AWB auditor, stadium play and Queensland Inc

6. AWB and the Anne Jackson audit trail

By Stephen Mayne

National Australia Bank was well known for tolerating one of the worst examples of audit conflict with the saga of Homeside and a certain Christopher Lewis. This is the man who former NAB CEO Don Argus dispatched to Florida to head a KPMG due diligence team to advise whether the bank should buy Homeside. He recommended the purchase and NAB shareholders duly paid $1.7 billion in July 1997.

Lewis then became the KPMG auditor who signed the 2000 accounts and claimed they were “free of material mis-statement” when in fact the bank was about to drop $3.6 billion from something called mortgage servicing risk (MSR) at Homeside which wasn't even mentioned in the annual report.

Adding insult to injury, Lewis then joined NAB as global head of risk management in July 2001 and two months later NAB announced the Homeside loss. Amazingly, he survived until 2004 but was then shafted after the $360 million foreign exchange loss.

The story from yesterday's Crikey about Anne Jackson, who lead internal audit teams at both AWB and NAB, is almost as interesting but there are a couple of important points to make at the outset. Firstly, Anne Jackson was not mentioned in either the PwC report or the APRA report into NAB's $360 million in forex losses, although she was head of internal audit at the time.

Secondly, whilst Arthur Andersen documents are emerging at the Cole inquiry, Anne Jackson has not been mentioned although she was the partner in charge of internal audit for the first two years of the Alia kick-back program.

Here is as complete a picture of the CV as we can establish:

Late 1990s: Anne Jackson was Arthur Andersen's engagement partner on internal audit at Victorian WorkCover Authority reporting directly to CEO Andrew Lindberg and then the board audit committee. Arthur Andersen first won this role in the late 1980s.

1999: AWB kickback payments to Alia start.

1999: Arthur Andersen wins the internal audit work at AWB with Anne Jackson as the engagement partner.

November 1999: former AWB CEO Andrew Lindberg removed as WorkCover CEO after new Bracks government announces $176m operating loss for 1998-99 in what many regarded as a political stitch-up.

March 2, 2000: Lindberg appointed CEO of AWB with Anne Jackson already in place as the out-sourced internal audit partner from Arthur Andersen. She reported to the CFO and head of risk management

August 2001: Anne Jackson joined NAB as head of operations of internal risk

Sept 1, 2001: NAB board first alerted to Homeside disaster, so Anne Jackson clearly can't be blamed for this.

April 2002: Arthur Andersen collapses and Australian business taken over by Ernst & Young, but writing was on the wall after Enron filed for bankruptcy in December 2001.

2002-2004: Anne Jackson in charge of internal audit at NAB

January 13, 2004: market first alerted to NAB's $360 million in foreign exchange losses

2004: appointed head of Sarbanes Oxley program dealing with audit independence and compliance

2005: appointed project director of BASLE II accounting integration project

NAB seems to think this is an unfair character assassination. We're happy to point out that internal auditors usually only go in once a year and the NAB forex losses spiked up quickly over a few months and would have been very difficult to detect.

However, surely it's a point of interest that the two biggest scandals to hit Melbourne in recent years - AWB's $300 million for Saddam and NAB's $360 million forex loss – both featured the same person involved in internal audit, albeit one on an out-sourced basis and for just two of the five year duration.


25. The rise and rise of Queensland Inc

By Stephen Mayne

As the Federal, Victorian and NSW Governments hurtle down the path towards a $3 billion float of the Snowy Mountains Hydro-Electric Authority, the Queensland government is going in the opposite direction, yesterday splashing $446 million on the monopoly WA rail assets that were only privatised in December 2000.

In fact, there are some interesting parallels with Singapore Inc and, once Telstra is fully privatised, Queensland will emerge as the Australian state apparatus with the largest single pile of assets both in net and gross terms.

Queensland Rail is already a very big business, as you can see from its latest annual report. In 2004-05 it made a record profit of $287 million and paid a record $193 million dividend to the state government. With $8.56 billion in assets, it turned over $2.5 billion last financial year, but gearing is already a touch high with total debt of $3.8 billion now expected to top $4 billion.

