NAB questioned on ‘catastrophic’ fraud oversight

Appearing before the House of Representatives’ standing committee on economics on Wednesday (27 March), the interim chief executive of National Australia Bank (NAB), Philip Chronican, was questioned on how a $40 million-plus fraud case managed to slip through the cracks.

Human Group director Helen Rosamond was charged earlier this month with 56 counts of bribery, one count of obtained benefit by deception, and one count of attempted fraud. NSW Police said the 43-year-old’s actions, between 2013 and 2017, had resulted in more than $40 million in corrupt commissions being paid to Human Group, a former supplier to NAB, including $6.6 million in personal expenses to ensure contract continuation.

“I was distinctly unhappy that the issue had arisen at all, and I was worried again, coming back to this issue around that the organisation needed much tighter approach to discipline on every element of the business. And this was a case in point that something was allowed to persist over a very long period of time,” Mr Chronican told MPs in the parliamentary hearing.

He admitted that former CEO Andrew Thorburn was accountable for the oversight as his office was responsible for large expenditures, which the previous boss had already admitted.

“It came as a significant surprise to us that we could have a situation where somebody in control of expenditures of that scale and not have the monies monitored by somebody else. Obviously, the controls that would normally apply in the organisation across every other area where money was being spent for some reason have fallen down in the office of the chief executive, and the individual involved, who’s facing charges, is alleged to have authorised payments to a third-party supplier on her own,” he said.

The former NAB staff member facing charges for facilitating the alleged fraud is Rosemary Rogers, who was chief of staff to Mr Thorburn before his departure in February.

The acting CEO, who was recently appointed as chair of NAB, told the committee that there is no exemption for the CEO’s office for such oversights.

When asked whether the CEO agreed that the case represents a “catastrophic breach of NAB’s outsourcing, procurement and anti-bribery policies, and a breakdown in the risk management framework”, Mr Chronican clarified that it was a “breakdown of financial controls”.

“We’ve had a review of the way in which the financial controls apply not just to the office of the CEO, but more broadly in some areas, because it was clearly a breach. So, it was a breach of policies in the first instance, as you say, for these activities to occur, but just as importantly, or perhaps more importantly, it was a failure of the control process that sits behind it where that should have been picked up,” the acting CEO added.

He was also questioned as to why a whistleblower detected the fraud, rather than NAB identifying the fraud through its internal audit process, to which Mr Chronican explained that whistleblowing is part of the major bank’s internal controls.

“Often in these types of cases, really by definition, there’s considerable dishonesty and knowingly avoiding controls and that’s seen through what has occurred in this case,” he said.

The whistleblower had reported the alleged fraud to the bank in early December 2017. However, the allegations made in the letter was, according to Mr Chronican, “limited”.

The timing of the letter meant the bank was not able to report the fraud in its September 2017 half-year financial report, and it had a clearer picture of what could have happened by the time its next half-yearly report was due in March 2018.  

As it was under police investigation at that point, NAB reported the matter as a “contingency”, Mr Chronican said.

When asked whether shareholders were informed that the fraud case involved the CEO’s office, he claimed a media release was distributed “in early 2018” reporting the fraud and the police’s involvement.

“As more work [was] done by the police with our help, more information came to light, and that’s when it became much clearer that there was a lot more to this than originally thought,” the acting CEO said.

“We’ve been working very closely behind the scenes doing that forensic work over, now, probably 15 months.”

In the parliamentary hearing, an MP noted that it was “outside the terms of reference of the royal commission that [the issue] wasn’t picked up and it occurred in the CEO’s office” and questioned what that would say about NAB’s culture.

In February 2018, detectives from NSW Police's Financial Crimes Squad established Strike Force Napthali to investigate allegations of corrupt commissions being paid to Human Group for contracts with NAB.

Napthali investigators entered Human Group’s North Sydney office, as well as other properties in Milson’s Point and Potts Point, where they seized “large amounts of documents and electronic storage devices”, which underwent “significant analysis” by specialist forensic accountants.  

Acting assistant commissioner Stuart Smith said in February that investigators had executed 20 search warrants, served 10 production notices, and put restraining orders on around about $10 million worth of property and assets.

Since the charges were made in February, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2018, designed to establish a whistleblower protection regime for the reporting of misconduct in the corporate, finance and credit sectors, had passed both houses of Parliament. 

The same month saw the passage of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 in Parliament, which allows ASIC to impose harsher criminal and civil penalties for corporate and financial sector misconduct. 

[Related: Federal Court receives $35m to combat financial crime]