Governance, Business

Ethics, Risk Management,

and
Internal Control

Magdalena D. Garcia

Governance, Business Ethics, Risk Management, and

Internal Control
(ACCO 20163)
Introduction

This course is designed to introduce students to important management

subjects needed to learn and apply in their immersion to real life
situation in the business world

This course contains everything needed to successfully integrate

activities into the discussion, it is organized into four modules such as
Governance, Business Ethics, Risk Management, and Internal Control.
In the module, include are self-Assessment Exercise, Quizzes, Analysis
of Case, Framework Construction, Formulation, and Discussion
Question.

After completing the Module # 1: Governance the students should have

been acquainted in analyzing Governance in three ways: The state, The
private corporation, and a social network. Able to construct a model
governance framework. For Module # 2: Business Ethics, realized the
importance of business ethics for a successful business endeavor and
able to analyze related cases. For Module # 3: Risk Management,
preparedness and prevention of the unknown that may district the
smooth four of the business organization by strategies and approaches.
For Module # 4: Internal Control, Evaluation of an organization’s
internal controls, Resolving the current problem and reorganization.

Governance, Business Ethics, Risk Management, and

Internal Control

(ACCO 20163)

Course Objectives
 1. Acquire the basic concepts in the four modules
Governance, Business Ethics, Risk Management, and Internal
Control
2. Discuss the importance and the effective implementation
of the above-mentioned management subjects
3. Evaluate one organization using the four management
subjects, Analyze the case and present the condition
4. Reorganized, Formulate and construct the needed
resolution in upgrading the present condition to a higher-level
status of an organization

Governance, Business Ethics, Risk Management, and

Internal Control

(ACCO 20163)

Module I.

Governance
Lesson 1. Definition of Governance and it's Principle
Lesson 2. Corporate Governance and It's Importance

Module I
Governance

Module I

Lesson 2. Corporate Governance and It's Importance

Learning Objectives:

2.1 Understand the concept of good and corporate Governance

2.2 What was the impact of Sarbanes-Oxley in the 2019 Pandemic

2.3 Construct a model Governance framework in your stand

Course Material No.2

Videos Link
(Please watch and like the video below)

What is the leading governance model?

Corporate Governance

Why Corporate Governance Matters — And How to Get it Right

A corporation without governance is like a train without a track. No matter how much
potential the business has, it will never undergo the business transformation needed to
get to where it wants because it has nothing directing its progress. Unfortunately,
corporate governance did not get much attention until 2002, when President Bush
signed the Sarbanes-Oxley Act into law.

The Act issued several reforms intended to improve corporate responsibility and prevent
financial fraud. Changes mandated by the Act may not have seemed important before,
but widespread fraud that bankrupted Enron and WorldCom created a serious
disruption in markets. Many investors worried that they would lose their money if
corporations continued to mismanage their funds and investments. The Sarbanes-Oxley
Act made investors feel more comfortable. Today however, proper governance is not
simply about investor security; it is necessary for corporations to succeed. Without good
governance, project management and corporate improvement strategies have higher
failure rates that will make potential investors wary.
Defining Corporate Governance

Corporate governance can refer to any of the policies and processes that control a
company, but that definition does not do a particularly good job explaining what
corporate governance really is. It is more helpful to say that governance refers to the
policies and processes that help the corporation move towards its goals, while
preventing unwanted conflicts.

Governance must balance the needs of several groups, including shareholders, board
members, customers, and the various communities within an enterprise: Executive
Management, Operations, Project Management, Process Improvement, Information
Technology etc. When done well, governance creates an honest, open environment that
promotes structure in planning, agility in execution, and encourages board members
and executive committees to dedicate money to the corporation to innovate and grow.
Good governance is embedded in the good behavior and sound judgment of those who
are charged with running an organization.

