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Nepal’s journey to the 2011 World Cup ended

2010-09-02T02:07:00.000-07:00

Nepal’s journey to the 2011 World Cup ended
The national cricket team ended its losing streak at the international tournaments by winning the final of ICC World Cup League Division 5 on Saturday. Nepal, who have already qualified for Division 4, defeated the US by five wickets to the cheers of a huge home crowd. Nepal’s win is significant in many ways. First, it is national cricket teams’ first ever title victory and second, it has kept Nepal’s quest for the 2015 Cricket World Cup alive. “We had worked hard for this day,” said an elated Nepali skipper Paras Khadka. “Hopefully, this will put the tag of chokers behind us.” The last few years have been quite discouraging for the Nepali cricket. Nepal’s journey to the 2011 World Cup ended when it failed to qualify for Division 4 in 2008 and finished fifth in the last ACC Trophy. Last year, the junior national squad failed to quality for the U-19 World Cup for the first time since 1997. Hence, Saturday’s win has given much- needed energy to the senior squad and joy to cricket fans. However, the road ahead won’t be easy. It has to figure in the top two teams in the next two divisions to get entry into Division 2. If Nepal enters Division 2, then it will play a 12-nation world cup qualifier, from which top six nations will get to participate in the 2015 World cup. Coach Roy Dias said the senior team had crossed a hurdle after various attempts. “Yes, it is pure hard work, but we also need luck at times and it looks like the lady luck is back with us,” said Dias.

Feeding America Selects Nuance PDF Converter Professional as Desktop Standard

2010-02-24T06:02:00.001-08:00

a leading provider of speech and imaging solutions, today announced Feeding America, the nation’s largest hunger-relief organization, has selected Nuance PDF Converter Professional 6 as its desktop PDF software. Feeding America will deploy Nuance PDF Converter Professional as part of its Athena technology project for national office staff and participating member food banks. The use of PDF within the organization enables more efficient electronic document workflows and collaboration – speeding Feeding America’s ability to service the needs of hungry Americans.

“Sadly, when the economy is bad, the number of people relying on our service grows — and we have been swamped in our efforts to provide food to feed a growing number of individuals and families,” said Kevin Lutz, vice president of technology, Feeding America. “Our business strategy is to move more food to more people while minimizing growth in expenses, and one way we will get there is through technology efficiency. Nuance PDF Converter Professional is advancing us towards our goal by reducing our costs to create, edit and share PDF files.”

Part of an organization-wide business initiative to upgrade office technology called Project Athena, the Nuance PDF Converter deployment will help Feeding America save on fax, printing and postal costs.

Deploying Microsoft Windows 7 is another component of Project Athena and PDF Converter has unique integration with Microsoft Office and SharePoint. For example, PDF Converter complements Microsoft’s save-as PDF capabilities in Office and provides Feeding America users with a host of capabilities that enhanced the user experience when using PDF with Microsoft Windows 7. Also, PDF Converter allows Feeding America to save documents to and retrieve document from its SharePoint repositories.

Feeding America has used PDF technology to reduce document printing by distributing PDF files via email rather than paper-based faxing. Also, the organization distributes Microsoft Excel and PowerPoint documents to food banks as PDF files, so they don’t need the source software for viewing. To collect information, Feeding America distributes electronic forms and Nuance PDF Converter changes static forms into fillable PDF forms that food banks can complete, save and email.

More information on Nuance PDF Converter Professional 6 software can be found at http://www.nuance.com/imaging/products/pdfconverter.asp. To download and try the software free for 30 days, click PDF Converter Professional 6 trial.

Principles, not rules: thanks to codes drafted under Mervyn King, South Africa has taken the lead in defining corporate governance in broadly inclusiv

2010-02-01T21:03:00.000-08:00

I think principles are more effective than rules, simply because it's easier to get around a rule than to get around a principle. My second observation is this: It's true that fish rot from the head. Companies need to set a standard at the top, and if those at the top start acting wrongly or unethically, the whole company knows about it. If the boss is stealing, why shouldn't the employees steal?
At Enron, for example, there was confusion between dissent and disloyalty. If a person at a boardroom table doesn't agree with what the majority is thinking, provided it's properly motivated and it's not just being bloody-minded, that's good; that's dissent. But sometimes at a boardroom table, disagreement is seen as disloyalty. Companies need to create a culture of motivated dissent.
In some of my writings and talks, I also say that an important attribute of a director is intelligent naivete. Although that may sound like an oxymoron, all it means is board members can't have expert knowledge of what's happening in the business, especially if they are non-executives. So, they need to ask what I've called intelligently naive questions, and not be embarrassed to do so, because it also helps those who are better informed to think again.
King II seems to recognize the importance of internal auditors in qualitative governance.

To me, the role of the internal auditor is absolutely critical in a company. If I come onto the board as a non-executive director, I'm a victim of "asymmetrical knowledge." Asymmetrical knowledge arises simply because the executives have absolute knowledge of the business. I'm relying on the information fed to me by those executives. I must be robust in testing the quality of that information. I must ask my intelligently naive questions, and if necessary, I must ask that someone else come into the boardroom to answer my questions or provide more information. In that circumstance, I always feel more comfortable as a non-executive director on a board when I know that the information coming to that boardroom has gone through the sieve of internal auditing. Then, I have another comfort zone about the accuracy and quality of that information. When I have reports coming up to the boards, I ask, "Has internal auditing checked these facts? What does internal auditing say?" If auditing hasn't reviewed the information, I always say, "Let's postpone the meeting," or "Let's call the internal auditor and see if he or she has done an audit on this before."
When I'm a member of a board, I always like the internal auditor to have a functional reporting line to the chairman of the audit committee and the chairman of the board. The internal auditor may report to the chief executive officer, but there must be an open-door policy to the chairmen of the audit committee and board. The board has a huge responsibility in this regard.

Principles, not rules: thanks to codes drafted under Mervyn King, South Africa has taken the lead in defining corporate governance in broadly inclusiv

2010-02-01T20:57:00.000-08:00

IN 1994, THE YEAR THAT SOUTH AFRICA ENDED WHITE-MINORITY RULE and elected Nelson Mandela president, South African businesses underwent a more subdued but highly significant transition of their own. That year, a committee headed by Mervyn King, a corporate lawyer and former High Court judge, issued the "King Report on Corporate Governance." King I, as it is now known, incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.
A second King Committee report--known inevitably as King II--was issued in 2002, taking this inclusive approach considerably further. "There is a growing weight of expectation on organizations to operate as good corporate citizens," the report says. "This is because of the influence they exercise on the lives of so many individuals. Each organization is the sum of its stakeholders, such as its shareowners, customers, employees, suppliers, and the communities within which it operates. It depends on them--individually and collectively--for the goodwill required to sustain its operations."
King spoke recently with Internal Auditor about King I and II and about how the South African initiatives compare with efforts to improve corporate governance in the United States.
Mr. King, the first King report was issued in 1994, during the momentous change in South Africa's government from white-minority rule to black-majority rule. What prompted that report and your involvement in it?

By 1991, there was a realization in South Africa that our previously disadvantaged fellow citizens were going to be in a new democratic society and would be moving from limited involvement in the economy into the mainstream. They had no experience with that, and there was nothing written down to guide them. There was also no guide as to how a board should treat stakeholders other than shareholders. I had practiced as a corporate lawyer for many years in South Africa, and I had sat on many boards. The Institute of Directors [in South Africa] and the Johannesburg Stock Exchange, as it was then called [now the JSE Securities Exchange], got together and asked me to chair a committee that was assembled to look at these issues.
The main item we discussed was, considering the special circumstances in the country, how to approach corporate governance in the new South Africa. Rather than focusing just on the financial aspects of governance, like the United Kingdom's 1992 Cadbury Code, we went for an integrated approach that looked at stakeholders as a whole who were linked through the company, and at how the board should deal with those stakeholders. It was the first time anyone had taken an integrated approach in articulating governance guidelines.
We decided to do King II because the governance of corporations is a dynamic thing. It doesn't stand still, and there were huge global developments from the time we published King I to the time we did King II. Companies around the world had learned over the years to approach reporting on an integrated basis, addressing social, economic, and environmental matters.
For the most part, King II doesn't seem to directly address the issues that led to the creation of King I.
We recommended in King I that companies engage in what became known as affirmative action. We set down guidelines in King I in an appendix as to how that should be carried out. Between 1994 and the publication of King II, the South African government passed the Employment Equity Act, which actually addressed the issue in its statutes, so it was unnecessary to deal with that in King II.
How has the South African government responded to King I and II?
The short answer is that there's been a positive reaction. However, there's been one response to which I'm opposed. There's some suggestion that certain aspects of the recommendations in King II should be legislated--in other words, be compulsory for all companies. Business is a difficult matter, and those who run it can't have the prescience to envisage what is going to happen from day to day, so they need flexibility in the processes associated with. administering their companies. To have the rigidity of a statute doesn't make business sense.
And how have South African companies responded to King I and King II?
Like all orchards, the corporate governance orchard in South Africa has a few diseased trees, but it is very healthy overall. That is not just my impression; it is the perception, for example, of American institutions that invest in South Africa because they believe that our country is among the best--if not the best--when it comes to corporate governance of emerging economies.
The JSE has adopted the King principles in its revised listing requirements. Parastatals [large state-owned enterprises] and the larger private companies are adhering to the main principles. Market forces dictate this.
In the United States, there has been a lot of criticism of efforts to draw up even more detailed rules, especially from overseas where many people believe that a principle-based approach is more effective.

