Chaos in the Caribbean - Case Study Example

 Chaos in the Caribbean Question 1 Avey and his company were appointed by the Jamaica government. As an expert witness, Avey was to look into accusations of mismanagement and fraud and make reports that illustrate the findings. Avey was to start with Blaise Merchant Bank and Trust Company. Later on, his research was to extend to two cases that were bigger but similar to Blaise Merchant Bank and Trust Company. These cases constituted Eagle merchant Bank and Century National Bank and its associated financial units. In addition, Avey’s responsibilities as the Jamaican government expertise witness involved giving forensic examination and audit assistance. He employed professional examination techniques to carry out an investigation in a way that his findings would be relevant when presented to a court of law (De-Carmoy, 1990). An alert expert witness declaration is essential in any investigation. Avey had an adequate comprehension of the legal course, regulatory and statutory issues of compliance, and pertinent rules of evidence. This made him the most suitable candidate to be appointed by the Jamaican government. Moreover, he investigated evidence that regarded affirmations. This was to determine the evidence association to ascertained criteria performed as required by a court of law. Avey carried out his research on the basis of reliable principles of accounting. This assisted him hastily find out misdealing in Blaise Merchant Bank and Trust Company where finances were lent from a single Blaise financial unit to corporations managed by its main shareholders. In the case involving Century National Bank and its associated financial units, he established dishonesty was the main reason for the issues (McLaughlin, 2006). Question 2 Avey employed professional forensic accounting techniques to investigate the link between Blaise Merchant Bank and Trust Company, Eagle merchant Bank, and Century National Bank and its associated financial units. Avey may have used source and application of funds technique. This method is utilized when enormous amounts of finances are used for personal gain or growth as a substitute of buying investments or assets. For example, in the Century National Bank and its associated financial unit’s case, the bank used depositors’ money to obtain assets like real estate for the possible personal benefit of the people who managed the financial institutions instead of the benefit of the institutions (McLaughlin, 2006). In addition, the application of funds technique may have been applied in the Eagle merchant Bank case. Here, instead of the depositors’ funds being used for the benefit of the financial institution, the money was misused. This was in connection to the building of a hotel that was intended as an apartment complex with 130 room suites. Avey may also have used analytical tools during his investigation. Forensic accountants make use of trending to examine financial numbers within a period (De-Carmoy, 1990). Trending entails performing indicators ratio analyses, for example, working capital and inventory turnover to ascertain deceitful financial statements. Avey used trending to detect self dealing in Blaise Merchant Bank and Trust Company. In this case, finances were given out from a sole Blaise financial unit to corporations managed by key shareholders. Donald Panton and his wife’s funds were utilized to finance the institution’s owners businesses. Question 3 The troubles in the financial sector began when Blaise Merchant Bank and Trust Company was temporarily managed by the Finance and planning minister. This was after scrutiny established enormous misdeeds in the institution’s management. The banks that were affected failed to abide by appropriate procedures of internal control. The banks that faced financial difficulties exhibited a significant incidence of irregularities and fraud (De-Carmoy, 1990). This shows that there were ineffective controls. In addition, there was an excessive and rising degree of nonperforming assets. Banks grew to be vulnerable to alterations in interest rates, exchange rates, and asset prices after they did not match the reliability of assets to liabilities. For instance, the affected banks utilized short-term payments to invest in long-term ventures, for example, real estate. Moreover, the financial institutions problems were also as a result of tremendous costs of operation. The troubled financial institutions were ineffective, needing large distributions between rates of deposit and lending. Distributions in Jamaica rose from 14% to 22% from 1992 to 1997 compared to 7% to 8% during 1992 to 1997 in other Caribbean countries, for example, Trinidad and Tobago, Guyana, and Barbados. Operators and owners of local financial institutions have argued that bigger distributions are required to compensate for the excessive reserve prerequisites. The excessive distributions increased interest rates and in some cases, multiple depositors’ inability to pay and indebtedness, thus adding on to bad debt. Also, troubled financial institutions failed to employ care and due diligence (Borish, Long & Noel, 1995). These institutions worked with little Board of Directors involvement and without appropriate corporate governance activities. Question 4 First, the banks should forward appropriate periodic and comprehensive information to the supervisory expert on their income statement and balance sheet. An investigation of that information would allow them to ascertain the problems and trends and adopt remedial measures early or whenever required. Second, the government should ensure banks reveal their accounts in an open and sensible manner. This will enable the members of public and shareholders push for remedial measures from the management, without requiring public involvement (Borish, Long & Noel, 1995). Third, the government should encourage the banks to allow external editors to audit their assets and accounts and then the findings forwarded to the supervisor and made public. This substantiation would ease openness in financial institutions. Fourth, the government should establish legislations that would make regulations that allow connected lending and reduce the concentration of loans, to a limited share of capital. If there is proper verification of compliance by the supervisor, the foremost insolvency risk would be stopped. Fifth, the banks should set the least level of asset versus real equity capital. This is because protracted undercapitalization and overextension are regarded limited risks. Sixth, the government should set rules and regulations for the banks to categorize its assets as satisfactory or deficient, and if accrual and provision needs are met. Effective authentication of the status of the bank can be closely assessed and corrective measures applied in appropriate time. Finally, there should be harsh penalties for fraud or mismanagement. This will deter those who would want to engage in such practices (Borish, Long & Noel, 1995). References Borish, M. S., Long, M. F., & Noel, M. (1995). Restructuring banks and enterprises: Recent lessons from transition countries. Washington: The World Bank. De-Carmoy, H. (1990). Global banking strategy, financial markets and industrial decay. Massachusetts: Basil Blackwell. McLaughlin, P. (2006). Chaos in the Caribbean. Chattered Accounts Magazine. 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