Governance and Fraud

Governance and Fraud

Institution Affiliation:


Overviewof ethics and professional conduct

In corporate governance, the employees and firms themselves have tocomply to set rules to avoid conflict of interest in them and othercompanies. The modern professional duties are based on professionallyand ethically binding commitments. This, in reality, comes as asacrifice, and at the expense of personal interests. According toCorey et al. (2014), ethics and codes should be the first checkpointfor any situation that may involve professional conflict. The codesare put in place to keep extreme behaviors at bay, and as such,controlling the conduct of the employees and the firms. The extent ofcompliance with the ethics and codes that have been established isdependent on the level of enforcement of the same. At the same, Mayet al. (2014) assert that principle-based decisions are not all aboutcompliance to the law that is set by the government and otherauthorities but making actions that are guided by values and soundpersonal judgment.

Allorganizations, including Consolidated Mins (CMI) InternationalInc, have to ensure that their employees make decisions within adefined sense of right and wrong. The guidelines for this decisionmaking are often moral values and philosophical reasoning. This isdescribed by the normative theories of ethics (Garriga &amp Mele,2013). Additionally, the guidelines provide a systematic way ofanalyzing the situations that the employees and firms find themselvesin, and through clear reasoning, they can make well-informed andjustifiable actions that are defendable by logic. While there arevarious levels of sources of ethical dilemmas, the principles ofprofessional conduct are a framework for coming up with reasonablesolutions in the professional setting.


Some people argue that companies dealing in corruption-ladencountries should not be expected to conduct themselves anydifferently. However, going by the review of the principles of goodconduct as described above, professionals are supposed to makeindependent judgments that are guided by value and morals.Consolidated Mins (CMI) International Inc engages in bribingactivities to make the paramilitaries corporate and assist them inconducting their business. According to Akerstrom (2013), bribing isan ethical issue that challenges many professionals as they engage intheir businesses. The same handles the fall of many companies, whichthrough independent investigations, are accused and charged forparticipating in bribery. The principles of professional conductstate clearly that bribery is unacceptable and should be condemned byall means possible. Should the company defend its actions by citinglack of security, it should come forward and seek appropriate meansof protecting its assets and people in the war-torn areas, instead ofbribing outlaws to provide security.

Moneylaundering and aiding in crime

The principles of professional conduct are clear about participationin criminal activities. In this case, Consolidated Mins (CMI)International Inc is indirectly aiding criminal activities byfunding an outlawed group. The case states clearly that theparamilitaries that the company pays are classified as terrorists.While seeking their cooperation, the management of the company’sLatin branch pays them off and has been doing so since 1997. Themoney that the terrorists receive is used to fund crimes such asextortion, rape, disappearances and other forms of illegalactivities. Apart from the corporate level participation in thiscrime, another ethical issue is the lack of reporting of theseactivities by the board members and other workers within the company.

The principles of professional conduct, in part, state that thereshould be reporting on suspicious activities to ensure the integrityif the whole organization (Durkheim, 2013). The board members ofConsolidated Mins (CMI) International Inc, as Alex finds out,have been compromised by this ethical issue.

Non-disclosureof financial dealings

Besides dealing with money laundering, the company violates theprinciple of professional conduct by failing to give full disclosuresof their finances, thus creating an ethical dilemma for the board andAlex. Financial planning standards are intended to assure thepractice of legal, financial planning, advancement of professionalismin finances and enhancement of value-based accounting decision-making(Bradshaw et al., 2013). Consolidated Mins (CMI) International Incfails to meet these objectives by not disclosing their fullfinancial details, facilitated by the omission of payment recordsmade to criminals.


Overviewof the American Accounting Association (AAA) model

The American Accounting Association (AAA) model proposes a rationalprocess for making decisions while taking ethical issues into account(Bebbington, Gray and Laughrin, 2001). In total, there are sevensteps that a professional accountant has to follow while coming upwith a decision that is ethically defendable. The firsts step is theestablishment of facts. This is so to avoid ambiguity over what is tobe considered. The next step for the professional to take is toidentify the ethical issues that are involved in a particularsituation. Next, the person is to identify norms by placing thedecision in its ethical, social and professional behavior context.Fourthly, the model needs the person to identify alternative coursesof action, so to come up with the best fitting. Finally, theprofessional can settle on one decision that is the best course ofaction.

Step1: Facts in the case

The fact is that Alex has found out about the Consolidated Mins(CMI) International Inc’s misdoings. First, the company doesnot uphold the principles of professional conduct. The board membersare secretly paying off a group that has been outlawed to help themconduct their business. At the same time, Alex has established thatthe company, for many years, has been keeping dirty secrets abouttheir financial dealings. Additionally, there are unverifiedallegations of corporate misconduct through pollution and otherrelated acts of negligence. Alex, in his sober judgment, therefore,establishes that the board of Consolidated Mins (CMI)International Inc is reckless, irresponsible and above all,remorseless. However, another fact is that there is a chance for himto develop his career.

