Shoddy audits contributed to mortgage firm's collapse

by Calida Smylie16 Jun 2014
An auditor at collapsed mortgage financing firm Banksia Financial Group has been banned from practicing for five years.

Australian Securities and Investments Commission has accepted an enforceable undertaking from Warren John Sinnott of Kennington, Victoria, that he will not practise as a registered auditor until 11 June 2019, as part of an ongoing investigation into Banksia’s collapse.

Sinnott was the lead auditor responsible for the audits of companies in the Banksia group – which included Banksia Mortgages, debenture issuer Banksia Securities, Cherry Fund and BFG Management – for the financial years 2009 to 2012.

ASIC found Sinnott failed to carry out the proper duties of an auditor. In particular, ASIC discovered he did not conduct the audits in accordance with the Australian Auditing Standards, as required under the Corporations Act.

Banksia formerly encouraged commercial, industrial and rural property loan submissions from brokers up to the value of $10 million, funding its lending portfolio through a mortgage fund for investors.

As at October 2012, Banksia had raised approximately $663 million from 15,622 investors. But on 25 October 2012, receivers were appointed to recover funds in a shock insolvency.

The lender had marketed itself as a niche funder without 'big organisation' processes, promising customers and brokers they were "dealing with a quality lender who is able to handle significant loan size and volume".

After investigating each audit, ASIC formed the view that Sinnott failed to perform sufficient audits on loan receivables, and obtain sufficient audit evidence to reduce the risk of material misstatement of loan receivables to an acceptably low level.
He did not display an appropriate level of professional scepticism when auditing loans receivable, or remain alert through the audits that the risk of the potential impairment of loan receivables may cast doubt over Banksia Group's ability to continue as a going concern, ASIC said.
Among other things, Sinnott has agreed to do 10 hours of continuing professional development on audit methodology each year during the suspension period.
“Auditors are important gatekeepers who are relied upon to provide assurance and market confidence in the quality of financial reports. Auditors who fail to adequately perform their duties will be held to account,” ASIC commissioner John Price said.
ASIC's investigation into the collapse of Banksia is continuing.
Banksia Mortgages had its financial services licence cancelled by ASIC in April.


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  • by SIDBROKER 16/06/2014 9:22:31 AM

    Here we go again. ASIC flexing its muscles over a small fry. We don`t need ASIC. They don`t take on the big end of town just the small people. Sure this fellow was at fault but seriously is this the best ASIC can do.

  • by Tony Ramage 16/06/2014 10:22:33 AM

    Rephrase the heading - Shoddey Audits contributed to LENDERS collapse or maybe Shoddey Audits contribute to BANKS collapse; either would be more appropiate

  • by Denise Brailey BFCSA (Inc) 16/06/2014 1:38:37 PM

    ASIC Commissioner told me face to face in Feb 2013: "Banksia Mortgages safe - nothing wrong with that one." In answer to my question "what about Banksia Mortgages being a Ponzi?" Broker News also reports sold off to European company. Now ASIC blame the auditor. Its about time ASIC blames itself for regulatory incompetence. Audits were checked according to the commish in 2012. The public have been mistreated with poor information from the regulator for too long and ASIC then tarnishes the industry as a whole. Meanwhile, consumers pay the highest price for this folly.