This Chapter of my Report provides, pursuant to Term of Appointment A(f), a description and evaluation of the procedures used by the Bank and Beneficial Finance to identify bad and doubtful debts. Some of these matters were dealt with in my first Report into the State Bank of South Australia.

Term of Appointment A(f) requires me to investigate and report on:

"... whether adequate or proper procedures existed for the identification of non-performing assets and assets in respect of which a provision for loss should be made".

I refer below to my conclusions regarding provisions for doubtful debts which are set out in the chapter of the Report dealing with the External Audit.


The following statement has appeared in Note 1 to the accounts of the Bank for each of the financial years under review:

"When practicable, accounts have been drawn up generally in accordance with the requirements of the [Companies (South Australia)] Code and Schedule 7 of the Companies (South Australia) Regulations and with Accounting Standards so far as they are considered appropriate to the Bank."

In my opinion, this statement must be taken to mean that there is no material departure from the specified requirements unless otherwise stated in the accounts or notes, because readers of the accounts would have no way of knowing which of the specified accounting requirements the Board of Directors might consider appropriate or not.

It is not necessary for present purposes to set out all of the requirements of the Companies (South Australia) Code concerning accounts. However, it is noted that Section 269(7) requires that:

"The directors shall, before the profit and loss account and balance-sheet ... are made out, take reasonable steps -

(a) to ascertain what action has been taken in relation to the writing off of bad debts and the making of provisions for doubtful debts and to cause all known bad debts to be written off and adequate provision to be made for doubtful debts;

(b) to ascertain whether any current assets, other than current assets to which paragraph (a) applies, are unlikely to realise whether directly or indirectly in the ordinary course of business their value as shown in the accounting records of the company, and, if so, to cause -

(i) those assets to be written down to an amount that they might be expected to realise; or

(ii) adequate provision to be made for the difference between the amount of the value as so shown and the amount that they might be expected so to realise; and

(c) to ascertain whether any non-current asset is shown in the books of the company at an amount that, having regard to its value to the company as a going concern, exceeds the amount that it would have been reasonable for the company to expend to acquire that asset as at the end of the financial year and, unless adequate provision for writing down that asset is made, to cause to be included in the accounts such information and explanations as will prevent the accounts from being misleading by reason of the overstatement of the amount of that asset."

As the Bank was not a company registered under the Companies (South Australia) Code, it was not, therefore, required to comply with the Companies Code. The accounts requirements of the Companies Code were therefore not applicable except to the extent that the Bank chose to comply. Beneficial Finance was a company incorporated under the Companies Code, and the above provisions of the Companies Code clearly applied to it.

Accordingly, in my opinion, compliance with the accounts requirements which either applied by force of law or were voluntarily adopted by the Bank Group required adequate and proper procedures for the identification of bad and doubtful debts and the making of provisions as required.

In my opinion, adequate and proper procedures would ensure that adequate information regarding the likelihood of recovery of individual loans, and regarding the nature and quality of the loan portfolio in general, would be available to Management and the Board. This is essential to facilitate a realistic and thorough assessment of that information, in the light of economic circumstances, and of the position facing Management and the Board.





From early 1986, the Bank's internal procedures required Managers to complete a "Potential Bad Debt" report on a quarterly basis.() It was the manager's decision whether a Potential Bad Debt report was required or not, based on his/her assessment of whether it was likely that a loss may accrue to the Bank.() The Senior Manager was to be advised immediately of defaults by borrowers or where the Manager suspected that the borrower was in financial trouble or intended to default.() Where necessary, the Senior Manager was required to refer the account to the Chief Manager with a recommendation regarding the action to be taken.() In practice the "suggested criteria" for identifying potential bad debts were vague and resulted in haphazard reporting and treatment of problem loans. Without strict criteria for identification, the procedure for recognition of problem loans was inadequate.

Prior to March 1988 the Bank did not have a policy of separately classifying potential problem loans as they were identified. Instead, a review of the entire loan portfolio for potential bad debts was conducted on a quarterly basis.()

The Lending Credit Committee was required to review all potential bad debts fitting the following descriptions:()

(a) instalment loans above $50,000 which instalments are in arrears in excess of three months;

(b) advances in excess of approved arrangements by $25,000 or more for a period exceeding one month; and

(c) any account on which the Bank could face a possible loss of $25,000 or more.