Step2: Ethical issues in the case

Alex has to identify the ethical issues that are associated with thedecision. Perhaps the most outstanding ethical issue is the lack ofthe board to uphold the principles of professional conduct, per se.Firstly the board has failed to disclose its full financial reportsfor many years, often omitting dealings with illegal persons. Alex,as an associate and a member of the Board, will be expected tocontinue with this malpractice. Secondly, the company has subjectedits employees and assets to the mercies of the paramilitaries. Thisnot only endangers the lives of the people involved but may also turnout to be disastrous for their families. Under the principle ofprofessional conduct, the management is supposed to protect itsemployees, assets, and stakeholders.

Step3: What are the norms, principles, and values related to the case?

The norms, values and standards that Alex has to consider include thefact that the company must have impeccable integrity and to assurethat the board, in its managerial capacity, sees to this. This meansthat the company has to communicate with the authorities and securityagencies about the nature of the situation on the ground so that theycan find solutions to avoid dealing with the paramilitaries. At thesame time, the stakeholders entrust the board with the reasonabilityof ensuring that al financial dealings are documented, meaning thathiding financial records over payments made to the paramilitarieshave to be documented.

Step4: What are the alternative course of action?

By joining the board, Alex will have to support discontinuing of thepayments. Without considering the norms, Alex will be expected toensure that the weight each and every outcome of his decision has tobe measured, regardless of the inappropriateness. However, in thisprocess, Alex will have to persuade Cameron to see to it that thecompany cuts its affiliations with the criminals. This may nothappen, given that Cameron himself has taken a decision not tointerfere with the board’s engagement with the paramilitaries.Given this, the best option for Alex, as a professional who is guidedby ethical codes, is to decline the offer and wait for an openingfrom another company. While making a decision as to whether or not tojoin the board, he should consider the effect of this decision on hisreputation. By placing the decision in its social context, Alex willfind out that it will be detrimental to his personal, professionalrecord. People, especially his peers, have always considered him asan effective and competent individual, which works based onprofessional guidelines. Should he decide to join the board, he willbe expected to continue with the company’s illegal payments to theterrorist, and hide all evidence that could incriminate them.

Step5: What is the best course of action?

Analyzing the situation using the information above, the best courseof action will be to refuse the offer, and wait for another jobopening.

Step6: Consequences of each action.

If he accepts the position, Alex will be risking being exposed as afraudulent and non-principled individual, in the process, hurting histrack record. If he turns it down, he will lose an opportunity forgrowth, however, maintain his integrity.

Step7: What is the best option?

The best option for Alex is to turn down the position.


Case1: financial reporting fraud at ING

  1. Description of case

ING, a multinational insurance, and finance company based inAustralia, suffered one of the worst financial frauds in the recenttimes in the corporate world. The massive financial fraud, whichtranslated to tens of millions of dollars, was committed by thecompany’s senior accountant, Rajina Subramanian (Bibby, 2012). Inher capacity as a senior accountant, Subramanian made 200 illegaltransfers into her personal account. In other instances, theaccountant made direct deposits into shops and real estate agencies,where she would later receive goods and services. After exploitingthis avenue, she used computer log-ins from some staff members tomake the illegal money transfers. To avoid the inclusion of thesepayments in the official financial records, she would delete therecords or alter them to fit different items in the officialfinancial statements.

The total cost of the fraud was about 45.3 million dollars. Thismoney was systematically stolen over a period of 5 years. While shecould fraud the company up to millions of dollars at a go, she wasused to doing it in terms of tens of thousands of dollars on severaloccasions. The company got suspicious of the financial statementsthat were coming from her office, and immediately launched aninvestigation to retrieve facts. Terming it as the biggest case offraud that the company has ever suffered, they twigged on her actionsand called the police to investigate her. Upon counter-checking thefinancial records, the company established that the financialstatements were altered not to reflect the actions of fraud. One ofthe best techniques to avert such fraud is creating protocolstructures that are hard to fool. According to Pitoura and Samaras(2012), data management systems are supposed to be controlled by morethan one person, meaning that independent operations will not takeplace. In this case, by putting two or more password administrators,the accountant would not have been able to use other workers’ logindetails to commit the crime. The accountant was jailed in 2011, andwill be eligible for parole in October 2013.

