Evaluation of Corporate Governance at Commonwealth Bank of Australia

This report analyzes the corporate governance policies of Commonwealth Bank of Australia (CBA), focusing on corporate scandals the bank has faced due to ineffective governance practices. It identifies weaknesses in corporate governance and the risks these pose to the bank's reputation and business. The report discusses issues such as data breaches, Ponzi schemes, and money laundering scandals, analyzing the impact of these issues on CBA's business environment. It also examines the bank's commitment to ethical standards and risk management. The report concludes with recommendations for strengthening CBA's corporate governance policies to prevent future scandals and improve overall business practices, emphasizing the importance of ethical behavior, transparency, and adherence to regulatory requirements. Desklib offers a variety of solved assignments and study tools for students.

Running head: MASTERS OF ACCOUNTING
Masters of Accounting
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Author’s Note

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Executive Summary
The main purpose of this assignment is to analyze the corporate governance policies of a
company. The company which is selected for this assignment is engaged in financial sector
which is Commonwealth Bank of Australia (CBA). The report will be identifying corporate
scandals which the bank has been associated with in last few years due to ineffective corporate
governance practices adopted by the management of the bank. The weaknesses in corporate
governance and risks which the same poses to the bank’s reputation and overall business will be
discussed. The report will be concluding with recommendations as to how he bank can further
strengthen the corporate governance policies of the business.

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Table of Contents
Introduction......................................................................................................................................3
Overview of Company.....................................................................................................................4
Values of the Business.....................................................................................................................4
Issues faced by CBA........................................................................................................................5
Analysis of the Issues in Corporate Governance Policies...............................................................7
Risk Management..........................................................................................................................11
Commitment and Practices of CBA..............................................................................................11
Recommendations..........................................................................................................................11
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

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Introduction
The main purpose of this assignment is to analyze the corporate governance policies of a
company which has been facing issues and have faced scandals due to ineffective corporate
governance of the business. The company which is selected for this assignment is
Commonwealth Bank of Australia. In order to under adequately understand the corporate
governance policies of the business it is imperative that the concept of corporate governance is
fully grasped.
Corporate Governance may be defined as the various process, schemes and systems
which are used by a company for effective management of the company. Effective Corporate
Governance ensures that the interest of the stakeholders of the business are balanced in such a
way that the company can follow both the profit principle of the business and also meet the
expectations of the stakeholders (Tricker and Tricker 2015). In other words, corporate
governance is set of rules which are used for control purposes of the activities of the business.
An effective corporate governance policy helps business in the managing the activities and
operations of the business in such a way that it ensures long term value and success for its
shareholders and also other partners (Claessens and Yurtoglu 2013).
In today’s world where there is a dynamic market and the primary focus of most of the
organization is generate profits and maximize the same, the role of corporate governance is
essential so as to ensure that the business acts in an ethical manner and do not resort to unethical
practices in order to achieve the goals of the business. In addition to this, the various scandals

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which have taken place in current span, it is important as ever to ensure that the business has
transparency and effective corporate governance system (Tallon 2013). The finance Industry and
the companies which are associated with the same have been involved in many scandals as
witnessed over the years. The company which is selected for this assessment is Commonwealth
Bank of Australia (CBA) for which the corporate governance policies will be evaluated in next
paragraphs and also recommendations will be suggested for improving the corporate governance
policies of the business.
Overview of Company
Commonwealth Bank of Australia (CBA) is a multinational bank which is engaged in
providing financial services to its clients. The services which are offered by CBA are related to
retail business, institutional banking, fund management and superannuation. The bank is
regarded as one of the big four banks in Australia (CommBank. 2018). CBA and other three
banks constitute of large scale operations in Australia. The bank operates in several countries
such as United States, United Kingdom, Asia and New Zealand.
Values of the Business
The commonwealth Bank of Australia stands out to be one of the leading banking
institution in Australia and is regarded as one of the larger banks of Australia. The close
competitors of CBA are National Australian Bank (NAB) and ANZ. The company is looked as
one on the leading banking institution in Australia. Therefore, it is quite natural that the society
will be expecting effective corporate governance from the bank