In March 1988, the policy of classifying bad and doubtful accounts into three categories -Irregular, Non-Performing and Non-Accrual - was introduced.() At that time the terms "non-performing loan" and "non-accrual loan" were defined by the Corporate Banking division.

Upon an account being classified as non-accrual, the Manager was to prepare a full report for the Chief Manager, Corporate Banking, detailing the circumstances.() Such report was required to advise the potential loss, if assessable, and recommend whether a specific provision should be made or set.() In addition, all non-accrual loans were to be listed in the Monthly Operating Review. Non-performing loans were identified monthly and separately identified on the Monthly Excess Report.() A Bad and Doubtful Debts return was to be prepared quarterly and include details of all non-performing loans with an excess of more than $25,000 for more than one month in addition to non-accrual loans.()

The Credit Policy Manual of September 1988 further addressed the subject of non-performing loans:

"The non performing classification remains in place until it is superseded by a more severe loan quality classification (eg non-accrual) or the facility is brought back within arrangement.

In some circumstances, rearrangement may take the form of altering the loan to another type of normal commercial arrangement but different from the original terms and conditions of the advance. This is acceptable as a return to normal advance status.

The classification of a non performing loan does not immediately require the loan to be placed on a non accrual basis. It does however require that this option be investigated. Similarly a non performing loan will not necessarily expose the Bank to a potential loss. Nevertheless, its potential loss status must be assessed at this time.

If the loss of either principal or interest is a possibility, the loan should be placed on a non accrual basis immediately and if appropriate a specific provision should be recommended for the advance. Clearly recognition of a non performing loan is the "warning sign" which should be a signal for the Branch/Department and Credit Quality Section to commence special management of the advance and if necessary recovery action." () [Emphasis added]

The Credit Policy Manual also addressed non-accrual loans and the policies for provisioning:

"At the time of classification the loan must be reviewed for any anticipated loss and a recommendation made through Credit Quality Section to Lending Credit Committee that:

(a) a specific provision be allocated; or

(b) no provision be made.

The recommendation will be based on the difference between principal outstanding and the realisable security value. Except in very unusual circumstances any non accrual loan would be the subject of recovery action. Where loss of principal/interest was anticipated, recovery action would be instigated by Credit Quality Section in co-operation with the Branch/Department.

Allocation of a specific provision will act as a reinforcement mechanism to assist Credit Quality Section to focus on advances which require close scrutiny and management.

Recommendations for specific provisions and write-offs are reported at Executive Committee and Board level, with the Bank's Lending Credit Committee reviewing potential losses for agreeing specific provisions." () [Emphasis added]

Responsibility for identification of non-performing loans remained with the line managers in the division which had originally recommended or approved the facility. This was unsatisfactory. In situations where a Manager has had a long association with a customer prior to the loan becoming non-performing, there can often be reluctance on the part of the Manager to acknowledge the severity of the situation.

In the opinion of JP Morgan, the Bank's approach to non-performing loans was influenced by a "culture" which:

"... has encouraged nurturing of customers, even those who are not prepared or able to repay their loans" ()


"Account managers must be brought to understand that bank capital must be protected, not the interests of customers." ()

The Bank has informed me that it has taken steps to improve its management of non-performing loans. In particular, non-performing and non-accrual loans are now separately classified in reports that are presented quarterly to the Board indicating portfolio analysis by risk grade; and the Group Credit Policy Manual now clearly establishes the procedures and actions to be taken by a customer/account controller where a loan has been downgraded to "D" or below. Those procedures include preparation of a detailed review of the customer's financial situation and a formal corrective action plan, the establishment of an appropriate provision for the debt, and the preparation of a credit paper. The Bank has also submitted that the responsibilities of customer/account controllers in relation to identifying and taking action on non-performing loans are clearly set out in its Group Credit Policy Manual and that the Bank's newly created Group Credit division engages in random portfolio reviews, and has, among its duties, that of monitoring and reporting to the Board on risk concentration and portfolio quality.()

The Group Risk Management division was established on 1 July 1989. The charter of this division, which was noted by the Board on 27 July 1989 stated that:

"Global Risk Management (GRM) has responsibility for the development and monitoring of policies governing the assumption and management of risk in the State Bank Group ..."()

The Global Risk Management division was considered further in Chapter 5 - "The Management of the Bank Group's Diversifiable Credit Risk" of my First Report into the State Bank of South Australia.