Pofessional guidance - U.S. General Accounting Office and The Institute of Internal Auditors

2010-02-01T20:53:00.000-08:00

Our view: Auditors should consider the nature, scope, and objectives of each audit in relation to perceptions others may have about the auditor's independence, objectivity, and integrity. Professional judgment will demand consideration of potential impairments. In other words, auditors need to carefully consider the substance of their work against the Standards. Therefore, if you are a governmental auditor who needs to comply with the Yellow Book standards and you wish to do consulting in accordance with The IIA's Standards, you should first check your activities against the two Yellow Book overarching principles for independence and then against the other applicable GAO standards. You can be assured that there is no disagreement between The IIA and the GAO over the substance of work performed and the principles and safeguards that should be employed to maintain auditor independence and objectivity under The IIA's Standards and the Yellow Book.
State and local government auditors should feel comfortable that they can provide a wide array of added value services while complying with Government Auditing Standards and the International Standards for the Professional Practice of Internal Auditing. Don't simply assume that you cannot do what The IIA calls consulting. Instead, consult the standards and evaluate the substance of your work in relation to both The IIA and Yellow Book standards.
* See May 20 letter from The Honorable David M. Walker, comptroller general of the United States, to Urton Anderson, chairman, Internal Auditing Standards Board, which is available online at www.gao.gov (Yellow Book link).

Pofessional guidance - U.S. General Accounting Office and The Institute of Internal Auditors

2010-02-01T20:46:00.000-08:00

The U.S. General Accounting Office (GAO) and The Institute of Internal Auditors (IIA) have recently begun working together to clarify any perceived discrepancy between the two organizations' positions on auditor independence. The results of this effort thus far are presented below in a statement written by Sam McCall, city auditor for the city of Tallahassee, Fla., in consultation with Jeanette Meixner Franzel, director, financial management and assurance for the GAO, and Basil Pflumm, vice president of The IIA's Global Practices Center. The statement is intended to summarize the outcome of discussions between the two groups, highlight the compatibility between IIA and GAO independence standards, and help government auditors better understand how to provide services in compliance with both organizations' guidance.
In his article, "A Caution Light for Government Auditors" (April 2003, Internal Auditor), author Michael Barrier encapsulates the view of some government auditors that the GAO Independence Standard casts doubt on the compatibility between consulting and auditor independence and has chilled the expansion of audit services by government internal auditors. This "chill" results from the assumption that the GAO's description of consulting, as a nonaudit service, is synonymous with The IIA's description of consulting in its International Standards for the Professional Practice of Internal Auditing (Standards), formerly called the "Red Book."
As a result of the perceived disconnect between the GAO's Government Auditing Standards, also known as the "Yellow Book," and The IIA's Red Book terminology and requirements, The Institute and the GAO have entered into dialogue to understand any differences about the substance of work performed and to provide appropriate guidance to IIA members as well as government and nongovernment auditors who use the Yellow Book to guide their activities.

Phantom vendors: using a fictitious payment scheme, one employee manages to fluff his nest with company funds

2010-02-01T20:43:00.000-08:00

Carruthers mentioned that he had been to see Fitzsimmons and was in possession of his seven legitimate invoices, totalling $35,000. The detective also had a written statement from the trainer indicating that he had suffered a heart attack two years ago and had subsequently retired from his professional consulting practice. The statement went on to say that Fitzsimmons had informed Pigeon of his circumstances not only verbally but in writing, a copy of which he allowed the CAE to read.
The monies paid via the fraudulently produced invoices were eventually traced to Paul Pigeon's lavish lifestyle. Unknown to the Example Corp., Pigeon, whose annual salary was $85,000, had joined a private club where yearly membership totaled $25,000, gone on vacations to exotic locations, and purchased a $350,000 cottage in a very exclusive area.
Although the company recovered, many of the people involved did not. Pigeon was subsequently charged and convicted of fraud. His superior, the director of human resources, was unceremoniously discharged with cause. The second-in-command to the director was demoted for approving duplicate expense reports without adequate support. The accounting group responsible for monitoring the budgets was chastised for not leaping on the budget overruns.
LESSONS LEARNED
* Fictitious payments can be to fictitious companies or, as in this case, fictitious payments can be to real payees who have no knowledge of the transaction.
* A change, such as the consultant giving up his practice for health reasons, can create opportunities for crooks.
* A budget review process is not effective if managers and finance professionals don't follow up on budget variances. Here, neither the director of human resources nor the accounting department questioned the budget variance.
* Willful blindness and ignorance have been contributing factors in many major cases. The director of human resources and the accounting staff ignored the budget variance, but the accounting staff also failed to notice anything amiss when the doctor, who had previously presented professional-looking invoices, started presenting handwritten invoices on rubber-stamped stationery.
* Managers often don't understand the fraud implications of their processes and reports. This organization would have benefited from yearly training courses for their management team that would include addressing the fraud implications of processes and reports.

Phantom vendors: using a fictitious payment scheme, one employee manages to fluff his nest with company funds

2010-02-01T20:03:00.000-08:00

PAUL PIGEON WAS A MANAGER of training who had been with Canadian-based Example Corp. for more than 12 years. His primary duty was to identify the training requirements of the company and then, when needs dictated, arrange for outside consultants to aid in course development and implementation.
The Example Corp. had approximately 3,000 employees who reported through more than 45 different departments to five division heads. Each year, Pigeon would sit down with various managers throughout the organization and assess their training needs for the coming year. After reviewing the available company resources, Pigeon would determine the aggregate cost for all divisions of the company and develop, or update, one-, three-, and five-year plans for each area that were then approved by his supervisor, the director of human resources. Pigeon's bottom line would be consolidated into the human resources budget and then folded into the company's overall financial plan.
At month-end, the Example Corp.'s finance department produced division and department budget-versus-actual reports for expenses incurred during the course of the month and distributed them to the responsible departmental employee. In this case, the responsible employee was the director of human resources, who had to signify her approval by signing the report.
One day, the company's chief audit executive (CAE) was called to the corporation president's office where he was introduced to a Canadian law enforcement officer, Detective Sgt. Carruthers. The detective was there to brief the president on a suspected fraud recently discovered at one of the local banks.

Having run a routine editing program on its accounts to determine which appeared to be legitimate clearing accounts and which did not, the bank feared that one of the accounts might be in doubt and consequently turned it over to local law enforcement. Opened in the name of one of the consultants used for training at Example Corp., Dr. Jayson Fitzsimmons, the account showed regular deposits were made between $5,000 and $45,000. The same sum was then withdrawn within four days. After a thorough investigation, Carruthers had determined that the account signatory was in fact Paul Pigeon, who, it later turned out, had opened the account using false identification.
After leaving the president's office armed with this information, the CAE tasked one of his senior auditors with obtaining the last three years' statements from the account in question as well as a list of the last three years' deposits made to the account. He also asked her to collect all invoices from Fitzsimmons.
Once the information was gathered, the CAE's first observation was that the invoices were not identical as to form or design. Seven were neatly typed on printed stationary. The other 26 invoices were handwritten on paper with Fitzsimmons' name and address rubberstamped on the top. The seven typed invoices totalling $35,000 were dated during the first six months of the three-year period under review. The remaining 26 handwritten invoices, obtained from the accounts payable department, totalled $490,000 and had been paid over the following two years. Pigeon had approved all the invoices for payment.
Although the human resources director had signed every month-end variance report, which signified her review, the CAE noted that, for the last three years, the account was consistently over budget from 200 percent to 700 percent. The internal auditor couldn't understand why this variance had not been pursued earlier by the director, but suspected it was because she didn't understand what she was signing.
Next, the CAE expanded his tests to include any other areas within the company to which Pigeon had access. After obtaining a copy of his position description and the check-signing authority list, the CAE concentrated his investigation on Pigeon's last three years' expense accounts.
The results were interesting. Pigeon had presented his expense account report for approval to his director and then, in her absence, to her second in command. In essence, he was presenting the same report twice. The first report would be substantiated with actual vendor receipts or invoices supporting allowable expenses. For the second report, Pigeon used his credit card receipts to support his expenses. He would add a small invoice to alter the bottom line so that no one in the accounts payable department would become suspicious of identical reimbursement amounts. In addition, he changed the date so no one would question multiple reimbursements for the same time period. Over a three-year period, Pigeon managed to obtain an additional $32,923 for inflated travel claims.
With his backup data in tow, the CAE asked for another meeting with Detective Carruthers. The originals of the three years of checks deposited to the account, all of Fitzsimmons' invoices, and copies of the bank account statement printouts were turned over to the officer, who provided a receipt for the materials.

