| "An internal system encompassing policies, | | | | corporation's governance policy. The person's lack |
| processes and people, which serves the needs of | | | | of integrity allowed them to make an immoral |
| shareholders and other stakeholders, by directing | | | | decision to create wealth for him or herself. |
| and controlling management activities with good | | | | Senior management is often to blame as well. A |
| business savvy, objectivity, accountability and | | | | lot can lead a top manager within a company to |
| integrity," is the way Gabrielle O'Donovan defines | | | | breaking from the corporate governance policy. |
| corporate governance in, "A Board Culture of | | | | Career concerns or pride can foster decisions that |
| Corporate Governance." "Corporate governance is | | | | a person, under normal conditions, wouldn't make. |
| most often viewed as both the structure and the | | | | For instance, if a manager is given a quota he or |
| relationships which determine corporate direction | | | | she has to reach in a certain time period, the |
| and performance," according to corpgov.net. As | | | | pressure they feel to succeed may allow them to |
| you can see, delineating the phenomenon of | | | | make an unethical decision. If they are under the |
| corporate governance can be an obstacle in it of | | | | belief that not reaching that quota is going to cost |
| itself; now just imagine trying to instill a corporate | | | | them their job, anything in the realm of |
| governance policy within a company. | | | | possibilities to keep their job may be done. |
| It is possible that the lack of a one unambiguous | | | | Another reason top management may look the |
| characterization of corporate governance is the | | | | other way when they know something that the |
| foundation from which fraud has grown from | | | | CEO is doing is wrong is because they feel a deep |
| over the past few decades; however, it is truly | | | | loyalty to them. In the late 1960s, |
| unlikely. Going back to the end of O'Donovan's | | | | upper-management at Quasar Stellar Company |
| definition of corporate governance, the real | | | | knowingly allowed falsified records to be sent to |
| growth place of fraud is a lack of objectivity, | | | | the parent company, Universal Nucleonics |
| accountability and integrity within corporations. | | | | Company, as directed by the CEO. When |
| Corporate governance follows a hierarchical | | | | interviewed, Peter Loomis VP of Marketing said "I |
| outline, with the Board of Directors at the top, | | | | always felt that I owe more loyalty to my |
| then senior management, followed by internal | | | | supervisor that to the company" (Fendrock, "A |
| auditors and finally external entities (Lawrence, | | | | Crisis in Conscience at Quasar"). |
| Weber, Business and Society 12th Ed.). An | | | | The issue with internal auditors is pretty simple to |
| organization's corporate governance policy can | | | | understand. The people you constantly work with |
| only be as strong as its weakest practitioner, and | | | | naturally become your friends. An internal auditor |
| the weakest practitioner can reside in any level of | | | | reports to the Board of Directors, people whom |
| the hierarchy. How and/or why does a | | | | they rarely see, about the work of the senior |
| corporation's governance policy fail? | | | | management, the people that they work with day |
| First look at the top, the Board of Directors level. | | | | in and day out. Thus, a conflict of interest arises - |
| The board is responsible with creating the | | | | does the internal auditor want to report to the |
| company's corporate governance policy, therefore | | | | board that management has falsified the reports |
| they have no excuse as to why they wouldn't | | | | and risk losing their friend, or do they want to let |
| know or follow the policies. This doesn't imply that | | | | management get away with what they are doing |
| fraud doesn't exist at the top level in anyway. | | | | and inform the board that all is well to keep their |
| Members of the Board of Directors of a | | | | friends? It's a tight line to walk, and sometimes |
| company take-part in fraudulent activities for | | | | corporate governance takes a backseat to |
| numerous reasons. First off, members of the | | | | friendship. |
| board are voted on, and no qualifications exist. | | | | External entities, public accountants for example, |
| Anyone can be voted into a position of great | | | | also have an interest in fraudulent activities within |
| power within an organization; so in reality, | | | | a company. When public accountants audited a |
| someone unfamiliar with business practices could | | | | company in the past, they often did it for multiple |
| easily take part in fraudulent activities and not | | | | years straight and a relationship formed between |
| even be aware of it. Another reason deceit is | | | | the company and public accountant. The |
| found with the Board of Directors is due to | | | | relationship could grow, and in addition to auditing |
| conflicts of interest. Board members, since | | | | the company, the accountant would provide |
| anyone can be voted in, are sometimes on other | | | | consulting services. The consulting services |
| company's Board of Directors, or are sometimes | | | | provided were much more lucrative than the |
| the company's senior management (Lawrence, | | | | auditing services, so naturally one would one to |
| Weber, Business and Society 12th Ed.). An | | | | keep the company as a client for consulting. A |
| example of a conflict of interest for a person | | | | conflict of interest presents itself because of this |
| who is part of senior management and on the | | | | point; if the public accountant finds that the |
| board could be making a business decision that | | | | company is falsifying records, the company can |
| raises the company's stock price, as the CEO this | | | | threaten to revoke its desire for the consulting |
| person is awarded stock options as part of their | | | | services from the accountant if the accountant |
| pay, while that decision did not fit in with the | | | | reports them. |