Why Corporate Governance Matters

Corporations need comprehensive governance frameworks that give themselves the

tools to prevent risk and make effective decisions. Once a company establishes its rules
of governance; board members, steering executives, as well as managers should know
exactly what their roles are and how they play into the overall organizational structure.
Governance solidifies each person's position so that they do not stray from the mission.
Proper governance structures identify the distribution of rights and responsibilities
among different participants in the corporation and outline the rules and procedures for
making decisions in corporate affairs.

● Good governance can offer several important benefits to organizations, including:

● Better organizational strategies and plans
● Improved operational and process effectiveness/efficiency
● Improved project management and delivery
● More prudent regulatory compliance, financial and risk management
● Improved member and stakeholder/employee engagement and communication
flow
● Increased agility to which an organization can deliver on its purpose and goals

Effective governance structures allow organizations to create value, through innovation,

development, and exploration, and provide accountability and control systems
commensurate with the risks involved.

Developing an Effective Governance Structure

An effective governance structure must be lean, simple, and straightforward. This starts
with the creation of an Executive Committee devoted to aligning all levels of the
organization so that they contribute to achieving defined strategic goals and objectives.

Members of the Executive Committee need to review the organization and its
investment portfolio to make sure strategies reach their intended goals. A genuinely
great Executive Committee will also review organizational performance (including
processes and policies) to anticipate future needs and avoid regulatory infractions.

Directives from the Executive Committee flow down the organizational chain to
members of various Sub-Committees. Sub-Committees usually include department
managers who can make changes within their areas of the organization. Since these
individuals are responsible for process and project performance, they can execute plans
that bring their departments in line with the organization's overall goals.

Recurring reviews play a key role in good governance. Sub-Committees need to

investigate performance to decide whether project, process, system, departmental, or
data changes have reached their goals. In many cases, they will have to propose
changes or ideas that will further improve processes and systems. The Executive
Committee can then review these proposals to determine whether they want to endorse
these paths and commit investment funds or create new plans or goals for
improvement. If the organization’s strategic plan needs revision, changes ultimately
come from the Executive Committee.

Conclusion

Proper governance requires time and thought from committed leaders who understand
the benefits of aligning every level of an organization to produce desired results. Good
corporate governance ensures that a business’s environment is fair and transparent and
that employees can be held accountable for their actions. Conversely, weak corporate
governance leads to waste, mismanagement, and corruption. Regardless of the type of
venture, only good governance can deliver sustainable and solid business performance.

Governance Framework
RBC_Corporate_Governance_Framework.pdf (PDF)

Sarbanes Oxley Act

The Sarbanes-Oxley Act is a federal law that was enacted on July 30, 2002 in reaction
to the major corporate scandals that were going on at that time, such as that which
involved the infamous Enron. Included in the bill are responsibilities entrusted to the
boards of directors for public corporations, along with the criminal penalties that can be
enforced in response to certain kinds of misconduct. The Act also demands that the
Securities and Exchange Commission create regulations to guide corporations in their
compliance with the law. To explore this concept, consider the following Sarbanes
Oxley Act definition.

Definition of Sarbanes Oxley Act

Noun

1. A federal law governing corporate responsibilities and liabilities

Origin

2002 Federal legislation

History of the Sarbanes Oxley Act

The purpose of the Sarbanes-Oxley Act was to crack down on corporate fraud. For
example, the Sarbanes-Oxley Act, in addition to creating the Public Company
Accounting Oversight Board (PCAOB) (which does exactly what its name would
suggest), also banned the act of company loans being given to executives. The Act also
provides whistleblowers with job security so that those who witness something unlawful
can report it without fearing they will be terminated as a result.

Named for sponsors Senator Paul Sarbanes and Congressman Michael Oxley, the Act
became law on July 30, 2002, and is enforced by the Securities and Exchange
Commission. Several events that occurred between 2000 and 2002 set up the history of
the Sarbanes-Oxley Act. The highly publicized frauds that took place at companies like
Enron, Tyco, and WorldCom highlighted the fact that significant problems existed
regarding conflicts of interest, and the incentives that companies were handing out to
their high-level employees.

