Do you think there is merit to sending audit reports to customers?

K

Ka Pilo

#21
My career in investment banking ran from 1970 up to 1987, when I sold my interest and "retired" for the second time (I'm on my fourth retirement and, although consulting part-time, I am strongly considering starting another business with employees and equipment and real estate.) I have a suspicion what you may mean by "behest loan transaction" by parsing the individual words, but I tell you truthfully I never saw or heard that phrase until seeing it in your post. Why don't you detail your understanding of the term? - Perhaps I know it by a different term.
I've heard the term "behest loan" used by the Senate of the Philippines.

Please follow the below links that describes what exactly it is. I'm sure you know it by a different term.

http://newsinfo.inquirer.net/72309/%e2%80%98b%e2%80%99-behind-behest-probed

http://www.philstar.com/Article.aspx?articleId=734850&publicationSubCategoryId=63

Let me give a summary of said links. They (Senate) are currently conducting an investigation on the alleged questionable loans and other similar transactions with government banks and institutions which were done under a "cloak of confidentiality." It was revealed that a certain company (Company A) was able to get two behest loans worth of millions of peso from a certain bank (Bank A) in just two days and despite having only a very small paid up capital. The loan was used to buy shares of a mining company.

Another company (company B) which managed to get millions of peso loan from the said bank (Bank A) and another millions of peso from another bank (Bank B) despite having a very small paid up capital. The loans were used to gain control of a certain rail transit company.

***


I've just looked up Behest on the The American Heritage Dictionary and Collins Thesaurus.
be·hest (b
-h
st
) n. 1. An authoritative command.
2. An urgent request: I called the office at the behest of my assistant.

[Middle English bihest, vow, from Old English beh
s; see kei-2 in Indo-European roots.]

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved


behest
noun at someone's behest at someone's command, by someone's order, at someone's demand, at someone's wish, by someone's decree, at someone's bidding, at someone's instruction, by someone's mandate, at someone's dictate, at someone's commandment He did it at his wife's behest.

Collins Thesaurus of the English Language – Complete and Unabridged 2nd Edition. 2002 © HarperCollins Publishers 1995, 2002
 
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Wes Bucey

Quite Involved in Discussions
#22
Oh yeah! Based on the info you provided, everyone in the USA would understand you are discussing a loan based on "who you know." Suffice to say, they usually only happen when the "lender" is dealing with OPM (other people's money.)

As a privately held investment bank we only invested or lent out our own money. Thus we didn't lend at behest, only our own research and underwriting (due diligence.) Granted, we leveraged things to borrow money ourselves which we subsequently lent out Further down the road, when the deal or loan had proved itself, we would sell our interest at a profit (i.e. we took the early risk and charged high fees or high rates. When the deal had aged and proved itself, it was less risky and we would sell it off to a more conservative lender at a profit. Our expertise at researching a loan and our ability to "reengineer" the operation of the target is what earned us the profit.)

Once we sold the investment, we would invest in another.

In terms of "who do you know," we were often recipients of such deals which were based more on our reputation to succeed where others failed than on pure "friendship."

In our case, we never failed to repay our debts, which made us very desirable borrowers. This is MUCH different from the recent flap over the California company in the solar business which defaulted on a government guaranteed loan which was a "behest" deal.

:topic:
What I thought you meant by a "behest" loan was what we termed an "offset loan" where a wealthy entity (us) would deposit a large sum ($1,000,000 or more) with a bank on the condition they would give favorable consideration to a client of ours in lending the client money. We did not "guarantee" the loan, but merely provided sufficient funds for the bank to make the loan using its own underwriting. The situation would arise when a bank would say to our client, "We would lend you the money, but we have committed all our lendable funds. We need more deposits to be able to make your loan." Our infusion of funds prevented the bank from using this as an excuse when the real reason was something else - i.e. once they had committed to making the loan "except for lack of funds" we took that excuse away.

The deal was the bank would make the loan to our client and we would leave the money on deposit as long as the [short term] loan was in effect. If the bank reneged and failed to make the loan, we would pull our money with big fanfare (press release) saying we had lost confidence in the bank, possibly triggering a run on the bank. This was a very real threat to the bank which we would explain up front before making the deposit to ensure the bank would make the loan. ALL investment bankers play hardball with commercial banks this way to this day. We could not pull the money before the loan was repaid or we would lose our own credibility and never be able to do such a deal again because word would spread among the banking community. In a way, it was "quid pro quo."

Our incentive for doing this was getting or keeping the client's business. Our source of funds was money we parked waiting for our next deal. If we needed cash in the intervening period, we would go to yet another bank and pledge our deposit to borrow the money at an extremely low rate. All investment banks leverage their assets this way regardless whether the assets are cash deposits, stocks, or bonds.
 
#23
I have never had a customer requesting to see audits as usually they take the fact we are certified to the relevant ISO standard as proof we carry out suitable audits etc.
When customers audit us and get to our internal audits, they usually wish to see a few reports as proof of a functioning audit system, and I have no problem with that. Actually, it would be a rather lame audit if they did not.


