It is clear that the Melbourne Storm salary cap rort was allowed to continue by News Ltd and its senior management because of inadequate governance. There is no other explanation, except managerial incompetence, which, while it cannot be ruled out, is part of the poor oversight of the club by its owner, News Ltd.

News Ltd treated it like a wholly owned subsidiary and not a group in which News had an investment, with some outside involvement in the shape of independent directors on the Melbourne Storm board. Their presence changed the corporate governance needs of the club, requiring an independent audit committee. That was not done.

And that is the fault of News Ltd chairman John Hartigan, his chief operating officer, Peter Marcourt, and the company’s legal advisers.

And, it’s not that they didn’t have examples in front of them where the presence of outside shareholders and/or independent directors on News Corp itself and a major associate (BSkyB) has produced an independent audit committee in each case, with the powers to investigate the company’s accounts and expenses.

Some background, or things about the Melbourne Storm that you won’t read in a News Ltd newspaper this morning, or hear on Fox Sports.

Roy Masters, the former St George Rugby League coach and Sydney Morning Herald sports writer wrote today:

“Nor were any of the Storm’s independent directors members of the club’s audit committee, a subgroup of board members which is standard practice in companies in the worldwide wake of corporate scandals, such as the Enron implosion.

“The Storm’s two News Ltd aligned directors, current chief executive Frank Stanton and Herald Sun and Weekly Times executive Craig Watt were responsible for supervising club accounts ahead of board meetings.

“All finances came through a company named Valimanda, including marketing income of $6 million and servicing of marketing of $5.4 million, yet no red flags were raised.

“News Ltd papers have described the salary rorting as a giant fraud, yet the News Ltd-appointed directors had more immediate responsibility for auditing the club accounts than the sacked directors.”

A look at the News Corporation policy on the group’s audit committee shows that it has a full complement of independent directors, which have considerable powers.

“In fulfilling its responsibilities, the Audit Committee shall have full access to all books, records, facilities and personnel of the Company, and shall be authorized (without seeking approval of the Board of Directors) to retain special legal, accounting or other advisers and to request any officer or employee of the Company or the Company’s outside counsel or independent registered public accounting firm to meet with any members of, or advisers to, the Audit Committee.”

Likewise at BSkyB in London, there’s a similar view on the independence of its audit committee:

“The Committee is authorised by the Board at the expense of the Company to investigate any activity within its duties as set out in these terms of reference. It is authorised to seek any information it requires from any Director or employee in order to perform its duties and all directors and employees are required to co-operate with any requests made by the Committee.”

With these examples you’d have to ask why Hartigan, Marcourt and others in the News Corp empire didn’t modify the Melbourne Storm’s audit committee structure and independence. It would have been in their collective interests to do so.

The only answer is that News Ltd believed because it owned the Storm, that it was to be treated like a wholly owned and controlled subsidiary. So News Ltd people in Marcourt and Stanton were the audit committee who failed to spot the rort or do anything to investigate suggestions of rorting, which had been circulating off and on for two years.

You also have to ask what the independent directors were doing on the Melbourne Storm board anyway, apart from window dressing and giving the appearance of News Ltd trying to distance itself from the governance of the club because it also owns half the National Rugby League and had a huge conflict of interest?

So, instead of talking about rats and alleging fraud, Hartigan and others at News Ltd could have easily protected themselves and the company by conforming to News Corp policy. Their claims of fraud, etc, are helping to mask their role in the whole story and the poor governance (which we know isn’t a strong point of the Murdoch empire).

Finally, if this had been the Rudd/Gillard government (and an Abbott government, you’d hope) investigating itself and absolving itself, without any sign of an independent external investigation, the likes of The Australian and The Daily Telegraph (not to mention Andrew Bolt, Piers Ackerman and the rest of the company’s Greek chorus) would have been highly critical and alleged all manner of crimes. Look at the way they have reported on the insulation and schools programs.

This morning The Australian and the tabloids are rabbitting on about the suggested Gillard/Rudd agreement and urging Gillard to come clean. What a joke, what hypocrisy.

But because News Ltd and the incompetence of its management are deeply involved in the Melbourne Storm story, we get silence.

PS: there is a further joke. After The Australian has excoriated the Victorian police and chief commissioner Simon Overland in the past couple of months, what did News Ltd and Hartigan do to give their report some credence? Refer it to the Victorian police to investigate the fraud claims. What added hypocrisy. The Victorian police are incompetent and worse when it suits the legal and other arguments of News and The Australian, and needed when there’s another problem.