In a 2004 interview, Senator Sarbanes made the following statement:

“The Senate Banking Committee undertook a series of hearings on the problems in the
markets that had led to a loss of hundreds and hundreds of billions, indeed trillions of
dollars in market value. The hearings set out to lay the foundation for legislation. We
scheduled 10 hearings over a six-week period, during which we brought in some of the
best people in the country to testify …

“The hearings produced remarkable consensus on the nature of the problems:

inadequate oversight of accountants, lack of auditor independence, weak corporate
governance procedures, stock analysts’ conflict of interests [sic], inadequate disclosure
provisions, and grossly inadequate funding of the Securities and Exchange
Commission.”

The Act is effective at holding CEOs personally accountable for the errors that can
occur within the accounting audits within their companies. As one might expect, the
early history of the Sarbanes-Oxley Act shows that many were pessimistic about the Act
at first. For one thing, they worried that it would make the U.S. less enjoyable to do
business with. They also thought it was nearly impossible to implement. For example,
the Sarbanes-Oxley Act was too corrective and expensive to enforce.

However, looking back on the history of the Sarbanes-Oxley Act, it is now even clearer
that regulation of the banking industry was incredibly important, due to the financial
crisis that occurred in 2008, often referred to now as “the Great Recession.” The most
notable elements of the Great Recession, which lasted from December 2007 to June
2009, were the bursting of the housing bubble and the drop of the stock market. Many
people found themselves living in homes that were suddenly worth less than what they
owed on them, and poverty rose as income levels dropped, most people could no
longer afford their expenses.

Banking practices of the time also contributed in a major way to the enactment of the
Sarbanes-Oxley Act. The fact that firms needed to borrow money should have told the
investors that the firms were not safe to invest in. Such was the case with Enron.
However, several major banks gave Enron loans while either ignoring or simply
misunderstanding the risks the company was facing. As a result, investors and their
clients were hurt by bad loans when Enron could not pay them back, which led to large
settlement payments being made by the banks. The Sarbanes-Oxley Act was created,
in part, to prevent something like this from happening again.

Elements of the Sarbanes Oxley Act

Title III contains several important elements of the Sarbanes-Oxley Act. Specifically, it
pertains to a company’s “Corporate Responsibility for Financial Reports.” This section
includes all the certifications that a financial report is supposed to contain before being
submitted. Organizations who attempt to avoid fulfilling these requirements can be
penalized in accordance with the provisions of the Act.

Examples of required certifications include acknowledgments that:

● The signing officers have reviewed the report

● The report does not contain any false statements or omissions, nor is it misleading in any
way
 ● The financial statements and related information presented are a fair and accurate
representation of the company’s financial condition

Additional elements of the Sarbanes Oxley Act can be found within its eleven
Titles, which are outlined below.

● Title I: Public Company Accounting Oversight Board (PCAOB) – Mentioned

earlier, the PCAOB oversees the accounting firms that provide auditing services to
businesses. It defines and enforces the procedures necessary for audits to follow the Act.
● Title II: Auditor Independence – This section restricts auditing companies from
providing non-audit services, such as consultations, to the same clients. It also addresses
things like requirements for new auditor approvals and auditor reporting.
● Title III: Corporate Responsibility – The section specifies the individual
responsibilities that senior executives are expected to take to ensure the accuracy and
completeness of a company’s financial reports.
● Title IV: Enhanced Financial Disclosures – This section details the reporting
requirements for financial transactions, including the controls that are put in place to
ensure the accuracy of financial audits and reports.
● Title V: Analysts Conflicts of Interest – This section defines the code of conduct for
security analysts and requires that any known conflicts of interest be disclosed as soon as
one becomes aware of them.
● Title VI: Commission Resources and Authority – This section defines the
conditions under which a person can be banned from practicing as a financial authority.
● Title VII: Studies and Reports – This section talks about the effects that can occur
from public accounting firms being consolidated, as well as the role of credit rating
agents in security market operations.
● Title VIII: Corporate and Criminal Fraud Accountability – This section goes into
the details surrounding the criminal penalties that one can incur from manipulating,
destroying, or altering financial records or interfering with investigations. This is also the
provision that contains whistleblower protections.
● Title IX: White Collar Crime Penalty Enhancement – This section recommends
stronger sentencing guidelines for white-collar crimes and conspiracies. It also makes the
failure to certify financial reports a criminal offense.
● Title X: Corporate Tax Returns – This is perhaps the simplest element of the
Sarbanes Oxley Act. This section requires that the Chief Executive Officer (CEO) of a
company be the one to sign the company’s tax return.
● Title XI: Corporate Fraud Accountability – This section talks about corporate fraud
and records tampering insofar as being criminal offenses, and then ties those offenses to
their respective penalties.

