This paper will discuss the relationship between corporate governance and prevention of Fraud.

One can safely argue that corporate governance is a medicine to cure corporate fraud in an organisation. The systems, procedures and policies set by the organisation to curb anomalies such as fraud and corruption largely entail corporate governance. To make this task easier, this paper shall define in detail the meaning of corporate fraud and later proceed by way of analysing how it can curbed by corporate governance.Wikipedia defines fraud as follows: It is a deception made for personal gain at the expense of an entity. According to GAW Kachali, it involves deception, confidence and trickery. There is local, national, regional and global resurgence of interest on how to prevent all forms of unethical practices such as corruption and fraud in both private and public sector including public bodies. Generally institutions with resources to prevent or combat corruption and fraud in all sectors seem to thrive. This is mainly successful through the setting up of strong pillars which promote transparency, fairness, professionalism, integrity and democracy in running the organisation; this is made possible by corporate governance. Corporate governance provides a positive direction which an entity must take.

The most common definition is fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted by an individual, to get an advantage over another by false representations.(G.A.W Kachali,2005) It is done with the purposes or intention of gaining advantage over another through false pretence for example someone can enter wrong information in a report deliberately to justify trickery he or she should have done for his or her own benefit at the detriment of a company. To prove that it can be done by anyone in the organisations, types of frauds have been put in place, which explains why there is need of a code of conduct of employees in as much as there are also regulatory mechanisms for the employers such as external audits and boards. Fraud is classified into following categories: A way some people classify fraud is to divide

frauds into: Those committed against organizations, and those committed on behalf of organizations. In employee fraud, for example, fraud committed against an organization, the victim of the fraud is the employees organization. Usually this is done by diverting goods or services meant for the organization for personal use. A good example is a situation whereby goods meant for a promotion are sold for the benefit of the employee carrying out that project. Usually such culprits take advantage of lack of efficient and effective monitoring mechanisms or abuse the trust which is bestowed upon them by their companies. In some instances they divert clients made for the organization they work for to other companies to get kickback or they even create bogus companies.Procecedures of awarding a tender a seriously flouted for the selfish benefit of fraudsters in control of granting those tenders. On the other hand, with financial statement fraud, for example, executives usually commit fraud on behalf of an organization, usually to make its reported financial results look better than they actually were or are In this case, the executives of a company usually benefit because a companys stock price increases or remains artificially high and the victims are investors in the companys stock. Sometimes, executives misstate earnings in order to ensure a larger year end bonus. Financial statement fraud often occurs in companies that are experiencing net losses or have profits much less than expectations. Some of these even connive with external auditors in order for them to portray a false picture to their advantage and detriment of the company. As stated by G.Mugaga, usually such anomalies are created by the companies themselves by creating weak systems in the company and also powerful individuals in the name of top management such as directors and chief executive officers. This is also resulted by poor follow up mechanisms by the companies. For example when the board meets they spent most of the time quarrelling on what should be done so that they obtain more power at the expense of more important issues to do with corporate

governance. They do not have much time to discuss about how to implement recommendations made either by external auditors or external evaluators. There is social concern that massive frauds in the private sector can jeopardise economic and political institutions (Recent cases of Enron and the Crunch).This can also be done to dummy whoever concerned into releasing whatever resources for the institution. A prominent constitutional expert Lovemore Madhuku was convicted after duping the law firm he worked for $20 000 by making clients pay to him through the backdoor whilst using the name of the lawfirm.This was only discovered after whistle blowers had tipped Manase and partners, a law firm which he was working for, investigations followed. Usually such unethical acts are facilitated by weak systems and policies, systems which create powerful individuals in an organisation. The organisation becomes more of their briefcases and it becomes difficult to challenge them. Corporate governance seeks to wash away such anomalies which are detrimental to the growth of organisations rather than individuals .On the other hand perpetrators take advantage of trust bestowed upon them by the corporate they work for. As stated by G.Makunike, Fraud perpetrators are the least suspected and most trusted of all the people with whom victims associate. Examiners Association of Certified Fraud defines fraud as the use of ones occupation for personal enrichment through the deliberate misuse or misappropriation of employing organisations resources or assets. Occupational fraud results from the misconduct of employees, managers or executives. The report to the nation on occupational fraud and abuse by the association of Certified Fraud Examiners states that, the key to occupational fraud is that the activity is clandestine, violates the employees fiduciary duties to the organisation, committed to the purpose of direct or indirect benefit of the employee. The ACFE includes three major categories of occupational fraud; Asset misappropriations which involve theft or misuse of an organisations assets, corruption, in which fraudsters wrongfully use their influence in a business

