From the Royal Commission Report

SIDEBAR: The HIH Accounting Systems

I am far from satisfied that the accounting systems and procedures adopted by HIH were appropriate to the circumstances of the organisation. HIH was a complex group and its accounting systems focused attention at a group level. But the licences to operate the insurance businesses were conferred on individual subsidiary entities, not on the parent company or the group. No management accounts were prepared for the licensed entities. Instead, the accounting information was prepared according to divisions of business type, rather than by reference to entities, and was then consolidated at group level.

There was then a process of disaggregation back to entities. Time and time again this process failed. The result was that the returns of licensed entities prepared for submission to the regulator were often wrong - sometimes materially so. Management should have recognised the deficiencies and moved to remedy them. But the board was also at fault: it should have satisfied itself that the systems were appropriate for the type of operation that HIH was conducting.

- Justice Neville Owen

From the Royal Commission Report

SIDEBAR: A Problem: GEN+

In 1997 HIH developed a new electronic financial system called GEN+. At first GEN+ was introduced to the Queensland operations; it was later implemented in New South Wales and Victoria. The new system was plagued by serious and continuing problems, among them an inability to produce debtors' statements, to process correct premiums for financial endorsements, and to produce sufficient management reports for the business. Difficulties were also experienced in the processing of data, so that a significant backlog of historical transactions soon developed. The integrity of the financial data produced by GEN+ was accordingly questionable, in terms of both accuracy and completeness. As a consequence the ability of management and the board to operate HIH's businesses was significantly impaired.

- Justice Neville Owen

From the Royal Commission Report

Another Problem: Reconciliations

Similarly, the credibility of the information recorded in HIH's general ledger was compromised by problems with HIH's reconciliations extending over a long period. A project aimed at rectifying these problems was embarked upon in September 1996 and most balance sheet reconciliations were brought up to date. Yet the problems persisted because there was simply no formal process for regular, comprehensive reconciliation of all HIH's accounts. Following pressure from HIH's auditors, considerable efforts were again expended in early 2000 to complete outstanding reconciliations. But a number of unreconciled accounts remained at the date of provisional liquidation, some containing transactions dating back to 1995.

- Justice Neville Owen