Sarbanes Oxley Act Example Involving the Fishing Industry

The Sarbanes Oxley Act does not only apply to Wall Street corporations and banks.
Title VIII, Section 802 (a) makes it unlawful to hide, destroy, or alter any records or
objects for the purpose of obstructing a federal investigation. In 2014, the applicability of
this provision was put to the test by a commercial fisherman.
In this example of the Sarbanes-Oxley Act being challenged, John Yates, a commercial
fisherman, was working in the Gulf of Mexico when a federal agent conducted an
inspection of his ship. The agent noticed that Yates had undersized red grouper in his
ship, which was a violation of U.S. regulations regarding federal conservation.

The federal agent instructed Yates to keep the grouper separate from the other fish.
Yates instead instructed his crew to throw the grouper back overboard. This resulted in
Yates being prosecuted under the Sarbanes-Oxley Act, specifically the provision that
reads that a person can be fined or imprisoned for a maximum of 20 years if he:

“…knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false
entry in any record, document, or tangible object with the intent to impede, obstruct, or
influence a federal investigation.”

At his criminal trial, Yates argued that fish were not the kind of “tangible objects”
referred to in the Act’s provision. Rather, he argued, the tangible objects referred to in
the Act covered objects used to store information, such as computer hard drives. The
District Court disagreed, and Yates was ultimately convicted and sentenced to 30 days
in prison.

Yates appealed the conviction, and the U.S. Court of Appeals for the Eleventh Circuit
affirmed his conviction. The Court of Appeals held that fish are physical objects and are
therefore defined as being tangible objects.

The case was escalated to the U.S. Supreme Court, which ultimately reversed the lower
court, holding that a tangible object as referred to in the Act is one that is “used to
record or preserve information.” This definition, therefore, did not extend to fish.

Associate Justice Elena Kagan argued, in her dissenting opinion, that “[a tangible
object] is a discrete thing that possesses physical form,” and that yes, this argument
should extend to fish. To further illustrate her point, Kagan cited the Dr. Seuss book
One Fish Two Fish Red Fish Blue Fish as general evidence. Kagan believed that fish
could, and should, be covered as tangible objects under the provisions of the Sarbanes-
Oxley Act.

Related Legal Terms and Issues

● Acquittal – A judgment declaring a person not guilty of the crime with which he has
been charged.
● Audit – An official inspection of an organization’s financial accounts.

(end of this lesson)

Reference

What is the leading governance model?

https://youtu.be/a8lUSodjiZA

Corporate Governance

https://www.processexcellencenetwork.com/business-process-management-bpm/articles/10-
principles-that-promote-good-governance

Corporate Governance Framework

http://www.rbc.com/governance/_assets-
custom/pdf/RBC_Corporate_Governance_Framework.pdf

Sarbanes Oxley Act

https://legaldictionary.net/sarbanes-oxley-act/
 Governance, Business Ethics, Risk Management, and
Internal Control

(ACCO 20163)

Module I.

Governance

Lesson 1. Definition of Governance and it's Principle

Lesson 2. Corporate Governance and It's Importance

End of Module I. Governance