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Issues faced by CBA
In recent years, Commonwealth bank has faced numerous issues which suggest that the
bank does not have an effective corporate governance structure. The issues and various scandal
in which the management of the bank have been involved are discussed below:
 The bank in 2018 was accused that the bank has lost records of information about the
clients of the business. The management of the bank also admitted that the bank has lost
information of about 20 million user accounts which had information such as name,
addresses, account number and bank statements of the users (Starbuck 2014). This
information loss had taken place between the period of 2000 to 2016. The data which
were related to customers were stored in a magnetic tape which was supposedly
destroyed when the data center where the same was being stored was decommissioned.
However, the bank did not receive any formal certificate showing whether the data was
actually destroyed or not. This was revealed recently in 2018 which was covered by the
management of the bank. This data breach shows that the management of the company
does not have appropriate management and therefore proper corporate governance
policies needs to be implemented so as to strengthen the overall management system of
the bank.
 Another scandal which is associated with CBA is Ponzi Scandal where the staff of the
bank were accused to be involved in a scandal of $ 76 million. This fraud was avoided by
the management of the bank for a period of period of five years until the same go out into
the public. Many of the clients of the bank were affected by the scheme and the fraud
(Inquiry 2016). The fraud affected the reputation of the bank adversely and several case

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laws were filed against the bank by the clients who had suffered losses (Tomasic 2017).
This scandal was noticed by the authorities in mid of 2016 when the same got into public.
 Another scandal which the management of the bank is associated with in recent years is
the money laundering scandal. The financial intelligence agency of Australia which is
Australian Transaction Reports and Analysis Centre (AUSTRAC) file a legal suit against
the business of CBA in the federal court of Australia (Choo 2013). The civil proceedings
which was filed by the authority clearly accused CBA to be involved in money
laundering activities and has also been involved in financing activities of terrorism. The
scandal involved the intelligent deposit machines which was used by the bank for the
purpose collecting deposits from the public. The machines were unable to report any
transactions which was above $ 10,000 to AUSTRAC (Garrick, Whitten and Coggan
2013). The management of the bank was of the opinion that such a scandal was due to
some faults in the programming of the machines which was used for the purpose of
collection of funds from the public.
In addition to above mentioned scandals the management of the bank has also been involved
in certain other plots as well in recent times. The above discussed schemes are related to the
lapse in the management control which affected the business of CBA. Therefore, from the above
discussion it is clear that the management of CBA needs to improve the corporate governance
policies so as to ensure that any scandals can be avoided in future (Larcker and Tayan 2015).
The main risks which are associated with ineffective corporate governance policy is that
the business losses its reputation in the eyes of the general public and naturally the overall
business environment of the business starts to decline. In addition to if corporate management is
not appropriately then governmental regulations are introduced which are rigid and will be

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affecting the overall business of the company. The risks of such scandals also affect the financial
environment of the business.
Analysis of the Issues in Corporate Governance Policies
The corporate governance policies of the CBA as per the corporate governance statement
focuses on the sustainability and overall development of the business. The business of CBA and
all the related groups which are associated with the business operations of CBA are committed
towards high ethical standard (ArAs 2016). As per the 2017 Corporate Governance report, the
business has primary focus on attaining sustainability and long-term business goals following the
strategic policies as formulated by the business.
The various issues which the company has faced is due to a weak corporate governance
structure of the business. The various scandals which the CBA faced in recent years are analyzed
below so as to understand the causes and impact of the same on the business environment of
CBA.
As revealed in the previous paragraphs the business of CBA was involved in Money
laundering case and also a case on financing terrorism. The company was allegedly accused that
the bank had been systematically financing drug lords for the purpose of importing drugs in the
country which resulted in heavy penalty charges on the bank (Levi 2013). The management of
the company had to face severe regulations from the government and the government had also
imposed a heavy penalty of $ 700 million to be paid by the bank. The bank was accused by
AUSTRAC of failures to report significant transactions which were related to transfer, deposits
and account maintenance to the officials. The fault of CBA was that significant transactions
which were above $ 10,000 were not reported to the authorities even though there is an