transaction in order to procure some benefit for themselves or another person ,contrary to their duty to their employees or the rights of another and fraudulent statements which generally involve falsification of organisations statements. The types of fraud include employee embezzlement, vendor fraud, management fraud whereby financial statements are frauded, customer fraud, investment scams and miscellaneous fraud. All these types are fraud are carried out easily in the event of poor systems and policies and failure to implement the recommendations made to ensure that corporate governance prevails in a company. Blurred reporting lines leave gaps in control systems, nowhere more obvious than in the case of Barings, where no one believed that they had overriding responsibility for the activities of rogue trader Lesson. Reporting must be periodical, hence deadlines for reports must be set and ensure that such time timelines are adhered to. The authenticity of such reporting must be taken seriously, whilst recommendations are seriously considered at every level. Feedback by the superiors is also a pre-requisite for efficient systems in an organisation. Dispersed departments can add to the problems: it is more difficult to pool knowledge of goings on when departments do not work closely together. In WorldCom, where the finance and legal functions were scattered over several states, communications were poor and employees lacked support to question the CFOs (Scott Sullivans) actions. Departments must be coordinated to ensure joint implementation of the policies and systems.Fraudlent activities are easily done whenever there is discord in an entity as this results in different interpretations of the organisational policies. Important issues like audits are easily done when the corporate is well coordinated as there will generally be uniformity in the operations This also led to biased decision-making, where Ebbers relied on a small clique of insiders (not all the most senior personnel) to discuss strategy. knowledge of goings on when departments do not work closely together. In WorldCom, where the finance and legal functions were scattered over

several states, communications were poor and employees lacked support to question the CFOs (Scott Sullivans) actions. Unity of purpose in a company promotes transparency, professionalism and integrity as opposed to biased decision making which creates a lot of divisions, hated and tensions which result in insubordination and undermining each other, this also grooms fraudulent activities as a way of tying to fix those on top. Changing the organisational structure can often leave gaps in information flow and responsibilities until the new one matures. Vital data can be overlooked. At Marconi, the delegation of responsibility to division heads and the abandonment of Weinstocks famous ratios and trend lines meant that the deterioration in the working capital position was not addressed early enough. It becomes very difficult to trace where challenges associated with misappropriation of funds or fluting of procedures would have occurred if there is no continuity in the operations of companies organisational structures. Remote operations, far from head office, are often difficult to manage since head office is heavily reliant on local management and cannot always judge whether correct and sufficient information has been transmitted. This normally results in the cooking of reports and financial statements. The company will have to rely on an individual who heads such remote corporates.This gives room for clandestine actives and in general it distorts the uniformity of the company hence an easy task to resort to corrupt and fraudulent activities. This is particularly a problem with new, or unfamiliar, operations such as in the cases of Barings and Ahold.Under-resourced risk management departments (if indeed they exist) together with inadequate information systems can be a fatal weakness in a trading operation, as witnessed in both Barings and Enron who lost 5 million dollars due to e-fraud, whereby technology will be in full use to perpetrate fraud and/or corruption. Another fundamental contributor to failure is a weak, or ineffective, internal audit function. Often this is regarded as an expensive and unnecessary

overhead. As a result, in many companies, such as Barings and WorldCom, the function is understaffed, and has chosen, or been forced, to perform mostly operational audits with the objective of uncovering potential cost savings rather than financial audits with the objective of safeguarding company assets.

