The latest scandal afflicting the banking sector offers an important lesson for all businesses in terms of the importance of conducting regular internal audits and keeping a sharp eye out for any instances of indiscretion by its financial professionals.
The current controversy is centered around manipulation of the London Inter-Bank Offered Rate (LIBOR), which is calculated daily by Thomson Reuters based on a number of major banks’ responses to a survey that asks what interest rates they would expect to pay loans in particular currencies. LIBOR is used to determine payments related to a variety of financial agreements, including mortgages. It was previously held that, because the rate was calculated based on multiple banks’ suggestions, it would not be possible for any one bank to manipulate the rate for its own benefit.
Of course, as the scandal has developed, investors’ confidence in LIBOR, and the financial institutions involved in setting it, has plummeted. Lawsuits have begun and many more are being contemplated by organizations that believe the return on their investments was affected by banks’ manipulation of rates.
Barclays has already admitted to manipulating LIBOR and paid out $450 million to settle the charges that had been laid against it. However, even after reaching a settlement, there will still be repercussions for any bank found to be involved in the price-fixing scheme. Especially for financial institutions, reputational damage can have a major effect on future revenue.
All of this goes to show that it is extremely important for businesses to ensure they are operating with appropriate practices. Guaranteeing that a LIBOR-like scandal isn’t around the corner can be invaluable for any firm that has long-term success as its goal.
Working with an internal audit consultant can help in this regard by bringing an outside perspective to a company’s auditing process. This enables internal auditors to uncover hidden liabilities or even discover a scandal-in-the-making before it becomes an albatross around the organization’s neck.