  1. Cause and effect

In this particular case, the elements of the fraud triangle that aremost applicable are opportunity and rationalization. According to thefraud triangle, the opportunity is the ability to commit a crime(Morales et al., 2014). Given that fraudsters do not wish to becaught committing the crime, they are likely to believe that theiractivities will go undetected. This is why Subramanian used herposition as a senior accountant to hide her actions.

Personally,the fraud damaged her professional reputation. She is most likelynever to land a job with an established organization. At the sametime, spending time behind bars has limited her career growth,meaning that she may never realize her full potential by theretirement age. The fraud also negatively affected the ING ascustomers lost their confidence in their financial reporting. Someinvestors withdrew their investments, leading to a drop in thecompany’s market performance. The financial regulators of Australiawere also negatively affected by the fraud, as their competence inkeeping track of company records was put to question.

Secondcase – Asset misappropriation, Asia region.

  1. description of case

Wand Yung-ching was a renowned petrochemical tycoon in Hong Kong.Recently, his eldest son, Winston Wong, who is the business’ estateadministrator, sued two Hong-Kong companies of fraud involvingmisappropriation of about $4 billion in assets (Bibby, 2012). Thealleged fraudsters were Jao Chien-Fang and Chang Pen-Yuan, who werehis father’s financial advisers at the company. Hua Yang Investmentand Winson International Investments were as well accused of aidingin the asset misappropriation fraud. The $4 billion that was incontention was related to power plants in China and real estate. Theaccuser had estimated these assets to be worth $18 billion in total.In 1954, Mr. Wang founded the Formosa Plastics group, which grew tobe a leader in the plastics industry. After his death in 2008, theaccused are said to have siphoned off assets that should have beenpart of his estate, involving overseas trusts in the fraud.

To prevent this kind of fraud, Bebbington et al. (2001) say that theboard of directors has to begin with identifying vulnerability andimplementing targeted measures to address them. In this case, themain vulnerability was a lack of managerial control of Mr. Wang’smassive estate, hence creating loopholes for the fraudsters to siphonoff the assets. The internal auditor of the company assets would alsoprevent this fraud by implementing internal controls, specifically inensuring the integrity of procurement. Mr. Wang’s son, in hiscapacity as the company’s overseer, would have set up a reportingsystem and implement it for the company. This system would havehelped the company’s board to be aware of fraud risks, such as theselling of assets in certain areas, and stop them promptly.

  1. cause and effect

Thisfraud negatively impacted the potential of growth of the company. Theelement of the fraud triangle associated with this case is pressure.Through the court inquiry of the case, the media established that thefamily was in internal wrangles over the future ownership of thecompany.. This scares away investors who may fear for theirinvestments in the business, hence withdraw. However, the fraud had apositive effect on the authorities who were given the responsibilityto conduct a worldwide accounting of the company assets. Throughtheir thorough work, the family was able to note the fraud, hencebring it to a stop. This also motivated other companies to conduct athorough assessment of their property.

Case3: Corruption case in England

  1. Description of case

HSBC was one of the several British Banks that were accused of beinginvolved in a corrupt dealing with FIFA. There were some corruptpayments that were related to money laundering and bribery issues.The frauds took place from as early as 1999 (Titcomb, 2015). HSBC,Barclays, and Standard Chartered reviewed transactions thattranslated to hundreds of thousands of dollars. This fraud was notedby independent investigations that were conducted by US officials.The transactions that were being investigated included a $200,000payment from a multinational sports marketing company in 1999. Thesecond was a $1.2 million wire transfer from New York to Britain.There was also a corrupt wire transfer that amounted to $1 milliondollars, and another one worth $500,000 to the same bank.

Toprevent such cases, the board of the bank would have ensured that allwire transfers were fully investigated before being allowed to takeplace. Additionally, there are certain regulations that the FinancialServices Authority (FSA) and other similar bodies have put in placethat the board would have used to prevent the fraud. For instance,regulation 42 of the FSA states that banks are supposed to applyrisk-sensitive measures to monitor ongoing business relationshipswith partners (FSA, 2015). In this case, the board would havemonitored its dealings with FIFA, hence stop the fraud at its wake.

  1. Cause and effect

According to the fraud triangle, the most relatable element isrationalization. This is because the banks did not perceive theiractions as fraud. The fraud tainted the image of the banks that wereinvolved in the saga. For instance, the HSBC and Standard CharteredBanks received heavy fines from the US regulators over lax controls(Titcomb, 2015). At the same time, they were fined for failing toprevent money laundering. The banks risk further punishment shouldongoing investigations reveal more facts to prosecute them. At thesame time, major sporting associations have put in place stricterconditions while dealing with the banks that were involved in thesaga. This not only spoils the name of these banks in the financialmarket but also makes them lose the competitive edge against theirmain rivals in the industry.


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