With the establishment of the Group Risk Management function came an intensified focus on the development of an integrated and computerised commitment register, to record and monitor risks on a Bank-wide, rather than a divisional basis. Mr J B Macky, General Manager Group Information Systems told the Jacobs' Royal Commission that:

"Well into 1989 we started work on the commitment register, among many other projects, because there was a clear acknowledgment that we didn't have enough analysis or reporting tools. We weren't getting things like bad and doubtful debts quickly enough. We didn't have a group-wide exposure reporting system that enabled us to look at an individual customer and say; Corporate Banking have got some, International has got some, Treasury has got some, Beneficial has got some, etc. and X is the Group's total exposure. That capability emerged gradually over time, from early 1990 because we decided to take an evolutionary development approach to it. We did a broad data base design, and we evolved programmes as we went along.

I am unsure when I initially formed the view that there needed to be better reporting systems on a global basis for non-accruals and bad and doubtful debts except to say for a long time I had been saying that there wasn't enough management information. We didn't have enough executive information and we needed more systems." [Emphasis added]

The Bank did not develop a single Group-wide commitment register until 1991.()

This matter was addressed in greater detail in Chapter 22 - "Executive Information Management at the State Bank" of my first report in the State Bank of South Australia.

In July 1989, Group Credit Policy Statement No. 3 addressed the immediate and subsequent remedial actions that the Bank should take when a customer was classified as non-performing.() This statement also introduced a policy concerning the need for a group perspective on the control of higher risk customers.() The policy postulated the need for a "controlling point" to ensure that the State Bank Group's overall best interests were served where several entities within the State Bank Group were exposed to a single customer group in financial difficulty.

The procedures for reporting non-performing and non-accrual loans were redefined in Group Credit Policy Statement No. 11() in March 1990. No substantial changes from the procedures established in March 1988 were then made except that the classifications of problem loans were amended.

The mechanism for setting specific provisions for doubtful debts was first comprehensively described in Group Credit Policy Statement No. 3 issued in July 1989. It was stated in this document that:

"An appropriate provision is to be established as soon as it is recognised that there is a likelihood of a loss of principal and interest, fees, etc. resulting after realisation of any security and after exhaustion of all possible courses of action for recovery.

The position of all higher risk customers is to be reviewed periodically to establish whether a provision is necessary or whether a change is required in the level of any existing provision (and whether there is any consequent need for a change in the risk grading of a customer).

Officers are to ensure that they do not delay setting a provision either until the end of the Group's financial year or half-year or in the unrealistic hope of an improvement in a particular customer's situation, but equally are not to be over-zealous in setting a provision at too early a stage." [Emphasis added]

At its meeting on 23 March 1989, one of the members of the Board expressed concern that, given the growth of the Bank and the Bank Group, it would be important "to continue to ensure that information in relation to the Group exposure [to particular clients or client groups] was available for management purposes". According to the minutes, "Directors were advised that the Bank was giving a high priority in continuing to develop its Group Global Risk Management techniques in order that it could accurately assess its group risk." ()

It has been submitted to me by certain past directors of the Bank that, in late 1988, they requested that they be provided with a full non-accrual report on a regular basis, but that they were advised by Management, and in particular, by Mr K S Matthews and Mr C W Guille, that the system at that stage was unable to produce such a regular report, but that new systems were being implemented, and that such a report was likely to be produced in early 1989.()

In April 1989, the first report of the Bank Group's exposures to clients or client groups was presented to the Board. This included the exposures of Beneficial Finance Corporation and various divisions of the Bank. The Board was told that, in future, this information would be available quarterly. Although this report to the Board made no mention of the problems encountered in its preparation, a progress report to the Executive Committee in May 1989 commented:

"This exercise highlighted the difficulties in obtaining accurate and timely information from current records and data bases. This exercise also emphasised the urgent need for common terminology and systems to permit electronic downloading of the required information." ()

After the report in April 1989 the Board regularly received a variety of information concerning non-accrual loans including a listing of group non-accrual loans in the monthly operating review. This varied from the previous practice in that prior to April 1989 the Board only received information on non-accrual loans for Corporate Banking.