Corporate governance is the most significant development in business strategy for the first century based on management strategies, but on a culture of performance with conformance to stakeholders, business and community stakeholders in a unique partnership. Corporate governance entails the establishment of relevant systems to promote the smooth running of an institution. It creates checks and balances in an organisation to promote the growth of the organisation through efficient and effective management; it allows positive delivery of the goods and services as offered by the organisation from the top management to the least ranked employee. Businesses that succeed have good systems and controls. Corporate governance does not start with the corporation but with people such as directors, managers and employees. In individual governance process important attributes include: consistency uprightness, wholeness, truthfulness and honest. Equally important are visions for success that embraces other people, these include self control, self discipline and intellectual integrity. John Hendricks and Leigh Hendrikse have coined formular triangles for business success: It is illustrated by way of a corporate governance success triangle: Attitude which is made up of honesty ,integrity and intention and aptitude made up of tripple bottom,line success and expertise. Commitments starts ethics ought to provide the basis for accountability The concept and practice of accountability is expected to make public officials including trustees responsible for their actions or inactions. It is supposed to increase the transparency of governments/state corporations It is supposed to emphasize and enhance government or state corporation responsiveness and its legitimacy .

With the right attitude and the right approach to work in the best interest of shareholders, company and stakeholders. Corporate governance does not just happen ,there has to be a commitment to develop and educate the directors and managers as to the expertise and skills of governance. Corporates have policies and systems in place to give a direction to be taken in the direction. These include constitutions, codes of conduct, policies and in some cases rules and regulations, nonetheless before the organization resorts to those issues, individuals must be able to be committed to doing their best to deliver for the organisation.Attitudes that drive talents and skills include self control, self discipline, personal character building, intellectual integrity and a willingness to do things right. Attributes such as open communication in company does away with unethical practices such as fraud. A culture of regular meetings ensures that all the possible anomalies can be done away with, equally important are full disclosure, participative leadership, managerial resourcefulness, strategic partnership, technical and innovation., Another critical factor are values. Values can be defined as relatively stable convictions about what is good or desirable. These are categorized into strategic values whereby the shared conviction of the organization about the desired objectives. For any organization to function optimally, good relations and interactions between stakeholders are required .Typical to ethical ethical values values ensures are that respect,transparency,fairness,justice.Adherence

stakeholders inside and outside the organization get along well with one another. Apart from upbringing, the social setting of organizations that individuals work in; can also have either a good or corrupting influence on their moral character The company also has to consider the following: rewards for employees, personal success, a respected leader, a respected executive and increasing wealth making a difference. The checks and balances must also be in place to ensure that single individuals or units are powerful at the expense of a corporate as a whole. The total family of shareholders and stakeholders has to be part of the governance mission to make a

company a better place for all. A win-win situation for recognition and rewards for stakeholders must also be made in place. Procedures must also be followed in very strict manner because once one step is jumped it creates confusion and disarray in the organization. In corporate governance the other most important programmes are monitoring, evaluation and audit. They provide a mirror in which the organization sees whether there is progress or not, it also shows shortfalls in all sectors of the corporates operations. Audit is the most important of all for it brings out clearly the systems are being followed in line with resources and procedures within the corporate. The audit committee is the principal governance watchdog in most

companies/parastatals and was the first governance committeee to gain broad acceptance in the business community. According to M .Davidson, an annual audit is an essential part of the checks and balances required, and it is one of the cornerstones of corporate governance. Its purpose is to provide additional focus on financial issues that are vital to corporation but which often cannot be fully examined by the main board because of shortage of time made available to it. The composition of audit committee should be diligent and knowledgable.The recent Enron collapse provides ample evidence of the need for the audit committees to examine corporations companys accounting policies thoroughly to ensure that they are appropriate to its business and satisfy the needs of its stakeholders. Special attention should be given to any unusual policies or policies which rely on fine distinctions of interpretation for their legitimacy. The relationship between management and auditors is also critical in coming up with an objective audit, for example disagreements between management and auditors. This is echoed by G.A.W Kachali who states that, professionalism and skill on the part of auditor and management are critical in ensuring a credible audit. Any disagreement in this context is serious and needs careful consideration by an audit committee in the first place and even by the board as a whole