WHETHER YOU'RE JUST ENTERING THE JOB MARKET

2010-01-19T21:32:00.000-08:00

WHETHER YOU'RE JUST ENTERING THE JOB MARKET or you want to jump-start your current profession, we invite you to check out the 10 hottest careers for 1999 and beyond. The selection taps into a variety of interests, skills, experience requirements and job levels. Salaries, which largely depend on experience and geographical location, range from the low $20s to more than $100,000 annually.
Three of the 10 entries made the fastest growing occupations list published by the Bureau of Labor Statistics (BLS). This agency collects, processes and analyzes all employment data for the Department of Labor. According to the BLS, the total number of jobs in the United States is expected to increase by 18.6 million between now and 2006. The fastest growing occupations are concentrated in service sectors such as business services, healthcare and social services. The rapid growth in the business services sector is being led by technology-based jobs, especially those in computer and data processing services. As a result, these positions are projected to grow significantly more than the 14% average. Although employment growth is predicted to cross all levels of education and training, jobs usually requiring an associate degree or higher are expected to grow faster than average. Those requiring less education or training are predicted to grow more slowly than average; however, they will account for more than half of overall employment growth. The remaining careers were culled from an analysis of jobs across a spectrum of industries where the expected demand will far exceed the pool of qualified personnel.
The following listing should be used as a resource by junior and high school students as well as by college students and experienced employees. In this dynamic labor market, your success depends on your ability to make informed decisions. The key to a fruitful professional career is in your hands. It's your move.

The auditor thanked the manager for his diligence

2010-01-18T21:35:00.000-08:00

THE MANAGER OF CONTRACTing services asked internal auditing to look at a credit card statement and supporting invoices that he believed were suspicious. Several transactions on the statement's itemized listing fell just below the company's $5,000 threshold for procurement cards, suggesting that the cardholder might be trying to bypass the company's purchase-order process. The contracting manager felt certain that the employee who made these purchases had convinced the supplier to submit several invoices instead of one. The auditor thanked the manager for his diligence and assured him internal auditing would examine the issue.
With the assistance of a coworker, the auditor carefully inspected each of the questionable invoices. Both auditors were surprised to see that the supplier's municipal address and phone number did not appear on any of the forms. In addition, the more they looked at the invoices, the more the auditors became convinced that these forms had been produced on a color printer.
The auditors next obtained a complete list of procurement card purchases made by the employee in question over the last year. Several more charges appeared from the same supplier--all just under the $5,000 threshold. One of the auditors then decided to contact the credit card company for more information. He obtained a phone number from one of the company's service representatives and called the supplier.
During his conversation with an individual from the supplier's office, the auditor learned that the employee's wife occupied a management-level position at the supply company. In addition, he discovered that the employee's purchasing card payments were deposited into an account held in his wife's name.

Organization for Economic Cooperation

2010-01-18T21:32:00.000-08:00

HE FINANCIAL ACTION Task Force (FATF)--an independent, multinational body housed at the Paris-based Organization for Economic Cooperation and Development--recently issued a revision of its Forty Recommendations, which aims to help nations worldwide combat money laundering. With the release of this new document, the FATF is calling upon all countries to bring their national systems into compliance with its recommendations and to implement the prescribed anti-money-laundering measures.
The latest FATF guidelines include significant changes from the previous iteration. When combined with its Eight Special Recommendations on Terrorist Financing, the task force says its revision comprises a "comprehensive, consistent, and substantially strengthened international framework for combating money laundering and terrorist financing."
Major changes adopted in the new Recommendations include:
* Expansion of due diligence processes for financial institutions.
* Extension of anti-money-laundering measures to designated nonfinancial businesses and professionals, such as casinos, real estate agents, precious metals dealers, accountants, and lawyers.
* Expansion of anti-money-laundering requirements to include terrorist financing.
* Enhanced measures for high-risk customers and transactions.
In recognition of differences among countries' legal and financial systems, the FATF Recommendations set minimum standards for action that each country can implement according to its own particular circumstances. The framework covers all measures that nations should have in place within their criminal justice and regulatory systems and the preventive measures to be taken by specified institutions, businesses, and professions.
The FATF released its first iteration of the Forty Recommendations document in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996, the task force revised its Recommendations to reflect evolving money-laundering techniques. The 1996 revision has been endorsed by more than 130 countries and is widely considered the international anti-money-laundering standard.

"Although board involvement in governance has increased dramatically in the past year

2010-01-18T21:27:00.000-08:00

DURING THE LAST 12 months, boards of directors have stepped up efforts to address ethics and compliance issues, according to a recent survey of ethics, human resources, and legal officers participating in The Conference Board's 2003 Ethics Conference. However, more than half of survey respondents said their boards are "not engaged enough" in major ethical issues involving the company. Moreover, only 27 percent of respondents indicated that their organization offers ethics and compliance training for directors, while 81 percent said their firm holds such training sessions for employees.
"Although board involvement in governance has increased dramatically in the past year, this [research] is a clear indicator that ethics officers, boards, and executives need to strive for higher levels of ethical leadership and accountability," noted Steve Priest, founder of the Ethical Leadership Group, the business ethics consulting firm that conducted the survey. Indeed, 29 percent of respondents reported that senior management represented the weakest link in terms of their company's ethics and compliance efforts, while 17 percent cited the chief executive officer.
According to the survey, the percentage of firms offering a toll-free hotline for employees to report concerns actually fell from 82 percent in 2002 to 75 percent this year. However, about half of those polled reported that their organization has a "culture of dissent," where people can speak their minds without fear of retaliation. Still, 95 percent of participants indicated that fear of retaliation for reporting violations is an issue within their corporate culture.
Despite these fears, reporting of misconduct by employees has increased steadily during the past several years, according to a related ethics survey of 1,500 U.S. professionals, conducted by the Ethics Resource Center (ERC), a nonprofit education and research organization. The center's "2003 National Business Ethics Survey" focuses on issues such as the prevalence of formal ethics programs, pressures to compromise ethics standards, and ethics practices of executives, supervisors, and coworkers.
The study found that misconduct and pressure to compromise ethical standards are strongly related to the actions of top management, supervisors, and coworkers. The research also suggests that formal ethics programs--including written standards of conduct, ethics training, ethics advice lines or offices, and systems for anonymous reporting of misconduct--help reduce ethics violations and pressure to compromise ethics.

Recognized improvements included increased management accountability

2010-01-18T01:09:00.000-08:00

Corporate governance was significantly improved at each of the five organizations as a result of ERM initiatives. Recognized improvements included increased management accountability, better reporting to the board and audit committee, and the establishment of chief risk officers and risk champions. Organizations also reported improved management follow-up on risks and risk scorecards, enhanced internal audit approaches and follow-up, and overall, better information flowing throughout the organization on the major risks and plans to manage those risks.
At GM, ERM represents an important piece of the company's corporate governance structure. GM's audit committee strongly supports ERM initiatives, and the company's general auditor reports to the committee on these initiatives.
Wal-Mart also uses ERM to strengthen governance processes via the internal audit function. Lewis reports to the board on top risks, presents risk maps, and discusses action plans and linkage to shareholder value. At Canada Post, the audit department's ERM efforts involve regularly surveying the audit committee and asking whether "the internal audit function has provided a reliable, overall assessment of risks and internal control effectiveness."
Internal auditing at all five companies played an important role in ensuring that senior management, the audit committee, and the board of directors were fully informed regarding the organization's risk profiles and exposures. In addition, the audit departments provided objective assurance to management that risk assessments were realistic and thoroughly vetted.

