30 days. And it's their way of making sure small businesses stay afloat from a cash flow perspective. And it's that…taking that proactive step that moves it from compliance to good corporate citizenship. It's looking at how can we do this better and it’s about living the values, not just talking about it.
Therese Raft
So that's a really good example of what it looks like when you get it right. And I love that example that you gave of BHP. On the flip side, though, what does it look like if you get it wrong? And what are the implications of getting it wrong?
Katherine Shamai
There are so many potential impacts of getting it wrong, and unfortunately it's not difficult to get it wrong. The obvious answers are brand and reputation damage. But there's also the potential for remediation costs, which could be quite extensive upfront but can also last a significant period of time. For example, if you have a name possible undertaking with monitoring attached for a period that could extend to quite a period of time. And also there is the potential revenue loss that's associated with loss of sales, for example. Those are things that are relatively quantifiable. You could put a dollar term to it. It's the losses which you can't see, which has a much longer lasting and a fundamental impact on your organisation. So, for example, damage to positive organisation culture, team morale, trust within your organisation and with your external stakeholders and the community more broadly. And we see this a lot when we do fraud investigations. For example, the financial losses often the really easy aspect to deal with, in a sense, because you could potentially be covered by insurance. Um, it's something that's replaceable if it's an asset that's been stolen. But it's the emotional impact on team members who worked alongside the fraudster or the broken trust within the team. That is much harder to mend, and we've seen – in worst case scenarios – whole teams leave before that scar or that impact is erased from the organisation.
Therese Raft
I suppose the results of that could also last years. So as you say, like, you know, you can rebuild, um, anything if it has to do with, like, money or systems or structures, but to rebuild trust, uh, that would have really long term implications as well.
All right, as much as we'd like to, we can't pretend COVID didn't happen. I'd really like to know, has COVID helped or hindered the conversations that you're having around risk and what being a good corporate citizen looks like?
Katherine Shamai
I think COVID has made people more mindful of risk. For the past year, our lives have basically been influenced by risk management. You know, when we go out, we were masks. That's a form of risk mitigation. What stage of lock down we enter or not is a form of risk management itself. But, I think COVID has also made people more mindful about the discussions they're having. It's not as easy to have a casual chat about something, and I think communication is therefore more considered, um, or deliberate. Coupled with some big governance stories over the past 2-3 years, I think there's a growing awareness and prioritisation of being good corporate citizens. A good example of that is COVID management and the language I hear executive management using around protecting the staff and workforce. It's not just about abiding by government requirements. It's about protecting the staff and doing the right thing. That's really positive language,
Therese Raft
And leading on from that, Australia's is really in a very fortunate position. Compared to our counterparts, the economy has rebounded relatively fast. Uh, in the first half of last year, in the first half of 2020 we saw a lot of fear and knee jerk reactions. Now we're coming into 2021 – nearly 12 months later – do companies have an opportunity to be a lot more considered and thoughtful about what they want to do next?
Katherine Shamai
Absolutely. And I think they should be. This'll is a great time to reexamine what we've considered as set values. I think traditionally we expect our workforce to come into the office. Um, you know, be present for 9 to 5 at the very minimum, and work Monday to Fridays. But I think you know, obviously depending on what industry you’re in, is your whole workforce going to want to go back to an office environment. Um, should you be considering flexible working arrangements? And would you lose competitive advantage if you don't do that? I think it's a really good chance to pause and have a think about what the future of work looks like. It's a great point in time to do so. And I think there’s still going to be uncertainty around for a while, and I take Perth and Melbourne going into snap lock down as examples of uncertainty. Um, and if uncertainty is going to be around, being considered and thoughtful will help organisations plan ahead and look ahead of roadblocks and pitfalls and how they can avoid those and potentially take, you know, the reactive load off their time to reacting to forces that they can't foresee.
Therese Raft
And that's such an interesting outcome from COVID. But as you said, there's been quite a few things that have happened over the past few years. The Financial Services Royal Commission from a couple of years ago, for instance, and the Aged Care Royal Commission findings are going to be handed down in a matter of weeks. So a lot of these sorts of governance issues that have come out through this process – do you see those snowballing through other sectors as well? And not necessarily just talking about money laundering, but perhaps modern slavery and payroll and others?
Katherine Shamai
Absolutely. I've had conversation with clients who have asked and considered how the findings from the Financial Services Royal Commission affect them, and they're not even in financial services. They want to take those lessons and apply it and see how they can improve. And I think the other aspect of governance issues here, highlighted in these hearings, is there's a clearer, uh, articulation of community expectation of its service providers, whether they be financial services or aged care, and the disappointment and shock that comes from the community when things aren't quite what they expect or seen. And I think that shock has then articulated – made the community articulate what actually we expect our service providers – these trusted services to do XYZ and behave in a particular way. So I do think that has a much broader impact across industries, and certainly – I wouldn’t say a great way to learn lessons – but it's a good source of what you should be doing, and what you should be focused on.
