Dusseldorf First VW, then Wirecard – and now the Adler Group? What is happening at the real estate company reminds observers of previous accounting scandals in the German economy. The auditor KPMG refused to certify the Adler Group’s annual financial statements, and the company then published the unaudited balance sheet.
According to the auditors, Adler did not give them access to important information. The examiners therefore issued a refusal note. This is very rare. At Adler, the crisis that began in October 2021 with allegations of fraud and manipulation by the British short seller Fraser Perring is escalating completely.
Now the real estate group is to be a topic in the finance committee of the Bundestag. The financial regulator Bafin is also currently examining the company books. Internally, consequences have already been drawn at Adler: Four board members had to leave.
The assurances of the remaining head of the body, Stefan Kirsten, sound little authentic given the situation: “There was no fraud or deception,” he said after the KPMG attestation was refused.
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Adler obviously wants to signal: “We want a fresh start.” But whether it will be that easy is at least questionable. Experts say that unethical behavior by top management is almost always systematic. The causes of such misconduct often lie deeper – in the internal structures.
>> Read here: Crisis at Adler Group escalates – auditors from KPMG refuse to certify the annual financial statements
The Handelsblatt spoke to two experts who are familiar with such structures. Benjamin Schorn is a business criminologist and head of the Munich Institute for Governance and Psychology. He was involved in KPMG’s uncovering of the Wirecard scandal. Marco Nink is Head of Research for Germany at the consulting firm Gallup. Among other things, he deals with the topics of integrity and compliance in companies.
The two experts name four warning signs that can encourage fraud in companies – and should at least make employees sit up and take notice:
1. Bad documentation
At the Adler Group, there was a “lack of understanding of good corporate governance,” admitted Kirsten, Chairman of the Board of Directors, on Friday. The audit report by KPMG shows what this means in concrete terms: In some cases, invoices had neither a signature nor a receipt stamp, and the services rendered by external service providers could not be traced. “Many significant business transactions were not properly documented,” summarizes Benjamin Schorn. That, he says, is “an extremely poor prerequisite for preventing white-collar crime.”
Where there is no four-eyes principle, no documentation and no clear separation of functions, employees should have less fear of being caught with misconduct. This is also shown by the example of Wirecard: Apparently nobody below upper management really knew what was happening in the Asian business.
Poor governance structures often arise in companies “where the operational business is growing very quickly, but the documentation or regulatory obligations cannot keep up just as quickly,” says Schorn.
2. False incentives
“The vast majority of people have integrity from the ground up,” says Benjamin Schorn. The corporate culture is decisive for whether someone cheats or not. Employees usually have a sense of what they are being rewarded for and what they are being punished for. Only follow recognition if someone generates profit, at some point that could become the number one goal of the employees.
According to Schorn, a distinction should be made here between official standards such as a “Code of Conduct” and implicit values that are lived by in the company on a daily basis. “There is no point in communicating that integrity is important if employees have the impression in internal meetings that all of this only plays a subordinate role for management.”
However, according to Marco Nink from Gallup, areas such as compliance and integrity are often far removed from everyday work – and are therefore rarely brought up in meetings or other internal company discussions. This plays into the hands of a culture where lies, wrongdoing and deceit can flourish.
Nink therefore advises executives to address the issue of compliance regularly: “Preferably with concrete case studies.” During the Christmas season, executives could discuss with their team how gifts from business partners are handled in the company. “The more often such topics are discussed, the easier it is for all employees to access their knowledge – and behave accordingly,” says Nink.
3. Lack of error culture
“If mistakes are hushed up in everyday work instead of being dealt with, that’s an indicator that a company hasn’t established one,” says Marco Nink. In such cases, employees generally did not dare to openly address misconduct. The consequence: in the worst case, managers can cheat, unmolested by critical inquiries from the workforce.
According to Nink, direct managers are primarily responsible for preventing this. “Direct superiors have a role model function on a small scale.” When employees see that their manager encourages them to think critically, allows uncomfortable questions and openly addresses their own mistakes and those of others, this encourages them to act in this way themselves – and not to look away when misconduct occurs.
4. Lack of reporting systems
“Misconduct must be systematically recorded and processed in a company,” says Nink. Two types of systems are necessary for this: a reporting system for “really tough cases”, such as sexualized assaults or serious compliance violations – and an information center where employees can clarify as anonymously as possible: Is what I experienced or observed a Case for the reporting system? Or should I get in touch with another contact person?
Often systems like these exist, but are unknown in the company or difficult to access. Benjamin Schorn adds that anonymity is an important requirement because people are generally reluctant to rat on others.
More: Adler’s top manager sees an opportunity for a fresh start – and sharply criticizes auditor KPMG