BETTER, MORE EFFICIENT AUDITING

2010-01-18T01:04:00.000-08:00

CAE Dave Richards of FirstEnergy, an energy services holding company, and John Lewis, former CAE of retail giant Wal-Mart, both saw their departments' transformation to a risk-based focus lead naturally to major roles in their companies' ERM initiatives. Richards began a process of shifting his department toward a consultative, creative problem-solving approach that coincided with the group's involvement in ERM processes. At Wal-Mart, Lewis was hired to implement best practices in internal auditing, and the company's audit function has played a key role in ERM processes. In general, both CAEs were critical to successful implementation of ERM at their firms.
BETTER, MORE EFFICIENT AUDITING
The internal audit departments from all five organizations received several major benefits from their involvement in ERM processes. First, their audits were more effective because ERM enabled the departments to marshal extensive information about their companies' risk profile and gauge the extent to which those risks were being managed. Information of this quality and breadth would have been virtually impossible for each audit department to obtain on its own. Because ERM is built across the entire organization, internal auditing's understanding of risks was deep and complete. Wal-Mart's Lewis explains, "The whole purpose behind the enterprise risk management process is to make sure that we understand the risks, that we properly prioritize these risks, and develop action plans to mitigate the top risks."
Second, the CAEs were able to operate their departments more efficiently by leveraging ERM resources. Internal auditing used the risk analyses developed through their companies' ERM efforts and applied this information to their own audit planning and execution processes. Young describes this phenomenon at Canada Post: "In terms of productivity, we used to issue eight or nine audit reports with 43 auditors. Last year, with 20 auditors, we issued more than 90 audit reports. So half the resources, 90 times the output: You do the math!"

Differed considerably from one organization

2010-01-18T01:01:00.000-08:00

Chief audit executives (CAE) are uniquely positioned to serve as ERM champions at their companies, and each of the CAEs at the five organizations we examined left his or her own indelible mark on the ERM process. The nature and origin of ERM involvement, however, differed considerably from one organization to the next.
During the time that Jacqueline Wagner served as general auditor at automotive giant General Motors (GM), she functioned as the company's ERM process owner. GM's ERM journey actually began in the controller's office before Wagner started working for the company. Subsequently, internal auditing assumed primary responsibility for ERM, and Wagner eventually came to regard ERM as her "crusade," pushing constantly to implement the process throughout her organization. Wagner worked with her staff in establishing GM's ERM methodology, the supporting technology infrastructure, and the training of operating personnel responsible for ERM implementation.
By contrast, upon his arrival at Unocal, an independent natural gas and crude oil exploration and production company, CAE Karl Primm engineered the company's internal audit transformation from a compliance focus to a risk focus before the emergence of an ERM effort. Primm was motivated by concerns regarding efficiency and effectiveness--he wanted internal auditing to expend its resources in the most important areas. Now Primm shares primary ERM responsibilities in a unique partnership with Unocal's health, environmental, and safety unit, which had also undergone a transformation from a compliance orientation to a more risk-based focus.
After joining government-owned postal service Canada Post, Carman Lapointe Young discovered that, as CAE, she was required to provide an annual assessment of the greatest risks facing the company and an evaluation of the effectiveness of controls in place to mitigate those risks. Young concluded that ERM was the best way to ensure that the requirement was met: "I can use the ERM assessment to help us decide where we are going to devote our audit resources ... and then we have a legitimate basis for providing an opinion on the greatest risks and controls."

AS TODAY'S COMPANIES PLAN THEIR RISK

2010-01-18T00:58:00.001-08:00

AS TODAY'S COMPANIES PLAN THEIR RISK management strategies, the massive bankruptcies and colossal shareholder losses of the last two years are undoubtedly on the minds of corporate stakeholders. Numerous risk-related issues have surfaced as a result of the scandals at companies such as Enron and WorldCom, leaving many shareholders, executives, and boards wondering what exposures their own organizations may face. The current risk environment can best be characterized by the oft-repeated dictum, "There are knowns, known unknowns, and unknown unknowns."
Within this climate of ever-increasing corporate uncertainty, enterprise risk management (ERM) has emerged as a new paradigm for managing risk. Instead of relying on a traditional, intra-departmental strategy, where each area of the organization manages its own risks, ERM adopts a broader perspective that integrates and coordinates risk management across the entire organization. This enterprisewide approach is ultimately intended to enhance and protect stakeholder value. ERM, however, does more than just integrate risk management. According to Enterprise Risk Management Framework, a new study being developed by The Committee of Sponsoring Organizations of the Treadway Commission, ERM is a process also designed to "identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives." * Paralleling the rise of ERM, internal auditing has also experienced a paradigm shift in recent years. Guided largely by The IIA's revised definition of the profession, internal auditing has moved from a control-based approach to one that focuses on risk management, corporate governance, and adding value. Under this broadened orientation, internal auditors help organizations identify and evaluate risks, moving the profession to the front line of risk management. * The two paradigm shifts--one in internal auditing and one toward ERM--have recently crossed paths. As a result, internal auditors are in a position to make significant contributions to the ERM process and add value to ERM implementations. To investigate how internal audit groups are participating in this process, we studied five dynamic organizations that have successfully implemented ERM programs. Specifically, we examined the role of internal auditing at these organizations, the impact of ERM on auditing's work, and the ways in which corporate governance was strengthened accordingly. The companies--FirstEnergy Corp., General Motors Corp., WalMart Stores Inc., Unocal Corp., and Canada Post Corp.--represent a diverse range of industries, and each involved internal auditing as an integral part of its ERM efforts. Although the auditors' role varies among these companies, the function's contribution is significant in every case, and auditing's efforts proved beneficial to both the organization and the audit department itself.

2010-01-18T00:47:00.000-08:00

THE U.S. SARBANES-OXLEY ACT OF 2002 WAS DESIGNED, IN PART, TO improve external audit independence by transferring the responsibility of the audit process from management to the audit committee. Missing from the legislation, however, is any substantive mention of internal audit independence. Would independent internal auditors reporting directly to their audit committee have warned Enron's board that off-balance-sheet liabilities amounting to billions of dollars could endanger operations? Would those same independent auditors have informed WorldCom executives that their accountants were capitalizing $II billion of operating expenses? It appears that management in these cases was able to intercept such findings or restrict internal auditing from doing its job. U.S. legislators clearly were remiss in neglecting to address internal auditing sufficiently in the Sarbanes-Oxley Act, as internal auditor independence is just as important as that of outside auditors.
Internal auditing represents a vital cog in the organization's corporate governance structure. Its scope generally exceeds that of outside auditing in ensuring that corporate policies are followed, corporate assets are protected, and operations are monitored. Furthermore, the internal auditor's familiarity with operations and insider knowledge can enable more informed, insightful audits than an outside auditor may be able to provide. The additional breadth and depth of reporting that in-house auditors offer, however, can be assured only if the function remains independent.
My own experiences with the audit department of a major oil company helped me appreciate the value of internal audit independence. The scope of our reviews always exceeded that of the company's external audits, and our practice of operational audit techniques and superior records access gave us the ability to consistently pinpoint value-added findings such as contractor overcharges and structural inefficiencies. Many of our larger findings, however, were never reported to senior management due to the reporting structure of the audit department. At our organization, the director of internal auditing reported to the vice president of finance. The vice president discouraged operational audits and rejected allegations of overcharges from contractors that may have embarrassed local management.

The Sarbanes-Oxley Act

2010-01-18T00:42:00.000-08:00

SURVEY EMPLOYEES

2010-01-18T00:39:00.000-08:00

All the planning and money spent building the perfect infrastructure will be wasted if employees do not know the program exists or if they feel their disclosures are not going to be taken seriously. An anonymous survey will reveal their level of comfort with the program; their opinion about the organization's commitment to integrity, fairness, and openness; and their belief that their disclosure will not result in retaliation and that corrective action will be taken. Employee perceptions are key to the success of any whistleblower program. If employees refuse to use it, the program fails.
Protecting the Whistleblowers
Traditionally, whistleblowers have defied the status quo and communicated their concerns to an authority outside the organization after realizing that the improprieties they have witnessed are not being corrected internally. They have taken this initiative at great risk, as multiple studies show whistleblowers often suffer discrimination, retaliation, stress, and sometimes loss of their jobs or even their careers.
It is no wonder, then, that potential whistleblowers are hesitant to speak up within their own organizations. According to an article in the Work and Occupations journal, researchers estimate about one-third of all workers in the United States have witnessed unethical or illegal conduct in their workplaces, but more than half of them did not disclose what they observed. Moreover, an Australian study by the Independent Commission Against Corruption found that 71 percent of workers surveyed expect people who report improprieties to suffer for doing so.
In recognition of the valuable role insiders play in the discovery of fraud and unethical practices, the U.S. Sarbanes-Oxley Act of 2002 includes a provision protecting U.S. employees who disclose information or assist in detecting and stopping fraud. The act also increases the accountability of senior officers and members of the board of directors, and it requires that chief executive officers and chief financial officers of public companies file a quarterly statement attesting to the integrity of the organization's system of internal controls--something they cannot do if they are not made aware of irregularities immediately.

