GOVERNANCE, FRAUD, ETHICS AND SOCIAL RESPONSIBILITY

INTRODUCTION Nigeria, a third world country and generally believe to be the giant of Africa is ranked 130thout of 180 countries on the global corruption perception index, a surveyed by Transparency International in 2009. This goes a long way in showing that the effect of corruption is significant in Nigeria. The reasons behind this may not be farfetched considering the behavior of individuals, corporations, organizations, and government to the issues on governance, ethical practices, social responsibilities and fraud in the country. The various sectors in Nigeria have challenges when it comes to the issues of Poor governance, unethical practices, gross misconduct, fraud and a host of others (Hansen, Phute, Dembe & Chikanza 2005; Radda 2009; United Nations Department of Economic and Social Affairs 2001; Zikhali 2005). As a result, this study seeks to determine based on theory and existing literatures, the relationship between governance, ethics, social responsibility and fraud. GOVERNANCE Depending on the way it is viewed, governance can either be corporate or public. According to the Organization for Economic Cooperation and Development (OECD), corporate governance is the framework by which organizations are directed, controlled and managed. It involves upholding with integrity and accountability the various relationships within and outside of the organization. Simply put, corporate governance is how a corporation/organization is governed even as it balances the interests of various

stakeholders. Adedipe (2004) defines corporate governance as a term that describes the manner in which business organizations are managed. According to him, the

organizations may be for profit or not-for-profit. Furthermore, Dozie (2003) argues that attributes by which corporate governance can be identified will include transparency, accountability and integrity, probity and stakeholders rights protection. On the other hand, Kaufmann, Kraay & Zoido-Lobaton as cited in Babalola & Adenugba (2010) describes public governance as the traditions and institutions that determine how authority is exercised in a particular country. This includes the process by which governments are selected, held accountable, monitored, and replaced; the capacity of governments to manage resources efficiently and to formulate, implement, and enforce sound policies and regulations; and the respect of citizens and the state for the institutions that govern economic and social interactions among them. Be it corporate or public, governance has a direct role to play in the area of curbing corruption of which fraud is a fragment as opine in Hansen, Phute, Dembe & Chikanza (2005). According to them, fraud will normally occur in an organization wherein the framework of governance is either weak or corrupted. REASONS FOR GOVERNANCE Governance is of paramount importance in any organization due to the Agency problem (principal/agent). Organizations are established for varied purposes and are expected to be controlled and managed by the owners but not everybody can be in control more so when ownership comprises of various groups. Therefore, agents called managers are

appointed to take charge of the affairs of the organization and when this is done, it becomes paramount that these agents be accountable and transparent in their dealings on behalf of the owners hence the reason for corporate governance. According to Babalola & Adenugba (2010), the agency problem which gives rise to the need for corporate governance can be viewed from three perspectives; principal/agent, principal/principal and principal/stakeholder. The principal/agent is the conflict evident between managers and shareholders; the principal/principal is the conflict between majority and minority shareholders while the principal/stakeholder is the conflict between the owners including management and other interest groups or externals. IMPORTANCE OF CORPORATE GOVERANCE In our society today, the issue of corporate governance cannot be over flogged because to a very large extent; it determines the fate of companies and entire economies in the age of globalization (Centre for International Private Enterprise, 2002). Globalization which has indeed created international market for companies have also opened up such companies to competitions which requires innovation, technological know-how, capital funding just to mention a few. Considering capital fund acquisition, companies with poor or no corporate governance structure face the greater challenge of being unable to compete and thus left out of because shareholders and investors shy away from investing as a result of corrupt practices, mismanagement, misappropriation. According to CIPE (2002), investors will only invest in companies with strong evidence of best business practices, transparency, accountability, management integrity and unbiased reporting

(which are attributes of corporate governance). In a nut shell, a viable means of attracting funding required to compete globally will be to have a strong corporate governance framework and this is important for private sector companies as well as public sector companies. Similar to the above, the Certified Institute of Management Accountants (CIMA) advocates that good corporate governance practices will help in; reducing risk and stimulating performance. Where corporate governance is upheld, corruption is nipped, risk of under-competition is reduced due to accountability and transparency that will be required in dealing with transactions, procedures and corporate decisions. Performance is improved since management will be following standards for transparency and working in the best interest of the owners and stakeholders. Cattrysse (2005) opine that the nature of corporate governance will be of benefit in; ability to meet societal expectations. This is a very important aspect that must not be toiled with, the society/external stakeholders expect a lot from a company, although the company may not meet all the expectation list however, its ability to uphold a sound corporate governance structure will enable it meet most of the expectations since a good number of them fall within the corporate governance frame; overall performance. Corporate governance is not a guarantee for success however, when the integrals of corporate governance are applied, it leads to a reduction in corrupt business practices which leads also to better performance holding other factors that can affect performance constant (cattrysse 2005).

