Professional Documents
Culture Documents
for Fraud
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Contents
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Understanding Corporate Governance
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What does good governance entail?
World Bank Definition: Corporate governance is about promoting corporate fairness, transparency and
accountability
Financial
Institutions
Strategic
investors Input to strategy
Right management team -succession planning and
Promoters performance evaluation
Risk Management
Minority The Board
stakeholders Monitor performance
Stakeholder relations / accountability
Independent
directors Monitor compliance
Company
stakeholders Employees
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Why is good corporate governance important?
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Indian and Global Governance Trends
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Governance trends in India
Increasingly Indian companies are focusing on quality of information, risk oversight and board evaluation processes
to enhance the effectiveness of their oversight. Respondents also indicate that there is a significant need to enhance
integrity and ethical values in the larger eco-system.
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Global developments that emphasize a paradigm shift in
corporate governance . . .
While enhancements to existing regulations are being proposed, corporates too are improving their practices
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The nature of oversight is changing….
There is a paradigm shift in Board and Audit Committee Oversight which means:
1 2 3 4 5 6
A change in A review of An increased
Greater board’s An intense
interaction disclosures discussion at Focus on
attention to focus on Risk
strategy with Management and earnings executive Fraud risk
management releases sessions
“Oversight” has a different meaning from what it was a year or two ago
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Lessons Learnt from High-Profile Corporate Frauds
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Recent corporate frauds – key issues that led to it
Parmalat and Satyam, cases where promoters were involved in committing fraud
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Accounting frauds – Common red flags
Disagreements between the auditors and management are either not known
or known too late by the audit committee
Internal audit does not have adequate stature, independence and skill sets
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Practices to combat fraud
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What should companies be doing?
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The 3 Ps of combating fraud
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Philosophies
The Ethical Ecosystem of
an Organization is based
on three corner stones
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People Processes
• Recruitment • Policies
• Governance
• Training • Control environment
• Leadership value system
• Performance management • IT systems
• Code of Conduct, Ethics
• Delegation • Assurance
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Strengthening governance structure to combat fraud – key
focus areas
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Enhance audit committee effectiveness 1
Explicitly review and approve the appointment of auditors and the audit plans
for adequacy of scope, coverage and performance
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Lessons Learnt by Audit Committees from Global
Accounting Frauds
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Improving oversight of financial reporting – aspects to
consider by the audit committee (1)
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Improving oversight of financial reporting – aspects to
consider by the audit committee (2)
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Operationalise the code of conduct 2
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An objective and independent whistle blower program
Real-time assistance: The mechanism provides immediate “live” response (Eg: Hotline)
Data management process: The mechanism uses consistent protocols to gather relevant facts
Audit committee notification: The mechanism has protocols to determine which allegations are to
be escalated to the audit committee
Prominent communications: The whistle blower process is well publicized and its awareness
among employees increased through formal/informal training sessions
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Strong internal audit to monitor code of conduct compliance:
a Unilever example
? Is your staff familiar with the code?
> Audit areas where staff is not getting enough training on the
meaning of the code
How do they monitor Reflect on whether senior executives and business managers value
>
compliance? the work of internal auditing
Survey if evidence on staff attitudes about the importance of
> control and compliance flags a disconnect between what the
leadership says and what is actually happening
Monitor whether there are any trends in the issues employees are
>
raising
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Strengthening Internal Audit to combat accounting fraud
Results from a recent IIA Gain survey of senior executives at Fortune 500 companies points to the
following major benefits with continuous auditing/continuous monitoring (CA/CM):
On-going
Ability to test 100% of
67% the population 67% identification of
changing risk levels
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Establish an effective anti-fraud program 3
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Undertaking a comprehensive fraud risk assessment – key
aspects to consider
> Organizational assets, operations that are susceptible to fraud
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Use technology driven assurance processes 4
A recent KPMG survey reveals that more is expected of internal audit in the sphere of fraud
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What should regulators be doing?
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More clarity needed on roles, responsibilities and liabilities
Regulators could consider strengthening regulations by providing more clarity on fiduciary responsibilities of the
board and auditors, and introducing penalty clauses for breach of duties. More importantly, regulators should
strengthen their enforcement framework.
Strengthening the enforcement framework/ simplifying the judicial process (e.g. rules
3 and criteria to fund investor associations in class action suits)
Feedback mechanism between directors and regulators (e.g. recent spate of resignations
4 in directors and how the regulator responded)
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Key global regulatory best practices 6
Clear mandate, resources and tools are fundamental to ensure effective regulatory oversight
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Questions
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Thank you!