Valuable information about the types of allegations and their magnitude

2010-01-18T00:36:00.000-08:00

The audit committee, senior management, and internal auditors should receive a copy of these reports. Valuable information about the types of allegations and their magnitude, frequency, and method of disclosure can be shared with the internal auditors without releasing the whistleblower's identity. Also, critical developments should be brought to the attention of the audit committee immediately.
Internal auditors can help after the program is up and running by independently and objectively assessing its effectiveness. Are all allegations handled seriously, professionally, discreetly, and promptly? Does the program have an adequate budget to offer continuous coverage in all significant geographic locations and to allow for investigations? Are allegation files complete?
Anonymous annual employee surveys can provide a wealth of information about workers' awareness of the program's purpose, effectiveness, and performance weaknesses. Employees should also receive whistleblower program reminder notices at least yearly during staff meetings. Obtaining and acting on employee feedback will allow management to improve and customize the program.
GETTING THE JOB DONE
A program that encourages employees to disclose inappropriate activities internally, and that promptly and effectively handles all allegations, will reduce the likelihood that employees will be forced to blow the whistle externally, thus precipitating crises. When preventive and detective controls fail, a whistleblower program may be the only avenue for making management aware of inappropriate transactions or behaviors in the organization.
By getting involved and helping their organizations correct problems early on, internal auditors can be perceived as action agents--not necessarily the people who will implement changes, because those responsibilities belong to management, but the people who get things done by taking employees' concerns up the chain of command to senior management, the board of directors, and the audit committee. When this happens and employees become aware of it, they will likely confide their concerns to internal auditors. The end result is the quick and appropriate resolution of problems while they are still relatively small and manageable.

An internal auditor should work with management

2010-01-18T00:31:00.000-08:00

Another important element of phase two is developing or modifying the organization's policies and procedures to make the whistleblower program an official component of the system of internal controls. An internal auditor should work with management to make sure the whistleblower program is included in the employee manual and code of ethics and that a charter is developed for the oversight board that specifies the board's role, responsibilities, membership, and authority. Having these elements in writing will go a long way toward creating an environment in which the program is seen as a credible and permanent resource within the organization.
PHASE THREE: PROGRAM RELEASE
In the third phase, the whistleblower program is released throughout the organization. Although hard-copy memorandums, e-mail, video conferencing, voice conferencing, or even computer-based training programs are viable options for releasing the program, the most effective approach is through face-to-face meetings with employees. These encounters allow workers to gain a better appreciation for the importance of the new program and management's commitment to its success, and to get their questions answered.

companies must assess the level of expertise and availability

2010-01-18T00:25:00.000-08:00

Additionally, companies must assess the level of expertise and availability of qualified internal staff to handle what could be very complicated scenarios. Allegations could range from financial improprieties to supervisory abuse, pollution, or inappropriate contractual obligations. Also, the caller could be in a state of emotional distress out of guilt, fear of retaliation, or other emotional pressure, making it necessary for the staff to handle the situation tactfully and professionally while gathering the facts.
Internal auditors should serve as members of the response team and recommend other employees for the program based on their knowledge of legal, accounting, financial, personnel, and operational matters. Small organizations may meet their staffing needs by designating several qualified individuals who are on call or available via pagers and cellular phones and rotate among themselves to provide continuous coverage. Many organizations find it advantageous to outsource the whistleblower program to ensure independence, achieve broader coverage, and overcome a lack of internal expertise and staff availability. Outsourcing the program does not exempt management from taking a hard look at the organization and deciding exactly how the program will be implemented and run. The service provider will need this information. Sometimes the company providing the employee assistance program is also qualified to provide support for a whistleblower program.
Whenever possible, and especially in locations with large employee concentrations, organizations should designate an ombudsperson employees can speak to personally. The ombudsperson should abide by the same standards of professionalism and confidentiality as the operators of the whistleblower program.

accounting practices in the headlines

2010-01-18T00:19:00.000-08:00

WITH THE NUMERous allegations of financial fraud and dubious accounting practices in the headlines these days, organizations are increasingly turning to internal whistleblower programs to discover and correct improper activities. In fact, Section 301.4 of the U.S. Sarbanes-Oxley Act of 2002 requires public companies to establish procedures for "a) the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and b) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters."
Although whistleblowing is commonly thought of as the act of revealing inappropriate activities to parties outside an organization, internal whistleblower programs allow management to take corrective action inside a corporation without the negative effects that come with public disclosure, such as financial distress, loss of capital for investors, and a drop in value in the stock market. Through these programs, employees are encouraged to discreetly and anonymously disclose concerns about accounting and operational issues. This way, all employees help the organization stay on track, and internal auditors, who cannot possibly examine every process and transaction, cast a wider net in their risk-management efforts.
Internal auditors can play an integral role in the development of whistleblower programs by working with management to create a system that protects the anonymity of the employees who use it and gives them maximum access to the tools that will help them report their concerns. Effective whistleblower programs are developed through four distinct phases--assessment, building, program release, and performance monitoring.
PHASE ONE: ASSESSMENT
During the assessment phase, management must evaluate the organization's needs, define a protocol for the program, create reporting mechanisms, an

Government Auditing Standards

2010-01-18T00:11:00.000-08:00

THE U.S. GENERAL Accounting Office (GAO) recently released a new edition of its Government Auditing Standards, also known as the Yellow Book, the fourth since the standards' inception in 1972. Before being finalized, revisions were put through a rigorous review process that included public comments and input from the Comptroller General's Advisory Council on Government Auditing Standards, which includes 20 experts in financial and performance auditing.
After all comments were received and reviewed, changes were made to three areas of the 1994 revision, including amendments 1 through 3. The new version:
* Redefines the types of audits and services covered by the standards, including an expansion of the definition of performance auditing to incorporate prospective analyses and other studies and the addition of attestation as a separate type of audit.
* Provides consistency in the fieldwork and reporting requirements among all types of audits defined under the standards.
* Strengthens the standards and clarifies the language in areas that, by themselves, do not warrant a separate amendment to the standards.
Upon release of the new edition, David M. Walker, U.S. comptroller general and head of the GAO, emphasized that the Yellow Book represents only a starting point for government audit professionals. "Auditors will face many situations in which they could best serve the public by doing work exceeding the standards' minimum requirements," he said. "As performance and accountability professionals, we should not strive just to comply with minimum standards, which represent the floor of acceptable behavior, but we need to do the right thing according to the facts and circumstances of each audit situation." Walker called on auditors to seek opportunities to do additional work when and where it is appropriate, particularly in connection with testing and reporting on internal controls.
The new standards are applicable for financial audits and attestation engagements ending on or after Jan. 1, 2004, and for performance audits beginning on or after Jan. 1, 2004. The Yellow Book--along with the major changes from the 1994 edition--is available on the GAO Web site at www.gao.gov/govaud/ ybko1.htm.