Later in 1989 the Board received large exposure and credit watch reports and at their meeting on 23 November 1989 the minutes record that "it was considered appropriate that the Credit Watch List be attached to future large exposure reports." ()

The minutes of the November meeting also note for the first time that the Group Non-Accrual Report was tabled,() a similar notation appears in the December minutes. These reports could not be located in the Board Papers, however, it is noted from a paper presented to the January 1990 Board meeting that "at recent Board meetings a paper listing group non-accrual accounts has been distributed to Directors; at the end of each Board meeting the papers have been returned to the Board Secretary." ()

In January 1990 the Chief General Manager, Group Risk Management introduced a paper() to the Board meeting which had been produced as an assessment of the accounts relating to the Bank and the current position with regard to recovery.() This was the first report to the Board that presented comprehensively the Group's exposure, recovery position, and current provisioning level, in a single document. In my opinion, prior to this report, the Board was not presented with sufficient information to comprehensively assess the adequacy of the Bank's provisioning.

This report presented the views of Management in relation to the matters noted and, on the basis of the information presented, the Board would have been, in some instances, unable to form their own view as to the adequacy or otherwise of the Bank's or the Group's provisioning.

In my opinion, the Board should have established, at an earlier stage, a procedure under which it was presented with information in such a format that would enable it to form its own view on the adequacy or otherwise of the provisions set by Management.

In considering the procedures relating to the identification and classification of problem loans in the Bank, I have also had regard to the role of both the Internal and External Auditors of the Bank.

The engagement letter issued by the joint auditors to the Bank on 2 May 1988, which continued to be applicable up to 1990, states, inter alia:

"In accordance with normal practice, our audit is planned primarily to enable us to express a professional opinion on the annual accounts. It should not be relied on to disclose all material internal control weaknesses, fraud, defalcations, errors or other irregularities. However we will continue to report to senior management any matters of concern and any material weaknesses in the systems of accounting and internal control which come to our attention in the course of our audit procedures." ()

The External Auditors have submitted that in areas of audit risk significance, such as Corporate Banking, they adopted a substantive audit approach whereby they did not place reliance on internal controls or on the work performed by Internal Audit.() This means that the External Auditors did not systematically review and evaluate systems of accounting and internal control for the purpose of relying on such systems in supporting their opinion on the financial statements.

The External Auditors have also submitted that the Bank's Internal Audit Charter clearly detailed the responsibilities of Internal Audit to regularly review the Bank's management control systems and practices, to appraise the adequacy of such controls and to assess the extent of compliance with the Bank's policies.()

Following the 30 June 1989 External Audit, the Joint Auditors issued a letter dated 13 December 1989 to Mr K L Copley, Chief Manager Group Finance, dealing with matters arising from the audit. This letter included the following comment:


Based on our review of board dockets and discussions with various corporate managers the Bank did not appear to have a fully developed or formal policy in relation to non accrual loans. This was particularly the situation with corporate loans where the decision of whether to place a loan on non accrual was very subjective ...

We understand that since the 30 June 1989 the Bank has taken steps to develop and formalise a non accrual loan policy." ()

In the Bank's response, dated 3 May 1990, to the joint auditors' 1989 management letter, the following response was made in relation to the above comment:

"Non-Accrual Loan Policy

A fully documented format has been established and is included in the Accounting Policies and Procedures Manual (volume 1). The policy defines procedures and includes the suspension of interest when collection of interest or principal is in doubt." ()

This policy was noted by the joint auditors during the 1990 audit.

The joint auditors have submitted that they were satisfied with Management's response and action with regard to the concerns raised and they considered that no further formal follow up action was required, as these limitations would not have had any significant effect on the scope and extent of the audit procedures for the year ended 30 June 1990 since no audit reliance was placed on the Bank's internal procedures in these areas. That is, the joint auditors consider that the scope and extent of substantive work carried out in their audit of receivables and the provision for doubtful debts was such that they did not need to rely on the effectiveness of the Bank's internal procedures.

Turning to the role of Internal Audit, this was the subject of a separate Chapter in my First Report into the State Bank of South Australia.() In that Chapter, I commented that "Internal Audit involvement in assessment of the adequacy of internal control systems in relation to "credit risk", and other wholesale banking business risk or asset quality was, on the basis of documents available to the Investigation, minimal." () This led to a finding that:

"... the Internal Audits of the accounts of the Bank during the periods indicated in the Chapter, were not appropriate and were not adequate in relation to: ... Internal Audit coverage of Corporate Banking, International and Treasury ..."()

It should be noted that I also formed the opinion that after mid 1990 an appropriate and adequate Internal Audit function was brought to bear in relation to Corporate Banking. A review of the Internal Audit department quarterly reports to the Board of Directors does not, however, indicate that the policies and processes relating to the identification and classification of bad and doubtful debts in the Bank were considered.

