Implementing and Maintaining Internal Control Procedures - Coursework Example

Firstname Lastname Instructor’s Name Course Number 15 May 2018 Corporate Governance In the corporate world, a company no matter how big or small it is, has obligations to follow certain rules and regulations or policies. These rules and policies direct the company’s operations and they are called corporate governance (Sheikh, Saleem). In this paper, we will be discussing multiple regulations of corporate governance by conducting several case studies on the scenario of Telstra, an Australian global telecommunication company. ASSESSMENT ONE Corporate governance in the past few decades has become a crucial part of any global business environment. Huge financial crisis and backdrops over the years have influenced big companies and stakeholder to opt for more effective governance methods (Sheikh, Saleem). In Australia, Corporate governance has developed over time in an iterative way. Australian companies like Telstra has taken principles-based approaches to corporate governance. In these organizations, corporate governance is a vital tool to improve management and board liability to stakeholders (Steger, Ulrich, and Wolfgang Amann). To determine the relevance of corporate governance requirement with the chosen company, we need to take a look at some of the notable features of corporate governance in Australia. The corporate governance framework in Australia is based on the importance of stakeholders in a company. It puts the allegations of stakeholders as the first priority of any company. It also talks about the relationship between the Directors and the stakeholders and how it should affect the company. The framework only provides a guideline for companies to follow and build their governance structure around it. ASSESSMENT TWO (PART ONE) Telstra maintains a healthy corporate governance framework. The organization believes in being committed to excellence in transparency, corporate governance, and accountability. At the top of their governance chain is The Board of directors. The Board is responsible for managing the organization’s business activities, taking major financial decisions and they are also accountable to the stakeholders (Sheikh, Saleem). The major responsibilities of the Board is: approving business strategy and corporate planning, closely monitoring the execution of any strategy, monitoring performance and progress, measuring the success ratio for any project and determining the wage of the CEO, approving the CEO’s leadership team (Xin, Wei), keeping track of the company shares and audit activities, review oversees records and review internal control framework, and finally updating risk management system. The board is also responsible for maintaining legal and ethical standards and work safety and health performance, and also approving specific matters involving diversity (Xin, Wei). The Board also maintains a Charter that specifies its role and responsibilities. In Telstra, the Directors have full access to the executive management through the CEO or the Chairman at any time. The senior management team is responsible for scheduled presentations for the board, also the board can request an additional presentation and reports from the senior management anytime they like. The Board has the power to carry out any investigation that is in the best interest of the company and also, the board has the authority to hire any legal advisor or consultant on behalf of Telstra. The board also has control of all the independent committee. All other committees are accountable to the Board for any decisions they take. In specific situations, each Director of the board has the utmost right to look for professional advice outside the organization at Telstra's expense, specified within the limits (Sheikh, Saleem). Telstra’s Company Secretary is another major executive member of the company. His responsibility is to report directly to the Board by communicating with the Chairman, and all the Directors. All members of the board can communicate with the company’s Secretary at any time. It is also the Company Secretaries job to see if the Board charter is updated when necessary (Sheikh, Saleem). Right after the board, The CEO, and his senior management team are the company's decision takers. They are accountable to the Board for the development and execution of Telstra’s business strategy. While the board is only responsible for approving and reviewing, the CEO and his team are responsible for overall management and performance of the company (Xin, Wei). The CEO has obligation to directly consult with the board on any matter. Also, the CEO alone has to take actions for any work or employee related matters. Being a global telecommunication company, Telstra is very much reliant on its CEO and that is why, the board has the immense duty to review the CEO's performance. While in most companies, the chairman, and the CEO are the same person, Telstra believes that the role of the CEO and the chairman cannot be fulfilled by one person. The Chairman in Telstra is an autonomous Director who is appointed by the Board of directors. Telstra’s current chairman is, Catherine Livingstone, and she acts as a non-executive and independent Director. She has been with Telstra for more than 15 years and in 2009, she was selected as the Chairman by the board. The Chairman’s principal duties are to provide proper leadership to the Board and the company and to ensure the Board carries out all its obligation according to