2010-01-18T00:08:00.000-08:00

In September 2002, the United Nations (U.N.) held a World Summit on Sustainable Development in Johannesburg, South Africa. Governments, businesses, and civil society from all over the world agreed on an action plan that, according to U.N. Secretary General Kofi Annan, "will put us on a path that reduces poverty while protecting the environment, a path that works for all peoples, rich and poor, today and tomorrow."
Some targets set at the summit included:
* Cutting the proportion of people without access to basic sanitation in half by 2015.
* Using and producing chemicals by 2020 in ways that do not lead to significant adverse effects on human health and the environment.
* Achieving a significant reduction in the rate of loss of biological diversity by 2010.
On May 9, the leaders reconvened for a two-week meeting in New York where they established a program and work plan for the next 15 years. For the first two-year cycle (2004-2005), the U.N.'s Commission on Sustainable Development will focus on water, sanitation, and human settlements, followed by energy, climate change, atmosphere, and industrial development issues in the 2006-2007 cycle. Numerous issues will be addressed throughout the program, including poverty eradication, changing unsustainable patterns of production and consumption, health, and education.
One company that has emerged as a leader in the areas of sustainable development and social performance is Chiquita Brands International, an international marketer and distributor of fresh and processed food products. In 2001, the Rainforest Alliance, an international conservation organization based in New York, presented Chiquita with the first Sustainable Standard-setter Green Award. Companies, cooperatives, and landowners that participate in the Alliance's programs meet rigorous standards for protecting the environment, wildlife, workers, and local communities.
In 2001, the Rainforest Alliance recertified 119 Chiquita farms in Latin America for compliance with the standards set by the alliance's ECO-O.K./Better Banana Project. The Better Banana Project is managed by the Sustainable Agriculture Network (SAN) and a network of independent, non-profit conservation organizations, with the Rainforest Alliance acting as the secretariat. Their mission is to transform social and environmental conditions in tropical agriculture through conservation certification. Standards are available for the farming of bananas, coffee, and citrus fruit.
In 1998, Chiquita was looking for objective, concrete, and measurable performance standards. The company compared the Better Banana Project standards to a variety of other environmental standards and management systems around the world. Chiquita concluded that the nine principles and audit criteria of the Better Banana Project offered the most rigorous, objective, measurable, and best internal bench-marking standards for performance (see "Banana Standards and Indicators," opposite page).

INCREASINGLY, CORPORATE GOVERNANCE

2010-01-18T00:02:00.000-08:00

INCREASINGLY, CORPORATE GOVERNANCE STAKEholders--including shareholders, employees, analysts, regulators, activists, and labor unions--are expressing their concern about the extent to which global enterprises practice their social responsibilities. The Business for Social Responsibility (BSR), a global nonprofit organization that provides businesses with information and training on corporate social responsibility (CSR), defines CSR as "achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment." Failure to acknowledge the importance of CSR can create high reputation risk. In the past, several multinationals that have been accused of being socially irresponsible--for example, Shell International Ltd. for polluting the environment, The Coca-Cola Co. for food contamination, and Nike Inc. for unacceptable working conditions--have paid the price and have since established CSR plans.
Chief audit executives (CAEs) need to ensure that social responsibility is on the board's agenda of corporate governance issues. They should be aware of existing standards and global initiatives as they relate to CSR and use them as yardsticks against which to measure their organization's performance. Additionally, auditors should advise the board on identified best practices and determine whether the organization's core values and code of conduct still reflect the desired position of the enterprise in today's and tomorrow's world.
Over the last decade, the field of CSR has grown significantly. Numerous governmental, non-governmental, and advocacy groups have entered the arena and have issued standards and reports to address CSR concerns. For example, in July 2002 the European Commission issued a white paper that calls for a new social and environmental role for businesses in the global economy. And on March 25, the Institute of Social and Ethical Accountability, an international, not-for-profit, professional institute, launched the AA1000 Assurance Standard to address the credibility and quality of reporting on social, environmental, and economic performance.
Three areas of CSR in which global organizations have achieved significant improvements are the environment, human rights, and the safety of food.

Western Australian Department of Agriculture

2010-01-17T23:50:00.000-08:00

* Enhanced cooperation between the sectors of health and food production, agriculture, and fisheries is necessary for food safety.
* Better control of food safety and quality in the whole food chain, including internal checks of food and feed business operators, should be introduced.
* The primary responsibility of food and feed companies for the safety of their products should be legally established.
* Information on the results of all monitoring tests and the outcome of official food inspections and other control activities should be made public.
Both the Codex and European guidelines refer to the Hazard Analysis Critical Control Point (HACCP) as an important food protection tool. HACCP was developed in the 1960s to ensure the elimination of contamination of food to be consumed by NASA astronauts. HACCP system considerations include the factors causing food poisoning and risk assessment techniques to identify and prioritize hazards.
Due to the weakening of consumers' confidence in the ability of regulators to adequately assure food safety, all stakeholders insist that the food industry accept this responsibility. Retailers are increasingly applying a third-party certification of suppliers' management systems to ensure the integrity, tractability, safety, and quality of the foods purchased.
The Western Australian Department of Agriculture, in recognizing the need for Australian agriculture to adopt quality assurance systems as a way to maintain and increase market access, stresses the importance of recognizing that quality systems such as the HACCP are as much about international trade as they are about food safety. The absence of such systems increasingly constitutes a barrier to export markets.

Corporate governance is an essential element of CSR. The IIA's Standard 2130 on Governance states that internal auditing "should contribute to the organization's governance process by evaluating and improving the process through which 1) values and goals are established and communicated, 2) the accomplishment of goals is monitored, 3) accountability is ensured, and 4) values are preserved." Additionally, IIA Practice Advisory 2130-1 states that internal auditors may also play a role in the ethical culture of an organization. Therefore, auditors should ensure that their companies are aware of the importance of CSR.
Auditors need to have a good understanding of standards such as those described in this article and coordinate external compliance reviews with independent specialized audit firms. Internal auditors should use the international standards and practices designed by independent organizations or competitors as benchmarks against which to measure their organization's CSR performance.
Banana Standards and Indicators
ECOSYSTEM CONSERVATION--Agriculture and the expansion of farms should promote conservation and recovery of ecosystems.
WILDLIFE CONSERVATION--Special steps should be taken for the protection and recovery of biodiversity, particularly with those species in danger of extinction.

European Commission issued a white paper on food safety

2010-01-17T23:43:00.000-08:00

In early 2000, the European Commission issued a white paper on food safety and in 2003 established the European Food Safety Authority (EFSA). The EFSA covers the whole food chain, including animal feed production. This ability to trace products throughout the entire food chain is a key component of the EFSA's mission.
The European Commission's white paper refers to the Codex Alimentarius (food code) as one of the most important legitimate factors for health protection. The Codex Alimentarius is a joint effort of the Food and Agriculture Organization (FAO) of the United Nations and the World Health Organization (WHO). The code advises governments to consider the need of all consumers for food security and to support and, as far as possible, adopt its standards. The standards are continuously under revision to ensure they are consistent with current scientific knowledge.
In February 2002, the FAO and WHO held a Pan-European Food Safety Conference in Budapest, Hungary. Conclusions from the final report of FAO/WHO include:
* There is a need to increase the compatibility of food safety systems by implementing equivalence, transparency, and harmonization of regulations and control across Europe.

Universal Declaration of Human Rights

2010-01-17T23:41:00.000-08:00

Social Accountability International (SAI) is another human rights organization dedicated to improving workplaces and communities by developing and implementing socially responsible standards. Its first fully operational standard, Social Accountability 8000 (SA8000), is a workplace standard that covers all key labor rights and certifies compliance through independent, accredited auditors. It was published in 1997 and revised in 2001. SA8000 is based on international workplace norms in the ILO conventions and the U.N.'s Universal Declaration of Human Rights and the Convention on Rights of the Child (see "SA8000 Standard Elements," page 83).
In addition to the Better Banana Project, Chiquita also adopted SA8000. A multidisciplinary team of Chiquita's managers performs compliance audits at farms outside their area of responsibility. From time to time, an external auditor is hired to determine whether the internal audits reviews are in line with the external assessor. The results of both internal and external verifications are published in Chiquita's "Corporate Responsibility Report."

Forty-three percent of the world's cocoa beans

2010-01-17T23:36:00.000-08:00

Labor rights are also being violated in the food industry. According to a report by the International Labor Organization (ILO), a U.N. agency, tens of thousands of children around the world are being exploited, including many working on plantations in western and central Africa.
Forty-three percent of the world's cocoa beans, the raw material in chocolate, come from small, scattered farms in these poor West African countries such as the Ivory Coast and Ghana. According to the ILO report, poverty-stricken parents are sending their children into forced labor. Those children, the agency says, often work up to 20 hours a day in difficult conditions. On some of the farms, boys as young as 9 years old, who were sold or tricked into slavery, do the hot, hard work of clearing the fields and harvesting the cocoa beans.
On Oct. 1, 2001, the global chocolate industry published a plan to combat these abusive practices. The plan was developed--with support from numerous governments, human rights and labor experts, organized labor, and other organizations--to better identify and address instances of abusive child labor in cocoa-growing industries. The industry said it would adhere to ILO Convention 182, which requires measures to be taken to prohibit and eliminate the worst forms of child labor.
On May 1, 2002, a memorandum of cooperation was signed by leading organizations of the cocoa and chocolate industry and groups such as the International Union of Food (IUF), Free The Slaves, Child Labor Coalition, and National Consumers League. Concurrent with finalizing the memorandum, industry representatives worked with governments and key stakeholders to develop a series of pilot programs to test different solutions to the problem of abusive child and forced labor in the cocoa industry. The pilot programs got under way in September 2002. New steps will be defined based upon the results of these programs.