Corporate governance is a sinequanon to better performance and it is best seen in organizations/managements that have the following attributes; discipline, independence, transparency, accountability, equity, social responsibility just to mention a few. According to cattrysse (2005), these attributes when put together make up the ethics and code of corporate governance. ETHICS AND CODES OF CONDUCTS There is but a thin line of difference between ethics and code of conducts although both seek the same motive: ensuring right behavior or action. While ethics refer to a system of moral principles that deals with values relating to human conduct and behavior with respect to rightness or wrongness of certain actions and to the goodness and badness of the motives behind such actions (Fox and Meyer as cited in Zikhali, 2005), code of conducts deals with a more general way of doing things in any organization. Code of conduct more or less encapsulates ethics since codes of conduct look at the general and ethics just look at the moral aspect of behavior. According to cattrysse (2005) ethics is a very significant aspect of corporate governance; we cannot talk about a sound governance framework without referring to ethical behavior. Zikhali (2005) opine that the constituent of ethical behavior may differ across various platforms, but it will however be behavior that conforms to generally accepted social norms and values. According to him, such norms and values will include: humanness, honesty, justice, reasonableness, freedom, truth, decency, integrity, order, fairness, openness. Other elements of ethics as mentioned in cattrysse (2005) include: impartiality, neutrality, impartiality, fairness,

diligence, objectivity, independence, trust, confidentiality, accountability, equity, safety, responsibility, security, loyalty, discipline, transparency These elements are some of the physical features of a sound corporate governance framework and their importance are not farfetched. IMPORTANCE OF ETHICS IN CORPORATE GOVERNANCE Public opinion and expectation nowadays adds more value to ethical behavior expected to be seen in organizations. Most organization holds fast to ethical behavior seeing it as an edge for competitiveness in the business world hence, the emphasis placed on it. According to Sass (2008), unethical practices will affect the provider of fund (shareholders in private sector, government and tax payers in public sector) and these go a long way in affecting competitive capacity of the organization in question. The reasons for good ethical practices will include: professionalism and responsibility. By these we mean that a good ethical practice in any organization will form the bedrock for carrying out various responsibilities and task expected since they spell out the acceptable behavior and manner by which operations are expected to be carried out in order to achieve organizational goals and objectives. Gilman (2005) observes that codes are the framework upon which professionalism is built. Therefore, if any organization must be seen as being professional in its operations, sound ethical practices and codes of conducts must be observed; reputation effect. Cattrysse (2005) points out that the impact of wrong doings has a significant effect on the reputation of organizations. Taking the incidence of Enron and Arthur Anderson, the act of engaging in non audit services which negates

independence is seen as a wrong action which invariable posed a question on the firm reputation and hence a loss of faith in the work of the firm; anticorruption tool. In 2003 (UN convention against corruption), public service codes was mentioned as an important aspect in preventing corruption. Reason for this is obvious considering corruption is a vice that thrives where there are no controls (good leadership), codes and regulations (weak law enforcement) (Waziri, 2010). Furthermore, Cattrysse (2005) observes that sound ethical practice will ensure a higher level of integrity which in the long run, helps to minimize corruption and strengthen control. From the discussion so far, it will be right to say a sound ethical practice in any organization is closely linked and significant in its corporate governance framework. Another issue closely related to corporate governance and ethics is social responsibility. What therefore is social responsibility? SOCIAL RESPONSIBILITY Corporate social responsibility (CSR) or just social responsibility is not a new concept in the business world as a result; so many definitions have been given to explain this concept. Unknown author as cited in Cattrysse (2005) observes that corporate social responsibility deals with treating all with stakes in an organization in a socially responsible and ethical manner. Closely related to this definition is Mazurkiewicz (2004), where it is argued that the perspectives from which CSR may be viewed are: a company and its relationship with internal stakeholders (shareholders, employees, customers and suppliers). Here, CSR is seen from the responsibility of the company to its internal

stakeholders. Such responsibilities will include good working conditions, motivation and compensation programmes, and training, prompt settlement of debts a company and its relationship with the government (laws, regulations, and standards). By this we mean how the company relates with the laws and extant regulation, compliance to environmental and tax obligations and finally, a company and its relationship with the external stakeholders (community where it operates). Put in another words, this refers to how the company gives back to the society where it operates. Business for Social Responsibility (BSR) defines CSR as operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that (the) society has of (the) business. (It) is seen by leadership companies as more than a collection of discrete practices or occasional gestures, or initiatives motivated by marketing, public relations or other business benefits (and) viewed as a comprehensive set of policies, practices and programs that are integrated throughout business operations, and decisionmaking processes that are supported and rewarded by top management. Bichta (2003) argues that corporate social responsibility is an aggregation of profitability, compliance and philanthropy. Simplified further, it means how the company ensures adequate returns to shareholders, obedience to extant laws and regulations, and making contributory gestures to the community where it operates. From the above, it is evident that CSR aims at ensuring satisfaction to all that have stakes in a company or organization. This is better explained by the stakeholders theory. However, a challenging issue about CSR is its voluntariness as such, measuring the extent of corporate social responsibility becomes difficult therefore it rest on management to determine its level of CSR and this can be