its Charter. The Chairman’s duty and responsibilities are also laid out in detail in the Board Charter (Steger, Ulrich, and Wolfgang Amann). One of Telstra's prime governance rules is to maintain diversity in terms of gender in the workplace. The Board is exclusively responsible for ensuring that it has a proper mix of diversity (in terms of gender), experience, skills and knowledge to allow the organization to efficiently carry out its tasks and responsibilities and to be well prepared to help the Company face the challenges that they meet. Board related matters are considered by the Nomination Committee in accordance with the organization's framework (Sheikh, Saleem). The Board keeps a skills matrix which helps them in recognizing areas to focus on and maintain proper diversity in terms of gender, skill, and experience (Xin, Wei). These outlines are reviewed by the board on a daily basis. It is important, but not the only, basis of criteria applying to director appointments. It is the board's job to ensure good executives for the firm. Their approval process includes the board providing a requirement list to the recruitment committee. Interviews for any executive position is conducted by the board. It is their job to see if the candidate meets all the required attributes. The CEO and his senior team are responsible for the approval of non-executive posts. They are also accountable to the board for any employee-related issues. The chairman has a part in the employee recruitment process. But the chairman can refer candidates to the board. It very important for Telstra that all employees have experience telecommunication, and marketing. The CEO acts as the only executive director. All executives and non-executives are obliged to take decisions that are in the best interest of Telstra. The Board reviews its performance yearly. Conflicts on any matter must be declared by the directors. In special cases, directors have the right to withdraw from participating in any discussion or matters of voting. All documentation such as cash flow or other financial statements, data records, operating statements and project approval etc. must be brought for final reviewing and approval by the Board. In Telstra, the governing body is very strict upon deadlines regarding any process, as the brand is global. So, deadlines for these documentations to be submitted are agreed-upon before (Sheikh, Saleem). The flexibility of these deadlines depends upon the CEO. If the CEO decides to extend or shorten any deadline for any documentation, then it doesn't need to be approved by the board. But the CEO is obliged to inform the Board about any delegations (Steger, Ulrich, and Wolfgang Amann). A new procedure would be to ensure the determination of independence within the board. The board needs to have a majority of independent directors. At this moment in Telstra, the Chairman of the board acts as the only independent director. The company limits the number of independent directors because they think it won't be in the best interest of the organization. But in 2012, Telstra has lacked behind international companies like Celcom and Axiatta. The company has a hard time meeting global standards. If the Board of Committee had a majority of independent directors, then decision making would be faster and more innovative, reviewing will be more precise due to the directors having to obligations, and any crisis or error can be sorted out within a limited timeframe. Having a majority of independent directors, make the Board's actions and activities more flexible. To be considered independent, a director has to qualify for certain standards which are agreed upon by the board itself. Another new procedure would be to ensure shareholders recognition within the company. This policy means that stakeholders will have a say the internal working matters of the company. For Telstra, this would a good principle as it will secure the value of the company's stock. But it is important that the stakeholders and the Board of Directors have a similar vision in terms of the company's future. ASSESSMENT THREE Corporate governance is the same as the supremacy of a state. An absence of proper corporate governance can lead any company during the time of a major crisis, loss, internal corruption and leave the company with a smeared image. Corporate governance recommendations are guild lines for the whole management that are designed specifically to decrease risk and threats and help the company meet certain standards in order to succeed and accomplish their business goals (Steger, Ulrich, and Wolfgang Amann). Every company should meet the minimum corporate governance requirement. The recommendations for Corporate Governance is not only important in terms of financial business matters, but also in terms of ethical matters. Ethical guidelines are very important in order to ensure healthy profit and keep the company out of any trouble in terms of the law. These recommendations apply to board members and all employees. Transparency within the organization must be apparent, which means proper development and release of financial, income and cash flow records. These guidelines promote ethics in business place. For example, in terms of Telstra, there is a dependency circle in the governance chain (Sheikh, Saleem). All employees are accountable to the CEO, and the CEO is accountable to the Board, the Board is accountable to the stakeholders. So, these accountabilities compel the company to carry out its actions efficiently. Also, Telstra's