The establishment of a Credit Inspection function in August 1990 partly compensated for the deficiencies in Internal Audit noted above. Credit Inspection is the process of sampling a set of credit files, with the principal objective of uncovering deficiencies of the credit management function by assessing the adequacy and effectiveness of credit systems and controls, and of auditing compliance with prescribed policies and procedures.() The Credit Inspection function was considered in Chapter 8 - "Credit and its Management: Guidelines, Policies, Processes, Procedures and Organisational Delivery Mechanisms" of my First Report into the State Bank of South Australia. In considering the policies and processes relating to the identification and classification of bad or doubtful debts it is significant to note the following extract from Section of my first Report into the State Bank of South Australia.

"It is regrettable, for the following reasons, that credit inspection procedures were not introduced until August 1990:

(a) the objectives of credit inspection, as previously described, were not achieved by any other policies or processes on foot prior to August 1990;

(b) although the Bank had an internal audit Section, its activities in the area of credit quality were closely circumscribed; and, therefore

(c) the Board and senior management had only minimal assurance that credit policies and procedures were being complied with and that systems to control credit risk were effective."


The arrangements utilised by Beneficial Finance for the identification and classification of problem loans varied between the different areas of the Company. Different arrangements applied to the Branch operations which engaged in the Company's traditional areas of business such as leasing and consumer lending, to the financing joint ventures undertaken by the Company and to the Company's larger transactions undertaken by the Structured Finance and Projects division and its predecessors. Arrangements with respect to each of these three areas are described below.

Systems and procedures for the identification and classification of problem loans in the branches which conducted the Company's traditional business were well developed. Computer systems identified and reported upon problem loans and provided support to the ongoing management of the problem loans and for the review of that management. Organisational arrangements and review processes were implemented to support the management and monitoring of problem loans.()

A Doubtful and Difficult Loans Report was prepared by Account Managers weekly. It contained a list of delinquent accounts requiring specialised management and action. Accounts were categorised according to the magnitude of the actual or potential loss. This report was used by State Managers as a checklist for identifying losses.()

A Concerned Loans Committee in each State met weekly to review accounts in arrears for the State. The Committee was chaired by the respective State Manager, who was required to attend at least two meetings per month, and included the Collections Manager for the State and other collections officers. The Committee's focus was on monitoring the management of the problem loans at an operational level with each loan being reviewed. As a matter of policy each meeting was required to review all accounts overdue by thirty days where the loan exceeded $30,000. Loans less than $30,000 were required to be reviewed at least every two months.()

Problem loans were identified for consideration by Company collections personnel by the company's systems which reported upon facilities which were in arrears. The system provided support to the collections staff and provided a facility for the recording and monitoring of action taken with respect to problem loans. It ensured all problem loans were identified and that they were rectified or appropriate authorised action was taken.

The facility for monitoring problem loans was derived from the Company's Finance Receivables System which recorded, amongst other things, receivables and receipts.

Overdue accounts were classified having regard to two classification frameworks reflecting the recovery action being pursued by the company and the magnitude of the actual or anticipated loss on the account.

The management and classification of problem loans by State officers was subject to review by Head Office personnel. One purpose of this review was to provide assurance that adequate provisions were made for specific problem loans. A review sheet of non-performing loans, signed by State and General Managers, was sent to the National Credit department monthly and reviewed by the Managing Director and Internal and External Auditors. The review sheet included all non-performing loans previously reported plus new accounts which were past ninety days overdue with either a balance outstanding greater than $0.25M or on which a loss of more than $25,000() was likely.

Where losses were to be written off in amounts greater than $10,000, a narrative was required to be prepared for the Board and Credit Policy Committee() .

The system provided control over the write-off or write-down of problem loan values. While at times Branch or State Managers were delegated authority to write-down or write-off loans the amounts delegated were minimal. The write-off of any significant amounts was required to be recommended from the Branch or State and then approved by a Head Office person with appropriate authority.

The financing joint ventures undertaken by Beneficial Finance generally utilised the Company's Finance Receivables System and collections systems. The exception was the Pegasus Leasing joint venture which for a period in 1989 and 1990 used its own collection system. The use of the Beneficial Finance systems provided the same system controls over identification and classification of problem loans as applied to the Company's own receivables.