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established rule that transactions which are of large nature are to be reported with a period of 10
working days so that the money which is received by the banks can be checked if the same is not
from any criminal activities or terrorism. The bank had at first challenged the accusations in
federal court but later admitted to the same and agreed to reach a settlement. A further
investigation revealed that the bank has failed to review and monitor the transactions which was
related to 778,370 bank accounts for the purpose of money laundering (George and Kavakli
2013). In addition to this, 14 specific occasions were identified by ASUTRAC where the
management of CBA had failed to access the risk involved properly which was related to
Intelligent Deposit Machines (IDMs) and some other instances were also identified where the
management of the bank failed to file a report on suspicious transactions within time.
Thus, from the analysis of the above case scandal and the facts which were involved in
the case, it can be clearly identified that there is a fault in the corporate governance principles of
the business. The management of CBA did not follow the rules which were established by law in
case of significant amount of deposits made by clients. The law is made to curb money
laundering activities and financing of terrorism in the country. Therefore, it can be recognized as
a breach of the social responsibility and accountability of the business and weak management
system which led to the scandal in the first place. The consequence of such an action is clearly
shown in the case as discussed above, the management of the bank had to incur the highest
amount of civil penalty in the country which was of $ 700 million and in addition to this, rigid
governmental regulations were imposed on the bank. In addition to this, the reputation of the
bank also suffered heavily due to such a scandal (Zoppei 2017).
Another scandal which the CBA has been associated with is loss of data of account
holders of the bank. The scandal was discovered recently and the bank has been accused of being

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managed improperly as it is the duty of the banks to protect important information about the
clients of the business. The bank has admitted to have lost data which were bank records of 20
million people. As per the case, the data was being stored in secondary storage area and the
information was being stored in magnetic tapes (McIlroy 2017). The tapes contain information
about the names and addresses of the account holders, their account numbers and also their
financial statements of transactions. The bank claimed that the data was destroyed as intended by
the bank in 2016. However, the bank did not receive any king of certificate or confirmation
which would shows whether the data was actually destroyed or not. The bank did not alert the
customers even that the data on them might be compromised. This not only breached the privacy
of the clients but also questioned the security which the management of the bank provided to the
clients of the bank in terms of data protection. As per the reports of KPMG which conducted a
forensic investigation of the case, the data which the bank had intended to be destroyed have
been actually been destroyed. The report also added that the tapes which was intended to be
destroyed by the bank did not contain any passwords or pin codes which can be misused,
therefore there can be no incidence of frauds with the data which the management of the bank
had lost.
The above case shows that the management of the bank is faces serious consequences
which is related to the reputation of the business. The scandal and loss of data showed that the
bank is not reliable when it comes to keeping the information of the clients safe and the
management of the bank had to bear compensations to the clients for the loss of privacy and
personal information of the clients (McIlroy 2017). The management of the bank had to publicly
apologize to the general public for the inconvenience and worry which was caused due to the
incident. In addition to this, the business also face criticism regarding the inability of the

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company to keep the personal information of the clients secure. This can be identified as one of
the weakness of the corporate governance policies of the bank and the management needs to
consider the same in order to avoid any similar occurrence in future.
CBA was involved in another scandal which was related to bank bill swap rates and a
legal suit was filed against the bank by ASIC. The management of the bank was unable to
effectively monitor the businesses activities which involved interest rate-rigging in which the
staffs of the business were involved. The bank was charged with an amount of $ 25 million to be
paid as penalty for the misconduct identified. The federal court approved the settlement as $ 5
million was to be paid as penalty, $ 15 million to be paid to financial consumer protection funds
and another $ 5 million to the costs which were incurred by ASIC. The management of bank
recognition that such misconducts were only possible due to the weak corporate governance
policies which was followed by the business and the policy was unable to detect any fraud or
unethical practices which the employees of the business engaged in. The role of CEO and top-
level management is very important as shown in the discussions which is provided above. The
CEO of the bank has ignored the weakness in the corporate governance policies which has
allowed the employees of the business to engage in misconducts as shown in the cases discussed
above. If the CEO and top-level management had established effective control and management
in business than it is quite possible that such unethical practice would not be possible in the
business.
Due to the lack of ethical practices in financial sectors of Australia and due to inefficient
banking structure which were unable to prevent and identify scandals, the government
established the Royal Commission which was empowered to regulated the activities of banking
sector and ensure that the banks follow effective code of ethics and performed diligently in the