reviewing and monitoring make sure that all employees behave under ethical standards when it comes to the workplace. That keeps the company away from any legal troubles. So, these recommendations promote ethics in business. Recommendations include a) establishing a clear and documented relationship between rules and responsibilities of the Board and the stakeholders. Telstra fulfills this recommendation by developing the Board charter. b) Clarifying the role of the Chairman. Telstra clearly states in their corporate governance guidelines that the Chairman of the Board is a non-executive independent director. c) Implementing an authority matrix. The company details out which executive is in charge of which responsibilities (Steger, Ulrich, and Wolfgang Amann). d) Addressing Transparency issues. As we have discussed in the previous assessments, Telstra is very careful about making their transparency apparent. Each document and statements are reviewed by the CEO and his team and then sent off the final review and approval to the board. This method ensures transparency in the company (Steger, Ulrich, and Wolfgang Amann). e) Establishing a risk committee. This the area where Telstra falls short. Because in Telstra, the board acts as the risk committee. The risk committee should be an independent council and its members should show excellence in functioning under pressure and providing solutions based on creativity and innovation (Sheikh, Saleem). The Board of Directors needs to approve for an independent risk committee, and the members of the committee should be chosen from the organization. The committee should be accountable to the Board, and the Board should have the power to approve any decision taken by the committee. This allows solutions to come faster during times of crisis. The responsibilities of the risk committee should include internal controls, risk management, external and internal audits, and financial statements. These recommendations are very crucial for any organization. Corporate governance was solely developed to assess risks before they happen, and help and organization avoid a major crisis. It very important for any big company to follow these recommendations and full fill the requirements of corporate governance within their organization. Telstra has a very solid governance system and it fulfills almost all their requirements. But new procedures which are stated above should be implemented in proper ways for the company to grow in the future. ASSESSMENT FOUR Directors have many major responsibilities. They need to carry these duties out in accordance with the best interest of the company. One of the many jobs of a director is to provide adequate disclosure to financial reporting. Financial reports are the company's cash flow, gross profit, sales, trade etc. statements. These reports are very important in maintaining the company's transparency. The Directors have the responsibility to review these reports. They need to make sure that these reports are conveying updated and accurate information. After reviewing, the Director has to approve it in order for the firm to release it to external sources (Xin, Wei). These reports are made by acquiring different data from different sources. So, reviewing these reports and providing a suitable disclosure is very important for any company. Adherence to ethical values applies to all the employees in the workplace, including the executive and non-executive members, and the directors. The professional code of ethics teaches employees about how to function in the workplace. These codes include placing professional integrity and client interest above self-interest, acting with integrity, respect and competence, and developing and maintaining professional skills (Xin, Wei). An employee must understand the value of professionalism and integrity of the marketplace, duties to the client and the board, abilities to analyze and provide recommendations. It is important for the employees to follow these codes of ethics, as they are very important in maintaining a company's work environment. Employees should know how to maintain their workplace (Xin, Wei). This also goes for the executive and board members. Ethical standards should follow from the top of the chain to the bottom. Maintaining ethical standards keeps the company out of legal issues. It the Boards keys responsibility to review and monitor to ensure that the employees are following the professional code of ethics. As we have discussed in previous assessments, corporate governance was solely designed to help companies in avoiding serious risks and crisis. Its purpose is to maintain the organization's overall management system (Steger, Ulrich, and Wolfgang Amann). Corporate governance is the same as the governance of a state. It guidelines the operating the chain of the company and their major responsibilities. The crucial components of corporate governance include stakeholder's participation, independent board of directors, clarifying executive roles, implementing authority matrix, ensuring workplace diversity, addressing transparency issues, respecting culture challenges and conducting proper reviews and monitoring. For any company, global or national, tax reporting is a very important task that has to be carried out versatilely and in time. It is important for big companies to keep track of their income and provide tax reports based on that in order to evade any legal crisis. Wrong or faulty ATO reports can cause the company billions. Tax reports are