Media-tart Peter Beattie was all over the press today, so clearly yesterday's Queensland Rail announcement was not "the sh*t I don't want", which is what he last week said would be handed to deputy premier and new Queensland Treasurer, Anna Bligh.

Presumably it will be Bligh who will decide if Queensland Rail abandons its dividend to fund the ARG acquisition out of operating cash flow or whether it will go further into debt.

The fact that a state-owned company can absorb such a move is testament to the huge balance sheet strength that Queensland boasts.

After 10 years in Government, John Howard and Peter Costello have only now turned their minds to the huge issue of plugging the $90 billion liability for Commonwealth superannuation liabilities. The contrast is stark indeed with Queensland which has fully funded super and a $45 billion asset pile sitting inside the Queensland Investment Corporation.

Apart from flogging the Queensland TAB and the Dalrymple Bay coal terminal, Queensland has largely shunned privatisation and still controls much of the state's electricity industry and most of the ports.

Indeed, when the Feds decided to flog off all their airports, Queensland Inc swooped, with the government-owned Port of Brisbane Authority contributing 37% of the $1.37 billion that was paid for Brisbane Airport in the mid-1990s. Now they've become even more audacious, snapping up the WA rail assets.

Queensland has managed to achieve all this despite easily having the lowest taxes in the country. Sure, some service levels remain below other states due to historical under-spending which dates back to the Bjelke-Petersen years, but in balance sheet terms they are literally tens of billions of dollars ahead of any other jurisdiction.

Finally, the parallels with Singapore Inc might get even more interesting given the rumours that Temasek Holdings, the Singapore Government's Investment arm, is eyeing Chris Corrigan's vulnerable Patrick Corp.

The PSA business has just lost a bidding war for P&O and is hungry for more port assets. Similarly, Singapore Airlines would presumably be delighted to take the controlling stake in Virgin Blue off Patrick's hands, particularly if Federal Cabinet shuts the door once again on the Pacific Route.

26. Who'd want to build another stadium?

By Stephen Mayne

What is it about owning and building trophy stadia assets? The aura surrounding the Sydney Olympics persuaded a group of normally sensible investment banks to underwrite the Stadium Australia float which was always going to be a dog and left them with a loss of more than $200 million.

The same thing then happened to the original investors in Melbourne's Docklands stadium although this might yet turn around for the Seven Network which is currently in intense negotiations to sell the management rights for around $200 million.

Multiplex made a tidy profit building the Olympic Stadium but then deluded itself that it could do the same in a completely different environment at Wembley and has now dropped well over $100 million, causing a share price rout.

The latest example is the $423 million redevelopment of the MCG which is headed for the courts in the next few weeks as Grocon finalises a claim of close to $100 million.

The Grollo family's Grocon has at least been able to deliver the MCG in time for the Commonwealth Games, but now both the state government and the Melbourne Cricket Club members don't want to share the cost of this.

Multiplex is well-known for taking a different approach over disputes, such as the time they simply stopped working on Federation Square until the Bracks Government agreed to fund huge blowouts. Interestingly, Multiplex appear to be playing a similar game over the completion of Wembley in time for this year's FA Cup final, although there's no suggestion they've actually stopped work.

The Grollos were expecting John Wylie and the MCG Trust to do what Lloyd Williams did with the Crown Casino project – agree to pay for all the additional changes and tight deadlines as they emerged.

Wylie's decision to play hardball has brought back memories of the notorious 1993 dispute over a new headquarter for the SECV when the Kennett Government simply refused to pay the $32.6 million a year in rent which was due to Grocon for the next 20 years.

Instead, with the banks breathing down their necks, Grocon sold the Flinders Street building back to the government for $250 million, a hefty discount on the $646 million over 20 years that was stupidly committed by those incompetents in the Kirner Government.

Ironically, John Wylie was the man who then flogged off Victoria's $30 billion energy sector for the Kennett Government, although he wasn't directly involved in the hard-ball negotiations over the SECV headquarters which left a very bitter taste in Bruno Grollo's mouth.

Copyright © 2024 The Mayne Report. All rights reserved

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