Why is it that when there’s a robbery, the neighbors and the household people don’t file action against the police? To extend the hilarious nature of this argument, why can’t a robber or a fraudster sue for not having enough money to rob or for not giving the right opportunity to perpetrate a fraud? Even in developed countries they are not so developed to blame the police for preventing a robbery or an accident or the fraudster suing the company that he robbed, so far, I think?
But there are some amusing cases in America;
▶️ There is an instance where a burglar is suing a Northern California homeowner for returning fire. The intruder has alleged that the 90-year old home owner negligently shot him!
▶️ Another story is where a man walks into a store and robs it. The store’s employees fight back against the armed robber, chasing and shooting him. The man goes to jail for the robbery and then sues the store and employees for beating him up!
▶️ Another funny case: A convicted bank robber on parole entered a bank, went up to the teller, and said, “Give me the money. I’ve got a bomb.” The bank teller did as instructed, except that hidden in the rolls of money turned over to the robber was an anti-robbery device that released tear gas. The device functioned as intended .. and the robber sued the bank.
However, there is a long-standing legal principle that police cannot be sued for negligence because they have a special position in public service.The principle that the police owe no duty of care to specific people remained largely untouched until 1998, when the European Court of Human Rights intervened in a case called Osman (UK). If we extend the same argument to auditors why would they owe a duty of care to every Dick Tom and Harry for frauds?
Bringing the issue back to the commercial world, shareholders should be demanding greater vigilance to fight fraud perpetrated by directors and CEOs. When there is fraud the auditors should be suing the shareholders and the fraudsters for causing pain of mind and psychological distress and not the other way around! The shareholders should be sued for not selecting the right directors and for not ensuring the Board implemented appropriate processes to deter, detect and prevent frauds.
This is not to say that the, Independent external auditors and internal auditors will not continue to play an important part in the governance process. But, responsibility needs to be placed where it belongs. There are shareholders who appoint senile directors or unprofessional people or suck ups to ensure they can defraud the public. There are audit committees without objective people. There are boards who are ‘penny wise and pound foolish’ and hence will not spend on recruiting good talent or hire good service providers or even invest in a proper IT system. When there’s a fraud in these companies, the owners and the directors should not be allowed to escape by naming scapegoats like the GM or the CFO or the auditors or someone else.