government allegations. So, meeting the deadlines of submitting these reports should never be taken lightly (Steger, Ulrich, and Wolfgang Amann). It is the responsibility of the CEO to make sure that the ATO reports are presented in front of the Board in time for approval, and the directors have to carefully review the reports for possible errors. It is not only their professional duty, but it is also their ethical responsibility. That is why adherence to ATO reporting deadline is crucial. Segregation of Duties is an internal control management process that is designed to prevent fraud and error in any task. This method takes a single task that can be performed by a single individual and breaks it down into multiple smaller tasks so that, no single person is completely in charge of the tasks. These methods are used in administrative areas of the workplace where fraud and error are major risks. For example, in terms of payroll management, segregation of duties would be to have one individual signing checks and one individual responsible for accounting. This method improves the security of the business (Steger, Ulrich, and Wolfgang Amann). But breaking down tasks can also negatively influence the company by reducing efficiency, increasing cost and employee requirements. So, it is best for any company to apply SOD to only the most critical and vulnerable elements of the business. In general, stakeholders are those who invest in the organisation and are affected by the actions of the corporation (Sheikh, Saleem). Stakeholders can be internal or external. Internal stakeholders are those who invest from within the organisation and external stakeholders are those outside the corporation who show interest in the organisation. External stakeholders are mostly funders and investors. Involvement of these stakeholders in a vital part of any company. Stakeholders’ involvement brings clarification to certain points. Also, the investors need to trust the company. That is why it is crucial for the companies to involve their stakeholders in major decision making. For example, when assessing risks a company needs to consult its stakeholders to discuss with them about the risks of the business and how to face challenges. An audit is a business term that refers to inspecting and monitoring certain accounts of any business. An audit can be both internal and external. An internal audit focuses on certain business practices and if these practices are assisting the corporation to manage its risks and fulfill its business objectives (Sheikh, Saleem). Internal audit also focuses on the matter that if the organisational business strategies are able to cover financial and operational matters. External audit is all about the legitimacy of the annual accounts and if it was prepared within the legal requirements. Internal auditors are employed by the organisation itself. They require a strong background in accounting. External auditors are accountants that are registered under outside firms (Steger, Ulrich, and Wolfgang Amann). The main agenda of internal audit is to assess risks and business objectives, where the goal of an external audit is to make sure that annual reports of the business are not being misstated (Steger, Ulrich, and Wolfgang Amann). Internal auditors report to the internal governance, such as the CEO or project managers, where the external auditors report the shareholders or incorporated parties. These are the main differences between internal and external audit. An internal control structure or system is a set of policies and recommendations generally small businesses implement within their organisation in order to ensure the achievement of its business goals. Generally, there are five key components of an internal control structure, and they are Control environment, Risk assessment, Control activities, Information and communication, and Monitoring. The control environment is the management and the governance structure of the oganisation. Risk assessment focuses on how the management team should calculate the risks and find solutions. The control activities are all the policies and procedures that are developed in order to guide the management to carry out its tasks precisely (Steger, Ulrich, and Wolfgang Amann). Information and communication include reporting and keeping proper records of all data and making them easily accessible for the Board (Steger, Ulrich, and Wolfgang Amann). Monitoring is inspecting the effectiveness of the policies and making sure that all tasks are being carried out properly to meet business objectives (Steger, Ulrich, and Wolfgang Amann). CONCLUSION Corporate governance is one of the most important policies in any modern-day organisation. In global companies like Telstra, it very important to implement the requirements of the corporate governance carefully so that the company is able to function properly by assessing risks and achieving their business goals. Corporate governance is not only a specification for the chain of command, but it is also a guideline of how employees and executives should carry out their roles and responsibilities. Works Cited Sheikh, Saleem. Corporate Governance & Corporate Control. 5th ed., London, England, Taylor & Francis, 2012,. Steger, Ulrich, and Wolfgang Amann. Corporate Governance. 1st ed., Chichester, England, John Wiley & Sons, 2010,. Xin, Wei. "Telstra Corporate Governance And New Policy". Journal Of Finance And Accounting, vol 3, no. 5, 2015, p. 150. Science Publishing Group, doi:10.11648/j.jfa.20150305.16. Read More