.A decision to dismiss auditors should have the support of the audit committee and should be made by the full board. This avoids unilateral decisions which might be to the advantage of an individual. The initial selection of external auditors is usually the responsibility of the audit committee. Normally when a vacancy occurs, proposals from suitably qualified firms are invited then each firm submits proposals to the audit committee. Auditors ought to be faithful and prudent, knowing their businesses and all the points and articles of the account in rents, outlays, returns of stock(W.Henly:1400). A fundamental contributor to failure is a weak, or ineffective, internal audit function. Often this is regarded as an expensive and unnecessary overhead. As a result, in many companies, such as Barings and WorldCom, the function is understaffed, and has chosen, or been forced, to perform mostly operational audits with the objective of uncovering potential cost savings rather than financial audits with the objective of safeguarding company assets.

Traditionally, external auditors partially filled the gap with their financial, transaction-based audits. Today, risk-based audits are more common, where the focus is on areas identified as being the most exposed. This has left gaps where internal controls are rarely, if ever, audited. The door is left wide open to fraud. Internal audits independence is further undermined when it reports solely to the CEO or CFO or when the audit programme, findings and employee remuneration are dependent on the CEO or CFO, such as in the examples of WorldCom, Barings, Enron and Tyco. A recurring feature is poor cash control: at Marconi the spiralling level of working capital was not detected and dealt with early enough; at WorldCom, revenue was more important than collecting debts; at Enron,

profit over the life of a contract was more important than the fact that it made losses and consumed cash in its early years.

The objective an audit is to enable the auditor to express an opinion as to whether or not the financial statements fairly represent in all material aspects, the financial position of the entity at a specific date, and the results of its operations and cash flow information for the period ended on that date, a accordance with an identified financial reporting framework and/or statutory requirements. External auditors are ultimately responsible for reporting to shareholders on the financial statements.Inorder to do so they must place reliance on risk management and internal controls in corporation/company Before doing so the external auditor will evaluate the quality of the work done by internal auditor to ensure it is smooth flowing .The annual report should disclose the remuneration and expenses of the auditors giving details of the fees and the purpose of which they were incurred to avoid manipulation of the process by management or administration. Evaluation and monitoring is also very important to check on the sustainability of the activities which are being done by the company, the level of involvement of relevant stakeholders in the organization and possible changes which can be done to ensure that threats are countered whilst opportunities are pursued for the benefit of the organisation.This allows the rooting out of bad practices such as fraud, it also identifies possible issues which can result to this bad practice. Again it works better if it is carried by a credible consultancy firm assisted by the internal monitoring and evaluation department. The most critical thing in issues of audit and monitoring is the independence of the service providers, hence appointment of such should be done in a very transparent manner with enough consultations, lest the process is used the advantage of individuals in a company. Evaluation results should be reviewed by the nomination committee or such similar committees of the board.

There is also need to ensure that heads of institutions are kept with serious monitoring and evaluation to avoid hijacking corporate to their advantage. Individual director evaluation, directors contributing and reporting to the board should measure against their duties .The nomination of a director at the A.G.M should not be an automatic process and should only occur after the proper evaluation of the performance and attendance of the director in question. Should a deficiency in directors performance be identified, a plan should be developed and implemented for the director to acquire the necessary skills or develop appropriate behavioral pattern. It is important that the directors evaluation be approached in an open, constructive and non-confrontational manner. The chairperson should also be evaluated. The chairman should not be present when his performance is being discussed by the board. The chairman, or a committee appointed by the board, should evaluate the performance of the C.E.O at least once a year. People tend to be naturally greedy, rarely content with what they have achieved. High achievers, such as top executives, are particularly ambitious and eager for more power and wealth. Since there is a clear, positive correlation between size of corporation (measured by revenue or by capital employed) and executive pay and status, CEOs have every incentive to grow their companies. Since, it has already been argued, the quickest way to grow a company is often by acquisition, the greedy CEOs of WorldCom, Tyco, A hold, Parmalat and others, needed little encouragement to embark on a spending spree (S.Hamilton and A. Micklethwait, 1989)

These individuals usually emerge after a period of successful (or apparently successful) management. The company becomes packed with likeminded executives who owe their position to (usually) him and are reluctant to challenge his judgement.