achieved by incorporating it as part of the corporate governance framework (Cattrysse, 2005). Simply put, the relationship that exists between corporate governance and social responsibility is that the latter is a subset of the former. FRAUD The issue of fraud cannot be spoken of without speaking of corruption. Corruption is fast becoming a household name in Nigeria. According to Waziri (2010), corruption operates when there is perversion or change in the generally acceptable laws and regulation for selfish reasons and motive. According to her, the behaviors that indicate corruption are: embezzlement, bribery, fraud, nepotism or favoritism, misappropriation and conversion of public funds for personal gains, falsification of financial records... Ackerman (2004) defines corruption as the misuse of power for either political or private gains. She further opines that corrupt activities that fall within this definition are: paying and receiving bribes, fraud, embezzlement, conflicts of interest, and providing favors or payments in return for campaign gifts. Corruption is basically the generic name for acts of misconduct and unethical practices. Fraud which a type of corrupt practice, has been defined by various groups: The Collins English dictionary defines fraud as a criminal offence in which a person acts in a deceitful way. According to Matsheza & Kunaka as cited in Hansen et al (2005), Fraud is the unlawful and intentional misrepresentation which results in potential or actual loss. The Association of Certified Examiners of Fraud defines it as the use of ones occupation for personal enrichment through deliberate misuse or misapplication of the employing organizations resources or

assets. Hansen et al (2005) opines that fraud can either be internal or external. When it is committed by those within any organization, it is viewed as internal and when it is done by outsiders, it refers to external fraud. Furthermore, they argue that fraud is prevalent in any system where the corporate governance structure or framework is weak or corrupted. They further emphasized that fraud differs from errors in that the latter is intentional and motivated, the former is not. In all, fraud is an act of corrupt practice aimed at gaining in an illegal way at the expense of others. It operates in systems where ethics, morals and best practices are thrown into the wind. FORMS OF FRAUD Some ways in which fraud can manifest are: Misappropriation of company asset: sometimes, staff may use the asset of the company for unauthorized use. A good example is taking company car for a private travel. Though this seems normal, it is actually an act of fraud. Payment of ghost workers: This is a usual practice in government establishment. Here, people who are not employees of an organization have their names included in the payroll list. When payment is eventually made, those in charge of disbursements tend to keep the excess money for themselves. A good example is found at the local government councils and secretariat. Stealing time from Employer: quite similar to the above is the stealing of time by employees in organization where payment is a function of time worked. Employees in a

bid to have more payments may sign for times not even worked for or may play truancy and still sign that they were present on duty. Misappropriation of fund: This is also a common practice in organizations. An example will be where a staff applies for grant (maybe workshop grant) and refuses to show up at the place of the workshop or seminar. Fraudulent reporting on funds used: In a bid to gain from expenses incurred, staff may overstate the actual amount spent while on official assignment. Example will be when the hotel expense incurred on travel is overstated or wrongly reported. Inflation of purchase prices: A staff can agree with companys suppliers with whom a relationship has been developed over time to increase the price for goods delivered to the organization after which the excess on such is shared between the parties involved. This is a very common form of fraud practice in most organizations. FRAUD INDICATORS According to Hansen et al (2005), some things that can point out tendencies for fraud in an organization are: Behavioral indicators- these will include; an employee who always
wants to stay behind at work a bit later than everyone else or who wishes to leave only after the supervising officer is gone, An employee who refuses to take any vacation or other time off. Physical indicators- altered timesheets that a supervisor is requested to approve urgently, suspicious looking invoices or receipt it must however be noted that these

behaviors are not 100% accurate but might just be the hunch needed to point out fraudulent practices that could occur. CONSEQUENCES OF FRAUDULENT ACTIONS Some of the fallouts of corrupt practices and fraudulent actions are:

Weakened financial position and performance in any organization where fraud takes place.

The corporate image and reputation of the organization is questioned and this can lead to difficulties in capital funding. Fraudulent practices not detected over time can lead to corporate death (bankruptcy and liquidation). SUMMARY AND CONCLUSION Having looked at these concepts individually, attempting to draw the relationship amongst them will bring to our knowledge that ethics and social responsibilities are integral aspect of any corporate governance structure (Cattrysse, 2005). Furthermore, a sound corporate governance structure will help reduce the ills of fraud since the cancer of corruption thrives in an atmosphere having a weak governance system (Hansen et al, 2005).

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