Therese Raft
Now I really wanted to ask you about payroll. This is something that touches everyone, and it's a really easy one for businesses to get wrong and not even realise it. So I really wanted to ask: How does that happen? And what can businesses do to protect themselves?
Katherine Shamai
It's a combination of factors. Sometimes it's a legacy system issue and configurations were not set up properly in the first place. Or they haven't been kept up to date when things change. It could be poor data capturing of working hours and how, for example, roster systems or clock-in clock -out systems interact with the payroll system. It could be a misinterpretation of Awards and Enterprise Agreements and how they apply to your particular business. It's actually quite common, um, that last one, because it can be quite tricky to interpret, and we've actually seen employment lawyers interpret rules differently at the same client. So it's very up for judgment, particularly obviously in some of the greyer areas. At a worst case scenario, it can be deliberate, which kind of leads into that modern slavery angle of deliberately under paying workers um, and keeping them in modern slave like conditions.
But, with most clients we work with, it’s accidental. It's something that has happened either over time or something that they've inherited or they weren't even aware of. And some states have taken, um, acts – have implemented Acts to criminalise wage – deliberate wage – underpayment, like Victoria and Queensland. And there is actually a Commonwealth bill that's been introduced as well. Ahlot of clients are taking a proactive step by undertaking payroll review of some variety. And there's lots of different ways about it, depending on their unique situations. Some are concerned about the systems. Some are concerned about interpretation. And some don't think there's anything wrong, but they undertake a sample recalculation to test to make sure “yes, we're paying people the way that we should be paying people”.
And I think knowing your exposure is the key to managing the risk. And if you could take proactive steps to manage it, you're able to get on the front foot rather than being subject to union pressure or media interest for something that then you're chasing your tail on instead.
Therese Raft
So that's really interesting that a lot of the stuff that's happened in the last few years has really come to a head now. If you look forward to the next 12-24 months, what do you see happening in this space?
Katherine Shamai
I think over the next 12-24 months, I would suspect it would be more of the same. To be honest, I don't think these issues will go away. But I think there's an expectation that they'll be maturing of these issues and they'll evolve into, um, different facets or different degrees of sophistication. And I also think that the regulators of these places would have expectations that industries and companies would evolve and mature. And I would also think that they will probably see more regulatory action, particularly from ASIC and AUSTRAC with renewed interest in their areas of oversight.
Therese Raft
So I'm really pleased that you kind of touched on that maturity and that investing in systems as – I suppose – something that will happen the next 20-24 months. But you also mentioned that there are some people out there who do the wrong thing on purpose – and I apologise for sounding a little bleak – but is there an element of chasing your tail on some of these issues? You put systems in and there is someone somewhere that's ready to subvert them.
Katherine Shamai
I don’t think it's bleak at all. It's very true. We see this particularly in the cyber crime and fraud space. You implement a control. Somebody tries to break it. You look at how it could be broken and improve it. And then the cycle keeps going. But it's also why we update our antivirus software definitions because it keeps changing. It keeps evolving. It can feel like chasing your tail. But you should also see it as a continuous improvement process. And hopefully, you know the improvements are well designed so that you're not only improving your defences, you're also improving productivity or efficiency and gaining something from it as well.
Therese Raft
That is a much more positive way of looking at it. And you're a specialist in the space – you do this day in and day out. And we've spoken a lot about the practicalities of what's happening, but how are you feeling about how the business community is embracing the shift towards good corporate citizenship or being a good corporate citizen? Is there more that you'd like to see?
Katherine Shamai
I think we're definitely heading in the right direction. And I think there's so much good that companies of all variety to bring to the community. Companies that measure and assess the impact on community as well as financial performance as a part of the normal KPI can help uplift and contribute to society in more ways than just economic benefits of providing jobs. I think, you know, from a company perspective, good corporate citizenship can translate into a more engaged workforce and improve productivity, but also mental wellbeing at work. It makes people happier to be at work when they feel engaged in not just their work, but also that they’re contributing more broadly to society. And I think companies who do encourage their staff to contribute and contribute themselves are great leaders in this space. So, for example, whether a company establishes their own foundation to try and drive their charitable or societal impact efforts or giving their staff paid volunteer time, and measuring those efforts and the impact it has on community, or using social procurement where possible, they're all things that can help good corporate citizenship. But also behaving ethically and having those discussions and being honest and transparent about them. Talking about conflicts of interests – you know – talk about compliance. But not just from a strict: “this is what we have to do” by the letter of the law – is looking at the spirit of it and trying to say: “okay, well, what more can we do?” Or “what more proactive steps can we take” and that would make us, you know, good corporate citizens.
Therese Raft
Oh, Katherine, that is a really lovely, optimistic way to finish up what could have been a very heavy conversation. Um, do absolutely love that. Thank you so much for your time. Katherine, if somebody would like to reach out to you, are you quite happy if they find your details on your website or on LinkedIn?
Katherine Shamai
Yes. Absolutely
Therese Raft
Amazing. Well, thank you so much for your time. That was a fantastic conversation.
Katherine Shamai
Thank you.
Therese Raft
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