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Actions taken to stop the fraud

Discuss about the Business Responsibilit and Corporate Governance.

The financial planning arm of Terra Australis Bank (TAB) Terra Australis Financial Planning Limited (TAFPL) was involved in a huge fraud that exposed the bank into various enterprise risks from 2003 to 2012. The senior management took some of the following actions inorder to stop the fraud case. First the management promised to give compensations to all victims of fraud even though the action was criticised as a way of just covering up for the seniors rogue planning. The second action that was taken by John Bloe , a financial planner at TAFPL after he discovered that the case was covered from internal to cover up for the frauder. Bloe first alerted the financial manger of his team about the fraud case but the issue was brushed aside, he then went further and took the matter to middle management but still no action was taken.TAB was then forced to take the matter for public investigation where the financial planner Don was found to have secretly manipulated some of his clients profile and he was suspended. Despite the senior management being aware of this entire saga, they never took any action to stop the fraud instead they brushed such complains aside as they were trying to cover up for the frauder . These actions and behaviours was not only inappropriate but made the situation even worst because as time goes without sorting out the issue the more the risks involved. The failure of senior management responding to client’s complaints exposed them to the risk of non-compliance which will eventually lead the company to making loss due to compensations that they will be required to give to its clients.

If I was in Sam Venus position, I would have looked at all enterprise risks that a company might be involved in and the activities that lead to such risks. After identifying the risks I would then ensure my employees are not involved in any risky activities that would result such crisis. Some of the risks that are usually observed in enterprises include; compliance risk, operational risk and strategic risks. I will then put in places ways of mitigating such risks to avoid them in future by; avoiding activities that give rise to such risks, taking action to reduce the chances of the risk occurring and ensure compliance to laws given.

Identifying risks in enterprises

The key areas of concern in TAB’s remuneration plan are incentives and commissions. Incentives were considered to be most effective and the major area of concern in remuneration. The financial planners who performed well and met targets were given bonuses which were a form of incentives to motivate them more. However employees’ dependency on commissions as their basic salary brought about negative influence of greed for one to get better pay. That is, employees are forced to engage in illegal risky activities like fraud in this case in order to meet their targets and have many clients for them to get high commissions. At the end, this portrays bad corporate culture and bad employee behaviours. If I was in TAB senior management position the changes I would make will be introducing retainer salary that each employee should get at the end of every month besides commissions which should only be used as incentives on top of basic retainer monthly salary. This would help reduce agency conflicts that mainly occur due to greed for having many clients for one to earn more commission, meet the target and avoid losing job.

Actions taken by ASIC throughout the course of financial planning scandals include; ASIC first send a warning notice TAFP telling them about a number of their financial planners classified as critical risk. Difficulties they faced taking this action was lack of cooperation from the internal management as they were covering up for the frauders. The other action taken by ASIC was carrying out discussions with TAFP which resulted in joint solution. They closely supervised Don and subjected him to a thorough vetting before any approval made for him. ASIC however faced difficulty of lack of enough evidence from TAFP that will help them investigate the case. The third action taken by ASIC was issuing order to TAFP to hand over client files undergoing investigations and TAB on the other hand was pressured to provide compensation to affected clients. This led to confrontationbetween ASIC and TAFP.

The media brings every new concept under good governance in to light for all people to know and access the new information. The media also educates and create awareness of good governance to the people, as the media disclose information about good governance to the people; it also provides opportunity for individuals to know their rights which help them make choices regarding political social and economic affairs they are supposed to participate in. It also provides accurate and enough information that enables individual enjoy freedom of speech which help them take action that can benefit them and the organization. The media on the hand plays a great role in forcing the policy makers and senior persons to be more prudent about their decisions and activities that might be affecting the employees so that they find a way of solving it. The wrongdoers who might be covered up in organisations by the management can also be exposed by the media for the public to know inorder to avoid getting into such bad traps. By doing so, most of the organisations will avoid covering up such cases that once exposed by the media ruin their reputation as an organisation and therefore forcing them to comply to set rules hence ensuring good governance.

Key areas of concern in TAB’s remuneration plan

Although the media is recognised to be more effective source of promoting good governance, there are some factors limiting it like; lack of access to the media by some individuals, lack of internet skills by some individuals that limits them in accessing media information and lastly some people give false information that has made some people lose their trust in media information. However, social media also plays a great role in risk management through increasing the speed of disseminating information about enterprise risks and ways of managing the risks.

A good whistleblower protection policy ensures transparency of operations within an organization in order to avoid conflicts between agents and favours to some employees in an organization. The whistle blower protection policy also helps to ensure proper communication process which should be open for fair operations in organizations to avoid conflicts. In this scenario, the policy did not sufficiently protect Bloe and his fellow whistleblowers because it took a very long time to stop the fraud case which had already ruin the organisation’s reputation and most clients were affected. Further improvement to be made to encourage those who are aware of the wrong doers in an organisation to come forward and expose the matter, should be introducing employee’s care and welfare unit which should keep all information and complaints received confidential. Employees should therefore report any wrong doing witnessed to this unit where action will be taken against the wrong doers instead of leaving such matters to senior management.

Organisations face some of the following challenges in promoting good governance, ethical behaviour and compliance; weak rules enforcement which exposes most of the employees engage in wrongdoing because they know no strong actions can be taken against them even if they do not conform to the rules. The second challenge is inappropriate practises, beliefs, attitude and norms that governs relation of individuals within an organisation may also make it difficult to enforce appropriate ethical behaviour and compliance since the culture created earlier in the organization may   be hard to change. Another major challenge is corruption this has hindered enforcement of good ethical behaviour and compliance to all set rules in many organisations. Most organisations corrupt the concerned bodies so that they may be set free from conforming to any rules given and no legal actions can be taken against them. Lack of support from management can also hinder promotion of good governance, the management being the backbone of every organisation should lead as example. Failure for the management to comply with good governance and appropriate ethical behaviour results to the entire organisation not complying too. Lastly, lack of transparency in an organisation also results to difficulties in promoting good governance since covers up many wrong doings because most individuals are not exposed to how all operations are carried out within the organisation. If there is no transparency, communication will eventually be affected too as information shared will be minimal due to limited access to information.

References

Brink, A. (2011). Corporate governance and business ethics. Dordrecht: Springer.

Gottschalk, P. (2011). Corporate social responsibility, governance and corporate reputation. Hackensack, N.J.: World Scientific.

Idowu, S., Frederiksen, C., Mermod, A. and Nielsen, M. (n.d.). Corporate social responsibility and governance.

Moon, J., Orlitzky, M. and Whelan, G. (2010). Corporate governance and business ethics. Cheltenham: Edward Elgar.

Murthy, C. (2009). Business ethics and corporate governance. Mumbai: Himalaya Pub. House.

Rezaee, Z. (2009). Corporate governance and ethics. Hoboken, NJ: John Wiley & Sons.

Sison, A. (2010). Corporate governance and ethics. Cheltenham: Edward Elgar.

Vallabhaneni, S. (2008). Corporate management, governance, and ethics best practices. Hoboken, N.J.: Wiley.

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