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Improving Internal Controls to Prevent Fraud
by
Scott Green
the Guide
POORLY DESIGNED corporate legislation can retard innovation and warp economic growth while
good policy can create confidence in the capitalist system, encourage prudent risk-taking, and foster
growth. Yet, even the most thoughtful and balanced legislation has its limitations. In the wake of
unprecedented corporate failures due to managerial fraud, Congress passed the Sarbanes-Oxley Act of
2002 with the goal of rebuilding investor confidence and protecting capital markets. The recent
recovery leaves little doubt that confidence has returned. However, whether the Act actually will protect
financial markets by efficiently providing long-term deterrents to fraud at public companies is a valid
topic of debate.
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The Ripple Effect
*Winner of the 2006 IIA Outstanding Contributor Award*
International corporations are experiencing the ripple effect of governance practices that are
evolving on a global scale. As demonstrated graphically over the past several years, when seismic
events shake investor confidence in large international corporations, the worldwide landscape of
public company governance changes. In our globally interconnected world, corporate scandals
and the regulatory reaction in one nation reverberate in distant economies. Rules, regulations, and
norms around the world influence the way public companies operate and are expected to operate,
globally. In addition to affecting decisions related to capital market access, new laws may increase
the regulatory risks of doing business in various jurisdictions. New lending requirements, evolving
judicial expectations, and increasing shareholder activism may add to the risks of not meeting the
raised governance bar. Smart internal auditors know that this new world order is significant and
are taking steps to revise their approach to governance risk. They are scrutinizing their
organizations’ governance models and comparing them to national norms and international best
practice.
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Fighting Financial Reporting Fraud
*Winner of the 2004 IIA Outstanding Contributor Award*
By keeping their eyes and ears open and asking the right questions, internal auditors can provide a
healthy mix of quarterly financial audit procedures that augment their traditional evaluation of
internal controls. In this article, Scott provides practical techniques to help internal auditors identify
financial reporting fraud. From listening to rogues, to evaluating industry benchmarks, to looking
for the red flags of aggressive accounting, there are clues to bad behavior that auditors can surface
before fraudulent behavior becomes fatal.
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The Causes, Impact and Future of the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act was a Congressional response to the fraudulent corporate actions that
surfaced in 2001 and early 2002. This article looks at the causes and the legislative and
regulatory response, linking the frauds at Enron, WorldCom, HealthSouth, Adelphia
Communications and Imclone directly to the legislation designed to provide a deterrent. To be
published in Spring 2004.
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Seven Actions to Take Before Certifying the System of Internal Controls.
Beginning in August of this year, CEO’s will certify that their system of internal controls will
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of the financial statements for external purposes. Most companies have been preparing for this
by hiring consultants, convening project teams, documenting and evaluating processes, and
addressing control weaknesses. But what happens after the project team disbands, consultants
leave and the regulatory focus on Section 404 of the Sarbanes-Oxley Act gives way to other
priorities? The CEO still puts his or her career, personal wealth, and even freedom on the line
every time he or she certifies the company’s internal control structure. How do you know that
controls continue to operate? Where should you focus your limited time to ensure your internal
controls will continue to provide reasonable assurance of financial reporting reliability? The
author highlights seven actions a CEO can take to dramatically minimize their risk.
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Sarbanes-Oxley's Unfinished Business:
Abolish the Imperial CEO!
The Sarbanes-Oxley Act addressed many of the perceived causes of corporate abuses
exposed during 2001 and 2002. New implementing rules from the SEC and listing standards
issued by the New York Stock Exchange and the NASDAQ further strengthened corporate
governance practices by improving the independence of public company boards. Arguably the
most comprehensive public company legislation since the 1930’s, Congress nevertheless left
undone one of the most contentious issues of our day: the problem of a single individual holding
the conflicting roles of CEO and Chairman of the Board of a public company. In this article,
Scott explores this conflict and what current CEO's and Boards can do to keep acitivists at bay
while still doing what is right for shareholders. Click here to read the reprint
Hero or the Goat? April 1 2004
MBA GLOBALNET has over 17,000 MBA members who have access to a library of
insightful webcasts and materials from some of the most successful business authors. Authors
provide their insights to some of the most pressing current issues through interactive webcasts.
The webcasts are later posted in thier Current Insights library. Scott discusses his book and
current Sarbanes-Oxley issues companies are struggling to overcome. Click here to access
MBA GLOBALNET.
Information technology controls are increasingly playing a larger role in the over-all system of
internal controls for companies of all sizes. However, most technology managers who are
responsible for these systems do not have formal control training. Scott has joined with
WatchIT, an on-line educational video service to produce a program for CIO's and other
technology managers who need to manage the Section 404 assessments required under the
Sarbanes-Oxley Act. The video takes the viewer through a step-by-step approach to control
assessment using the CobiT road map. The CobiT road-map is COSO compliant and will
help technology management ensure that they can demonstrate a strong system of controls to
the external public accountants. Release is expected early May. Click here for WatchIT's
website at www.watchit.com.
Governance, Corporate
Governance, Corporate
Governance, Sarbanes, Sarbanes,
Sarbanes, Sarbanes, Sarbanes,
Scott Green, Scott Green, Scott
Green, Scott Green, COSO,
COBIT, COSO, COBIT, COSO,
COBIT, COSO, COBIT, COSO,
COBIT.