A complacent board, lulled by past achievements, stops scrutinising detailed performance indicators and falls into the habit of rubber-stamping the CEOs decisions. His drive, commitment,(often) charisma and streak of ruthlessness have contributed to the previous success. To ensure that the company is saved from such greedy and corrupt people the organisation must ensure that they have credible boards in their organisations. Improved board performance and effectiveness can be achieved though regular and timely appraisals of the board.Perfomance of the board, its commitment and individual directors should be evaluated annually. Board should be made of experts, management and shareholders to have the right direction. Even the principles adopted in the evaluation of the board should be applied to the board should be applied to the board committees, chairmen and members. The most important stage in corporate governance is implementation-putting it all into practice, personal action plan initiated by the head of the institution, chairperson, with all executives delegated with responsibility of implementation. It is implentation at grassroots level, in the boardroom, in the broiler room, creating a win-win opportunity for recognition and rewards for shareholders and stakeholders. Corporate governance is not good intentions; it is good actions flowing out of good intentions. Most organisations fail to put into practice what is written on paper. They try to portray an expected picture through reports and financial statements. This causes underdeliverence on the part of the corporate. The failure to implement is caused by either lack of will to do so or lack of capacity on the part of personnel which is supposed to play that role. Technical expertise can be a major setback, for instance in introducing system to do with technology, people with skills must take a front role. Without such a kind of arrangement such an action plan will fail dismally. The corporates apart from the systems, policies and procedures used for corporate governace, there must be capacity building initiatives, staff development, motivation of employees, strategic planning meetings and other related processes. They help in ensuring the reality of implementing measures which promote corporate governance.

There can also deliberate neglection of the genuine company policies and systems for the sole reason of deceiving the stakeholders in that company. There can also be issues such as dissatisfaction on the part of employees, having been demotivated by the behaviour of their bosses or poor renumeration.So inorder to undermine them they can flout the procedures, they can even do it in the name of trying to make a living having realised that the company does not even care about them. The politics can also be at the top whereby, in the struggle for power juniors in the company can be used to disrespect their immediate supervisors hence the need to ensure that outside the parameters of the policies, procedures and systems, there is need of other critical pillars to support these initiatives.

The issue of individual characters also comes back into picture as discussed earlier. It only takes people who have the company at heart, people who do their work obediently, people who are not crooks, people with a reputation to protect. People who have principles and ethics, this makes the implementation process easy to achieve. In conclusion the issue of corporate governance can just be a lip service if there are no strategies put forward to ensure that it is taken from paper to the ground. It takes the whole corporate from the largest shareholder to the toilet cleaner to ensure that corporate fraud does not occur in the organisation. If there is no commitment in the company to implement then it will remain a dream. The importance of corporate governance to cure the cancerous disease of fraud and corruption can only be realised when the entity is already in taters.The saying prevention is better than cure really makes sense in this vain, given that corporate fraud is only avoided by having tight controls to human manipulation through strong systems which strengthen the institution at the expense of greedy individuals who are bent on amassing their power and wealth at the expense of the generality of stakeholders in the company. Such a stance coupled with innovation at all levels to ensure excellence ensures that corporate fraud is avoided.

Corporate governance therefore should be a glowing light in the direction of the organisation starting from recruitment and placement, management of an employee, disciplinary measures of the latter, dismissal and retrenchment and even high profile appointments in a corporate. As long as there is such a direction they wont be any problems in the context of corporate fraud.