To be honest, actually getting people inside the company to read an internal audit report can be hard enough, let alone someone outside the company lol!
I hear you.... :lol:

/Claes
 

Wes Bucey

Quite Involved in Discussions
#24
When customers audit us and get to our internal audits, they usually wish to see a few reports as proof of a functioning audit system, and I have no problem with that. Actually, it would be a rather lame audit if they did not.


I hear you.... :lol:

/Claes
I guess the thrust of my comments re: requesting someone else's audit report is based on the idea he/she wants the entire report, not just sample chapters or a quick look-see of the report on my premises to confirm its/their existence, but that this person [company policy or just an individual on "mission creep?"] wants a copy of the ENTIRE report. I'm pretty sure you don't give away a complete copy of an internal audit to a customer auditor to take away from your premises, do you? Ostensibly, this request for the entire report is in lieu of ANY on-site visit and audit by the customer.

My questions are, "What will the customer do with this copy? How will it follow up if there are open NC? Will it challenge the sufficiency of CAR? Will this become a regular request? What does the customer hope to learn from the entire report that it doesn't learn from the mere fact of pass/fail from the certificate of registration? Is this a subtle/sly check on the sufficiency of the registrar's auditors? And I have many more questions!

If I were a business owner, I'd want all of these questions answered. Any time a customer starts pushing beyond the terms of a contract and especially if he is asking for something out of the ordinary, I'd want to know his true reasons and what he intends to do from that point on.
 
#25
I'm pretty sure you don't give away a complete copy of an internal audit to a customer auditor to take away from your premises, do you?
No, of course not: As I said in post #8, "I sometimes show them our reports when they audit us (and our audit system). The next time I send them our reports, however, will be the first."

/Claes
 
K

Ka Pilo

#26
Oh yeah! Based on the info you provided, everyone in the USA would understand you are discussing a loan based on "who you know." Suffice to say, they usually only happen when the "lender" is dealing with OPM (other people's money.)

As a privately held investment bank we only invested or lent out our own money. Thus we didn't lend at behest, only our own research and underwriting (due diligence.) Granted, we leveraged things to borrow money ourselves which we subsequently lent out Further down the road, when the deal or loan had proved itself, we would sell our interest at a profit (i.e. we took the early risk and charged high fees or high rates. When the deal had aged and proved itself, it was less risky and we would sell it off to a more conservative lender at a profit. Our expertise at researching a loan and our ability to "reengineer" the operation of the target is what earned us the profit.)

Once we sold the investment, we would invest in another.

In terms of "who do you know," we were often recipients of such deals which were based more on our reputation to succeed where others failed than on pure "friendship."

In our case, we never failed to repay our debts, which made us very desirable borrowers. This is MUCH different from the recent flap over the California company in the solar business which defaulted on a government guaranteed loan which was a "behest" deal.

:topic:
What I thought you meant by a "behest" loan was what we termed an "offset loan" where a wealthy entity (us) would deposit a large sum ($1,000,000 or more) with a bank on the condition they would give favorable consideration to a client of ours in lending the client money. We did not "guarantee" the loan, but merely provided sufficient funds for the bank to make the loan using its own underwriting. The situation would arise when a bank would say to our client, "We would lend you the money, but we have committed all our lendable funds. We need more deposits to be able to make your loan." Our infusion of funds prevented the bank from using this as an excuse when the real reason was something else - i.e. once they had committed to making the loan "except for lack of funds" we took that excuse away.

The deal was the bank would make the loan to our client and we would leave the money on deposit as long as the [short term] loan was in effect. If the bank reneged and failed to make the loan, we would pull our money with big fanfare (press release) saying we had lost confidence in the bank, possibly triggering a run on the bank. This was a very real threat to the bank which we would explain up front before making the deposit to ensure the bank would make the loan. ALL investment bankers play hardball with commercial banks this way to this day. We could not pull the money before the loan was repaid or we would lose our own credibility and never be able to do such a deal again because word would spread among the banking community. In a way, it was "quid pro quo."

Our incentive for doing this was getting or keeping the client's business. Our source of funds was money we parked waiting for our next deal. If we needed cash in the intervening period, we would go to yet another bank and pledge our deposit to borrow the money at an extremely low rate. All investment banks leverage their assets this way regardless whether the assets are cash deposits, stocks, or bonds.
Yeah, it can be described as "who do you know" as it was granted with extraordinary speed to a person or company that was undercapitalized.
In this case, it's very difficult for a bank manager or odinary employee to exercise due dilligence. Imagine the loan is approved with undue haste, the mining firm acquisition is made, and an insider trade follows with a swift repayment of the bank loan supposedly the way to cover up any anomaly.

Is insider stock market trading considered as crime in the US? I guess so.
 
K

Ka Pilo

#27
No, I don't see the merit for either type. The temptation to over react is too strong when you don't have adequate understanding of the processes to fully comprehend and place appropriate perspective on what an audit report says.
A very good point.
Besides, audit reports can themselves be flawed or incomplete and send the wrong impression.
Yes but if I would be your customer, sorry Jen I cannot accept this reason. It's your responsibility to discuss the flawed or incomplete audit reports with your CB or look for a new one.
 
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