Buck stops at the top

The Melbourne Storm salary cap scandal has shocked the sporting and business worlds.

Never before has a sporting organisation cheated so brazenly and been punished so savagely.

Never before has a company the size of News Corporation – which owns 100% of Melbourne Storm and 50% of the entire National Rugby League competition – been involved in a sporting scandal of this magnitude.

News Limited boss John Hartigan moved swiftly yesterday to distance himself from any blame about the scandal, saying in a statement that the “elaborate collusion and the scale of the deception has been concealed from News Limited and it is our understanding that it has been concealed from the Board of the Storm”.

He has also brought in external auditors from Deloitte to fully investigate the extent of the scandal, referred the matter to police and generally vowed to pursue every person at the Storm who might have been involved in the matter.

But it appears to be a case of too little too late.

While the Melbourne Storm is a tiny speck in the News Corporation universe from a business point of view, the huge profile that rugby league enjoys in Australia means News Limited executives should have been paying far more attention to the way the Storm was being run than they obviously were.

These breaches were not simply a one-off event at the end of one season – this was $1.7 million worth of payments made over a five year period. It was systematic rorting at one of the most prominent clubs in the league.

It simply should have been picked up far earlier than it was.

Hartigan might claim he has fallen victim to a few rats in the ranks, but questions should and must be asked about why News Corporation was apparently unaware that anything was wrong in a business it owns.

In the corporate world, the “I was duped” excuse does not wash – the bucks stops at the top.

News said in a statement yesterday that it “makes it a condition of the internal and external audits that are conducted into the club’s affairs annually, that Storm management must verify in writing each quarter that its contractual obligations to the NRL under the salary cap have been complied with and, specifically, that there is no fraud”.

Clearly those checks were not enough as they were too easily bypassed by a group of Storm officials.

But News should have known that annual audits and a signed bit of paper every three months would not be enough to ensure salary cap breaches were not occurring.

After all, Rugby league and the AFL have seen a number of instances of salary cap breaches in recent years, most notably with the Canterbury Bulldogs in 2002.

There have also been rumours of problems at the Melbourne Storm for years – surely the scuttlebutt from the organisation’s sports reporters would have led someone within News to ask a few more questions more often.

News Corp should have known that these breaches could have occurred at the Storm and should have been watching much more closely – what extra governance controls and processes did News put in place to ensure cap breaches did not occur?

Did forensic accountants examine every player’s contractual arrangements on a regular basis?

Did News Corp ask auditors to examine how money was flowing through the club?

Were invoices checked regularly and thoroughly? There are allegations that suppliers submitted inflated invoices so that overpayments could be made to players. Surely a study of a sample of invoices would have raised questions that might have uncovered these breaches much more quickly.

If the answer to any of these questions is “no”, then News Corporation, and specifically John Hartigan, must ask why not.

It’s all good and well for Hartigan to come out after the fact threatening legal action against everyone in sight, but the question must be asked – what have he and News Limited been doing for the past five years?

I bet Rupert Murdoch might be asking a similar question this morning.