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best interest of the public at large (Middleton et al 2014). The CBA alone was nor at fault but
also similar other banks such as NAB and ANZ of Australia. The establishment of Royal
commission ensured that all the banks and financial businesses associated with the banks follow
ethical codes and work under the regulation which were established by the Royal Commission.
Risk Management
The risk management strategy of CBA focuses on attaining sustainability and reducing
the overall risks which are associated with the business. The risks of the business are monitored
and reported effectively. The monitoring and reporting for the same involves identification of
risks, assessment of risk, management of the risk and assurance of the same. The business
following regular review of the activities which are considered to be potentially risky and in
addition to this, the management applies sensitivity analysis for the purpose of selecting an
effective portfolio which can minimize the risks which are associated with the business. The risk
management program which is incorporated by the management focuses on the effective
implementation of corporate governance policies.
Commitment and Practices of CBA
As per the annual report and corporate governance statement of the business, the business
follows the strategy which involves absolute commitment on the part of the management in
acting in the best interest of the public. In addition to this, the management is order to ensure that
the level of risks and frauds are minimum has incorporated audit and risk management
committee which has the main purpose of reviewing the activities of the business and also ensure
that a general level of ethical standard is maintained in the organization.

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Recommendations
As per the corporate Governance statement of CBA, the bank is concerned with effective
implementation of the policies which will be promoting sustainability and also contribute to the
needs of the needs of the long term business objectives of the banks. In addition to this, the
policies of the bank keep the clients of the business at center and recognizes them as the main
blood line of the business. The corporate governance strategies of the bank for the year 2017
specifies that the needs and expectations of the clients are of top priority for the bank and in
order to ensure that the bank are proceeding towards the right direction, the banks engages in
open communication with the clients. The open communication with the clients will ensure that
any grievances of the clients are noted and corrective measures for the same are implemented as
soon as possible by the business. In addition to this, the corporate governance report also
establishes the fact the bank has four committees which are operating which are audit committee,
sustainability committee, nomination committee and compensation committee. The overall risk
management of the company is supervised by the audit committee and it is also responsible for
the policies of the business regarding the accounting and operations of the business. The
commitment of the management of CBA is clearly shown which is directed towards customer
satisfaction and establishing effective ethical code of conducts for the business.
Due to the various scandals which the company has faced in recent years has led to a
decline in the reputation of the bank drastically. In order to regain the confidence of the public,
the management of the company needs to demonstrate that the business is committed to act
responsibly and follow highest standards of ethics and also act in the best interest of the general
public. In order to do so the following recommendations are suggested which can further

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strengthen the corporate governance policy of the business and also promote transparency and
accountability for the same.
 The management of the company needs to establish strict internal control which can
monitor the activities of the employee and ensure that they do not engage in unethical
practices which can affect the reputation of the business as a whole. The business should
incorporate penalties for any employee who is caught in unethical practice such a
termination of contract of service or full salary deduction for a month or two. This will
ensure that the employee act in an ethical manner in the business and any future scandals
coming from the employee misconducts can be prevented.
 The management of the bank needs to appoint a legal team which will be ensuring that all
the rules and regulations which are established by law are being followed or not. In
addition to this, the business can enact regular internal check by an auditor so as to detect
any fraud which might be occurring. The legal team will be able to advise the
management whether any regulation need to be followed and will also be responsible for
filing reports with AUSTRAC and also heed to the regulations of the Royal Commission.
 The bank should conduct a regular semiannual or month basis meeting sessions with the
clients of the bank so as to identify any grievance and also for the purpose of building
strong inter personal relationship with the clients. This will promote transparency and
accountability in the business ands also improve the reputation of the business.
Conclusion
Thus from the above discussions it is clear that the management of the CBA needs to
improve the corporate governance policies of the business which can be done by implementing

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the suggestions. In addition to this, the bank also needs to win the trust of the public which can
be done by effectively demonstrating that the bank cares for the interest of the clients and is
working for the growth and development of the clients. An effective corporate governance
practice is always rewarded with high market valuation and thus there is benefit for the business
as well.
Reference
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Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
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