Dutch independent center for research on multinational corporations

2010-01-17T23:32:00.000-08:00

In November 2000, SOMO, a Dutch independent center for research on multinational corporations, together with the international secretariat of the Clean Clothes Campaign (CCC) began the research project, "European Initiatives on Monitoring and Verification of Codes of Conduct in the Garment and Sportswear Industry." Financed by the European Commission, the research includes examination of current practice on monitoring and verification of codes of conduct as they relate to working conditions for international suppliers of retailers based in the United Kingdom, The Netherlands, Sweden, France, and Switzerland.
Guaranteeing labor standards in large, complex supply chains is extremely difficult, and violations of basic labor rights continue to occur. In recent years, there is increasing recognition that to eliminate labor rights violations, cooperation among different stakeholders--retailers, suppliers, trade unions, nongovernmental organizations, and the workers concerned--is essential. Thus, multistakeholder partnerships in the garment and sportswear industry have been created in Europe. Parties that usually have no channels for cooperation have been brought together, ranging from large retailers such as H&M, Marks & Spencer's, Migros, and Auchan to solidarity groups involved in the CCC. The aim of these parties is to gain experience and mutual understanding in the practical implementation of codes of conduct.
The CCC, whose mission is to improve working conditions for garment workers and to raise the level of corporate accountability to eradicate sweatshops, has launched pilot projects to test methods for auditing of workplace conditions at production sites of several retailers of all sizes in developing countries. The project's goal is to increase cooperation between the national-level initiatives and improve mutual understanding of problems, bottlenecks, and best practices, which are the base to develop a common European framework for monitoring and verification.

Corporate Responsibility Report,"

2010-01-17T23:29:00.000-08:00

In September 2002, Chiquita published its "Corporate Responsibility Report," the second of its kind. The report includes standards, audits, noncompliance issues, and action plans to improve noncompliance situations. Additionally, the report includes the average scores the company has received from the SAN. The network audits the company's Latin American farms annually and comments on the farms' performance and reports about management's action plans.
Another area of sustainable development covered by The Rainforest Alliance is forest management. The Alliance's Forest Stewardship Council (FSC) certifies products that are harvested from the forest. The FSC's Principles and Criteria for Forest Management serve as the global foundation for the development of region-specific forest-management standards.
Independent certification bodies accredited by the FSC conduct assessments of forest operations at the request of landowners. If the operations conform with FSC standards, a certificate is issued, enabling the landowner to use the FSC logo and sell the product as "certified wood." Companies that sell certified wood products include The Home Depot Inc., Ikea, and Lowe's Companies Inc.
RESPECTING HUMAN RIGHTS
Violations of labor rights are garnering increasing awareness from consumers, and many enterprises are finding their reputations at stake. As with environmental issues, global players in the supply chain need to set an auditable example and adhere to it.

INCREASINGLY, CORPORATE GOVERNANCE STAKEholders

2010-01-17T23:24:00.000-08:00

Pakistan Railways had a formal internal audit function

2010-01-17T23:17:00.000-08:00

WHEN PAKISTAN gained independence in 1947, the state-owned Pakistan Railways had a formal internal audit function. Other government and semi-government organizations at the time featured an inspection department, whose role resembled that of internal auditing.
After the promulgation of Pakistan's 1973 constitution, the Office of the Auditor General of Pakistan was formed. The auditor general had the authority to audit receipts, expenditures, and the use of any public funds at the federal and provincial level. Before long, an internal audit function was added to other mature public-sector organizations.
The political and social wave against corruption in the society as a whole led to a culture of public accountability and transparency in decision-making--an environment for which internal auditing was well-suited.
AUDITING LEGISLATION
During the past several years, internal auditing has been introduced gradually in the public sector. In 2001, a local-government ordinance was promulgated that requires all district-level bodies to have an internal audit function led by a chief audit executive.
Also in 2001, the federal government hired foreign and local consultants to help draft the Public Sector Internal Audit Act of 2003, which will make having an internal audit function mandatory for all local, provincial, and federal government institutions. When finalized, the act will be applicable to all institutions to which the government provides funds.
Pakistan's private sector is also subject to audit legislation. In March 2002, the Securities and Exchange Commission of Pakistan issued a code that required all companies listed on any of Pakistan's three stock exchanges to have an internal audit function.

LISTEN (AND OBSERVE) FOR FEELINGS

2010-01-17T23:15:00.000-08:00

6. LISTEN (AND OBSERVE) FOR FEELINGS. When listening, do you concentrate just on the words that are being said, or do you also concentrate on the way they are being said? The way a speaker is standing, the tone of voice and inflection he or she is using, and what the speaker is doing with his or her hands are all part of the message that is being sent. A person who raises his or her voice is probably either angry or frustrated. A person looking down while speaking is probably either embarrassed or shy. Interruptions may suggest fear or lack of confidence. Persons who make eye contact and lean forward are likely exhibiting confidence. Arguments may reflect worry. Inappropriate silence may be a sign of aggression and be intended as punishment.
7. ASK QUESTIONS. Do you usually ask questions when listening to a message? Do you try to clarify what a person has said to you? Effective listeners make certain they have correctly heard the message that is being sent. Ask questions to clarify points or to obtain additional information. Open-ended questions are the best. They require the speaker to convey more information. Form your questions in a way that makes it clear you have not yet drawn any conclusions. This will assure the message sender that you are only interested in obtaining more and better information. And the more information that you as a listener have, the better you can respond to the sender's communication.
LISTEN ACTIVELY
Not everyone has to possess the same style of listening, but internal auditors who use "active" listening will likely become much better listeners. Active listening demands that the receiver of a message put aside the belief that listening is easy and that it happens naturally and realize that effective listening is hard work. The result of active listening is more efficient and effective communication.
The Listening Quiz
Are you an effective listener? Ask a peer that you communicate with regularly and who you know will answer honestly to respond "yes" or "no" to these 10 questions. Do not answer the questions yourself. We often view ourselves as great listeners when, in fact, others know that we are not.

Free Communication course

2010-01-17T23:10:00.000-08:00

. CONCENTRATE ON WHAT OTHERS ARE SAYING. When listening to someone, do you often find yourself thinking about a job or task that is nearing deadline or an important family matter? In the middle of a conversation, do you sometimes realize that you haven't heard a word the other person has said? Most individuals speak at the rate of 175 to 200 words per minute. However, research suggests that we are very capable of listening and processing words at the rate of 600 to 1,000 words per minute. An internal auditor's job today is very fast and complex, and because the brain does not use all of its capacity when listening, an auditor's mind may drift to thinking of further questions or explanations rather than listening to the message at hand. This unused brainpower can be a barrier to effective listening, causing the auditor to miss or misinterpret what others are saying. It is important for internal auditors to actively concentrate on what others are saying so that effective communication can occur.
2. SEND THE NONVERBAL MESSAGE THAT YOU ARE LISTENING. When someone is talking to you, do you maintain eye contact with that person? Do you show the speaker you are listening by nodding your head? Does your body language transmit the message that you are listening? Are you leaning forward and not using your hands to play with things? Most communication experts agree that nonverbal messages can be three times as powerful as verbal messages. Effective communication becomes difficult anytime you send a nonverbal message that you're not really listening.
3. AVOID EARLY EVALUATIONS. When listening, do you often make immediate judgments about what the speaker is saying? Do you assume or guess what the speaker is going to say next? Do you sometimes discover later that you failed to interpret correctly what the speaker was telling you? Because a listener can listen at a faster rate than most speakers talk, there is a tendency to evaluate too quickly. That tendency is perhaps the greatest barrier to effective listening. It is especially important to avoid early evaluations when listening to a person with whom you disagree. When listeners begin to disagree with a sender's message, they tend to misinterpret the remaining information and distort its intended meaning so that it is consistent with their own beliefs.
4. AVOID GETTING DEFENSIVE. Do you ever take what another person says personally when what her or she is saying is not meant to be personal? Do you ever become angry at what another person says? Careful listening does not mean that you will always agree with the other party's point of view, but it does mean that you will try to listen to what the other person is saying without becoming overly defensive. Too much time spent explaining, elaborating, and defending your decision or position is a sure sign that you are not listening. This is because your role has changed from one of listening to a role of convincing others they are wrong. After listening to a position or suggestion with which you disagree, simply respond with something like, "I understand your point. We just disagree on this one." Effective listeners can listen calmly to another person even when that person is offering unjust criticism.
5. PRACTICE PARAPHRASING. Paraphrasing is the art of putting into your own words what you thought you heard and saying it back to the sender. For example, a subordinate might say: "You have been unfair to rate me so low on my performance appraisal. You have rated me lower than Jim. I can do the job better than him, and I've been here longer." A paraphrased response might be: "I can see that you are upset about your rating. You think it was unfair for me to rate you as I did." Paraphrasing is a great technique for improving your listening and problem-solving skills. First, you have to listen very carefully if you are going to accurately paraphrase what you heard. Second, the paraphrasing response will clarify for the sender that his or her message was correctly received and encourage the sender to expand on what he or she is trying to communicate.

