The paper 'Corporate Governance and Fraud' is a great example of a Business Assignment. The 21st Century marked the collapse of high profile corporate organizations in Australia. Examples of the collapse of high profile organizations include HIH that was considered as the second-largest insurance company and OneTel that was regarded as the fourth-largest telecommunications company in the context of Australia. The collapse of OneTel and HIH was attributed to such factors such as a weak form of corporate governance. Implementation of unsustainable business approaches, poor auditing process, inefficient working capital, excessive management compensations, and questionable types of connections (Barney, 2009). In the case, the nature of the fraud in OneTel and HIH was as a result of engaging in low return in terms of income business while failing to set aside adequate investment for coverage of prospective liabilities.
In addition, there was a great failure in the part of management in terms of efficiently imposing and monitoring of the diligence practices. HIH collapse was as a result of poor management and ineffective systems as opposed to systematic fraud. The Directors of the company were found to have breached their roles and responsibilities under the Corporations Act.
The conservative culture of the HIH involved the directors involving the company in high-risk practices within a competitive market approach. On the other hand, the OneTel collapse was attributed to inadequacy in the corporate governance system. This was mainly in terms of the management and reporting system of the company’ s financial status (Monem, 2009). Therefore the collapse of the two largest corporations in Australia was instigated by business and accounting failures by auditors. The auditors failed to assess the business risks while the management was extravagant in the use of corporate spending and leading lavish lifestyles.
The auditing process involved coming up with the wrong conclusions in both companies (Westfield, 2003). The Fraud Triangle Theory Fraud is regarded as the most negative effect on global society. The fraud triangle theory has been used in the process of identification of various factors that explains the occurrence of fraud. Hence the fraud triangle theory comprises three factors that necessitate the occurrence of fraud: supposed pressure, prospects, and rationalization.
The absence of the mentioned three factors will not lead to the occurrence of fraud. The Fraud TrianglePerceived Pressure Perceived OpportunityRationalization Perceived pressure involves motivation that leads to the occurrence of unethical forms of behavior. In this case for an individual to engage in any fraudulent activities, there is some form of force that leads to the commission of unethical behavior. The force or pressure is perceived since it does not have to be actual or real. Thus if an individual considers that there is the existence of some form of pressure, the belief can eventually lead to fraud.
Perceived pressure may result from some forms of financial needs of an individual. In most employees, financial pressure has an effect on motivation and therefore regarded as a common kind of pressure. Research has indicated that approximately 95% of fraud cases are as a result of financial pressure. Other examples of pressure may include greed, financial losses, and drug practices among others (Sauser, 2007, pp. 20-25).
List of References
Monem, R., 2009, ‘The Life and Death of OneTel’, Griffith University. Paper presented at the American Accounting Association Annual Meeting, 2009.
Barney, J., 2009, ‘Corporate Scandals, Executive Compensation, and International Corporate Governance Convergence: AU.S.-Australia Case Study’.
Westfield, M., 2003, HIH: The Inside Story of Australia's Biggest Corporate Collapse, John Wiley & Sons Australia.
Dorminey, J., Fleming, A., Kranacher, M., & Riley, R.,2010, Beyond the fraud triangle. The CPA Journal, 80 (7), 17-23.
Sauser, W., 2007, Employee theft: Who, how, why, and what can be done.
S.A.M. Advanced Management Journal, 72(3), 13-25.
McNamara, C., 2001, “Ethics without the Sermon” Harvard Business Review 59, 1981. In “An Ethics Toolkit for Managers”.
Armstrong, M. B., 2002, Ethical Issues in Accounting, In N. E. Bowie (Ed.), The Blackwell guide to business ethics (pp. 145–157), Oxford: Blackwell.
Langenderfer H. Q. and Rockness, J. W., 1989, “Integrating Ethics into the Accounting Curriculum -Issues, Problems and Solutions”, Issues in Accounting Education, Vol. 4, pp. 58-69.