Management of the collections functions, the classification of loans, the determination of action with respect to specific problem accounts and assessment of provisions was the responsibility of joint venture personnel. Provisioning for problem loans and management of specific problem loans was reported upon to the Board of Management for each joint venture every quarter when the Board received lists of non-performing loans and details of proposed provisions and action plans for specific loans. Beneficial Finance was represented on the Board of Management and by a joint venture manager who acted as Secretary to the Joint Venture Boards. A business representative from Beneficial Finance was also assigned to each joint venture with responsibility to manage the Company's exposure to the joint venture. The business representative had access to the joint ventures records upon the Company's Finance Receivables System and collections systems.

The internal controls over the joint venture operations, that is over the work practices of the joint venture personnel, was subject to periodic review by Beneficial Finance Internal Audit.

Each joint venture adopted a policy of establishing a general provision equivalent to 1 per cent of receivables. This provision was proposed to be established over a period of time.

Over time, the Company increasingly entered large and complex transactions, specifically through the activities of the Structured Finance and Projects division. While the loans and other assets arising from these transactions were, with some exceptions, recorded on the Finance Receivables System, they were not controlled by the Company's collections system.

The nature of the loans and assets meant it was inappropriate for the loans and assets to be subject to the same problem loan identification criteria as were the Company's traditional assets.

Two examples are relevant to provide an understanding of this point. A significant number of the assets considered in this Section were property related. Identification of problems with property related loans often depended upon a comparison of the total facility with an estimate of the valuation of the subject property at the maturity of the facility. Further, many of the facilities provided for the capitalisation of interest, so that no moneys were payable to Beneficial Finance, until the maturity of the facility. In neither of these two instances was the identification of arrears, which was the basis of identifying problem loans in the Company's collection system, relevant.

The identification and classification of problem loans on assets in these situations, and the subsequent assessment of provisions, required the review of each loan or asset by Beneficial Finance officers. The effectiveness with which these tasks were performed depended to a large extent upon the information available to Beneficial Finance regarding the loan or asset and the judgement of Company officers.

Beneficial Finance developed a system to facilitate the management of these loans or assets. The system provided for the recording of action taken by officers responsible for the account along with other information, and allowed for the independent review of action taken by those officers.

In addition, a procedure was implemented by Beneficial Finance which required status reports to be prepared each month for each of these complex assets or loans. The status reports were subject to review by Senior Manager within the Division and by the Division's National Credit Manager who assessed credit processes and provisioning.





Based on the evidence examined by the Investigation and for the reasons set out above, I have formed the opinion that the procedures adopted by the Bank after July 1989 were generally adequate and proper for the identification of non-performing assets and assets in respect of which a provision for loss should be made. In my opinion, the Bank's procedures prior to this date were inadequate.

As noted in the part of my Report dealing with my Investigation into the External Audit of the accounts of the Bank, I have not conducted an audit of the accounts and, accordingly, I am not in a position to make any finding as to whether the systems and procedures of the Bank with regard to the identification of bad and doubtful debts satisfactorily led to the identification of all bad and doubtful debts and the creation of adequate provisions for loss. However, as noted in Chapter 53 - "The External Audits of the State Bank: Findings and Conclusions", I have concluded that:

(a) the Bank's exposures to National Safety Council and Equiticorp were exposures in respect of which a further provision for loss should have been made but was not made in the accounts of the Bank at 30 June 1989;

(b) the Bank's exposures on certain accounts including Somerley and Equiticorp were exposures in respect of which a provision for loss or a further provision for loss should have been made but was not made in the accounts of the Bank at 30 June 1990.

In my opinion, the systems and procedures adopted by the Bank adequately and properly brought these exposures to the attention of Management and the Board.


Based on the evidence examined by the Investigation and for the reasons set out above, I have formed the opinion that the procedures adopted by Beneficial Finance in the period under review were generally adequate and proper for the identification of non-performing assets and assets in respect of which a provision for loss should be made.

As noted in the part of my Report dealing with my investigation into the External Audit of the accounts of Beneficial Finance, I have not conducted an audit of the accounts and, accordingly, I am not in a position to make any finding as to whether the systems and procedures of Beneficial Finance with regard to the identification of bad and doubtful debts satisfactorily led to the identification of all bad and doubtful debts and the creation of adequate provisions for loss. However, as noted in Chapter 60 - "The External Audits of Beneficial Finance: Findings and Conclusions", I have concluded that Beneficial Finance's exposure to Somerley was one in respect of which a provision for loss should have been but was not made in the accounts of Beneficial Finance at 30 June 1990.

In my opinion, the systems and procedures adopted by Beneficial Finance adequately and properly brought this exposure to the attention of Management and the Board.