We need to get to the bottom of what really happened to auditors and risk managers who sounded warnings in the past, writes GERALD FLYNN.

AUDITORS CAN be spoil- sports. I remember one advising me not to claim for a rather stylish double-breasted suit and a VCR as business expenses back in the 1980s, observing, quite reasonably: "Gerry, look at it from a tax inspector's point of view."

Enough said.

At a much higher level, we should pay more attention when auditors are dismissed or sidelined, especially those who are employees rather than practitioners in accountancy firms. This seems to be particularly true if they work in internal audit positions with the AIB banking group.

It is almost 10 years since I felt a mixture of sympathy and anger when the gentlemanly Tony Spollen broke down and cried as he gave evidence at the Public Accounts Committee (PAC) inquiry into deposit interest retention tax (Dirt) fraud.

Spollen had warned the bank's senior executives, almost eight years earlier, that their underhand dealings over bogus offshore deposit accounts left the bank liable to a potential £100 million in tax and penalties.

He was sacked for his troubles and a few years later went on to write a successful and timely book entitled Corporate Fraud: The Danger From Within.

Shortly after his explosive evidence at the PAC hearings, the bank made a €115 million Dirt tax settlement and saw its reputation further tarnished.

Undaunted, its top-level executives continued with the same management style. Two years later, the group enjoyed the services of Rupert Walker as an internal auditor of its London Govett capital markets subsidiary, which specialised in exotic trust funds. Walker shared with the Financial Timeshis views that some of the split capital practices of fund managers were questionable. Essentially, these were investments promising both capital growth and income, but many were just revolving-door investments.

Shortly afterwards Walker was dismissed for alleged "gross misconduct". Later the bank pulled back and offered to reinstate Walker but he politely declined. Within months, many of the split capital trust investments proved to be highly loss-making for investors, some of whom were AIB customers.

Around the same time, back in Dublin, Eugene McErlean was beginning to warn about covert share transactions in exotic Caribbean and Pacific locations.

He also detailed systematic illegal overcharging of customers - often those under some financial pressure already - and shared his concerns with the Financial Regulator as well as his senior executives.

His experience of apparent inaction and alleged misleading statements from the regulator's office are being examined by an Oireachtas Joint Committee on Economic Regulatory Affairs. But it all has a familiar ring to it.

Much the same seems to have happened at the HBOS banking- building society conglomerate.

The sacking of a risk manager for alleged disclosure in 2005 eventually led to the resignation two months ago of Sir James Crosby as deputy chairman of the UK Financial Services Authority.

Sir James had been HBOS chief executive four years ago, when the alleged whistleblower had been sacked though, of course, the bank denied that there was any issue of getting rid of a risk manager who was asking awkward questions.

Where were the human resources directors when all these unhappy partings were taking place? Were the non-executive directors posing detailed questions on why risk managers were being shown the door?

From the testimony of these so-called dissidents, it seems that a herd instinct ruled at the top of many financial institutions.

Eighteen months ago, it was pitiful to hear bank chiefs on multimillion-dollar salaries in the US admit they had no idea how credit swaps operated or that they were as exposed to defaults and a collapse of confidence in exotic electronic transactions.

The really worrying aspect, as I have seen in some organisations, is that when senior management turn on an executive who either disagrees with them or highlights a mistake, colleagues just lower their eyes and hope they will not also feel the heat. Afterwards, they feel spineless and further under the thumb of the senior management.

Risk managers are not fun- loving types and their caution may be somewhat inhibiting, especially for those weaned on a diet of sales and marketing or under pressure to "push the boat out" to meet ever-higher performance targets.

But senior management cannot be judged on performance alone: they must also show integrity and perception. Such managers try to balance teamwork with lively management-level debate and we know from the experiences of military campaigns and intelligence fiascos that, when one form or orthodoxy is demanded and dissidents are dispatched, failure usually ensues.

To save the next generation of questioning managers, we need to get to the bottom of what really happened to those who sounded warnings in the past. Launching a distressed assets "bad bank" agency is no excuse to sweep this issue under the carpet.

Gerald Flynn is an employment specialist with Align Management Solutions gflynn@alignmanagement.net