TO BE SUCCESSFUL AT THEIR

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TO BE SUCCESSFUL AT THEIR job, internal auditors must be able to write, speak, and listen effectively. Of these three skills, effective listening may be the most crucial because auditors are required to do it so often. Unfortunately, listening also may be the most difficult skill to master.
Effective listening is challenging, in part, because people often are more focused on what they're saying than on what they're hearing in return. According to a recent study by the Harvard Business Review, people think the voice mail they send is more important than the voice mail they receive. Generally, senders think that their message is more helpful and urgent than do the people who receive it.
Additionally, listening is difficult because people don't work as hard at it as they should. Listening seems to occur so naturally that putting a lot of effort into it doesn't seem necessary. However, hard work and effort is exactly what effective listening requires.
Internal auditors must listen to explanations, rationales, and defenses of financial practices and procedures. They are constantly communicating with fellow employees whose backgrounds range from accounting to finance to marketing to information systems. In addition, explanations by fellow employees of any "unusual" practices often pose a significant challenge to an internal auditor's listening skills. Auditors can use the following techniques to improve these skills.a

Electric utility providers

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Electric utility providers are of three ownership types: investor-owned utilities (IOUs), rural electric cooperatives (RECs), and publicly-owned utilities including municipal, state, and federal providers. There are about 240 IOUs in the U.S. which serve approximately 75% of all retail customers (U.S. Industry and Trade Outlook, 2000), comprising 75% of industry sales in terms of both volume and revenue (McCann, 2004). Most IOUs generate as well as distribute electric power, with wholesale and retail price structures, and provide about 50% of the electricity generated in the U.S. (Edison Electric Institute, 2004). Rural electric cooperatives, originally formed by residents to bring power to rural areas, are nonprofit organizations owned by their customers. While RECs continue to have a rural focus, population growth now involves many RECs in both urban and industrial markets. Most RECs distribute power purchased from either publicly-owned utilities or IOUs, although some have generation and transmission capabilities they wholesale to member distribution cooperatives. Currently RECs number around 900 and provide 18% of the nation's power needs. Publicly-owned utilities are numerous, with over 2000 entities in the U.S. They are primarily small municipal systems that are self-regulating, funded through municipal bonds, and also provide about 18% of the nation's electricity. Federally-owned utilities are concentrated in the power generation, transmission, and wholesale end of the industry, providing the remaining 15% of our energy needs (Edison Electric Institute, 2004).
This study examines diversification in IOUs and RECs in four upper-Midwestern states where researcher contacts facilitated data acquisition. Government-owned systems are not subject to the same regulation or pressures for revenue diversification so are not included in the sample of organizations studied here. The IOUs, with their stock being traded daily and the overwhelming majority of retail electric customers depending upon them, are very important to investigate. Accordingly, all 10 IOUs doing business in the four states are included in the study. While RECs were initially created where IOUs were unwilling to extend power, urban sprawl beyond economic centers that IOUs once monopolized often puts RECs and IOUs in contention for serving these now densely populated areas. The study includes five of the largest RECs in each of the four states, or 20 RECs. The study explores the extent of diversification in this sample of 30 utility providers and the performance outcomes corresponding to each strategy type.

IO economics postulates

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Insights from each of these theories help us understand the electric utility industry today. IO economics postulates that unattractive industry structure drives a firm toward increased diversification. The allure of diversification has been found to be especially compelling in contexts like that of the electric utility industry, where an organization's core business appears to offer limited growth opportunities, yet financial resources are available for acquisition purposes (Park, 2003). The agency theory prediction that capital will be retained is evident as electric utility firms have been reducing their dividend payouts to fund diversification initiatives (McCann, 2004). This combined set of circumstances--limited growth prospects within the industry, plus available capital within the firm--encourages a strategy of unrelated diversification via acquisition (Chatterjee & Wernerfelt, 1991).
The poor performance of diversification strategy, especially unrelated acquisition, is well documented (Mansi & Reeb, 2002; Markides & Williamson, 1996; Porter, 1987; Wright, Kroll, Lado & Van Ness, 2002). In fact, Porter (1987) bluntly concludes that the track record of diversification strategy is "dismal", while financial markets have consistently applied a "diversification discount" of about 20% to unrelated diversifiers (Campa & Kedia, 2002; Rajan, Servaes, & Zingales, 2001). However, as is commonly observed in nearly any topic of interest, diversification strategy research does not produce universally consistent results across studies. Performance benefits associated with related diversification have often been found (Hoskisson, 1987; Rumelt, 1974; Simmonds, 1990; Varadarajan & Ramanujam, 1987); results showing higher performance from unrelated diversification are not prevalent but have been reported (Dubofsky & Varadarajan, 1987). Other studies have identified no performance differences between diversification strategy and performance (Amit & Livant, 1988; Chang & Thomas, 1989; Montgomery, 1985). Two approaches to reconciling the disparate findings have been fruitful: 1) some diversification has been shown to have a positive impact on market performance as opposed to accounting returns (Keats & Hitt, 1988); 2) an inverted u-shaped curve might more accurately describe the relationship between diversification and performance, with moderate levels of diversification performing better than minimal or very extensive diversification (Grant & Jammine, 1988).

DIVERSIFICATION STRATEGY

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Diversification strategy involves both the scope of the organization defined by industries and markets in which it competes, as well as the vehicles--acquisition, start-up, or joint venture/strategic alliance--used to enter these industries and markets (Bergh, 2001). Established definitions of diversification strategies center on organizational scope as defined by Rumelt (1974). An organization is said to have limited diversification if most or all of its revenues stem from a single business. More specifically, a single business strategy is defined as 95% or more of firm revenues from a single business; a dominant business strategy is defined as 70-95% of firm revenues from a single business. Diversification strategy is technically defined as when less than 70% of firm revenue comes from a single line of business; with related diversification strategy the firm's businesses share some common attributes or relationships; with unrelated diversification strategy the firm's business units lack common attributes and interrelationships.
Diversification is a widely prominent strategy for pursuing organizational growth. For decades managers have been enamored with prospects for market power, economies of scope, risk diversification, and mere size and visibility resulting from diversification initiatives (Hitt, Ireland, & Hoskisson, 2005; Porter, 1987). Efforts to understand these motives have produced a copious accumulation of research guided by numerous and complementary theoretical perspectives.
Four theories dominate the literature and together facilitate broader appreciation of diversification issues. First, the traditional structure-conduct-performance paradigm of industrial organization (IO) economics helps explain the influential impact of industry structure on a firm's decision to diversify (Bergh, 2001). Essentially, this paradigm asserts that a firm's profit potential depends on structural conditions in the industry; firms situated in industries with unattractive structural attributes (such as low growth prospects, regulatory restrictions, strong competition, and/or threatening uncertainties, for example) will seek to conduct business in other industries where conditions are more favorable for high performance. Second, agency theory predicts that managers in unattractive industries will prefer to retain capital for diversification purposes rather than allowing outward movement of capital enabling investors to directly reinvest in more attractive industries (Anand & Singh, 1997; Jensen, 1986). Larger, more complex firms are associated with higher executive compensation (Cordeiro & Veliyath, 2003) and lower employment risk (Lane, Cannella, & Lubatkin, 1998), providing self-interested managers personal motives for pursuing diversification (Finkelstein & Hambrick, 1996). Third, the resource-based view of the firm (RBV) emphasizes the importance of well-developed competencies and resources for competitive success (Barney, 1991; Penrose, 1959; Wernerfelt, 1984). The RBV contends that skills and resources tend to lose value when transferred across dissimilar markets (Montgomery & Wernerfelt, 1988; Wernerfelt & Montgomery, 1988), leading to the prediction that related diversification will be more successful than unrelated diversification. Finally, transaction cost economics helps explain the limits of diversification; management costs involved with collections of disparate businesses can become inefficient, suggesting need for organizational restructuring (Bergh, 2001; Teece, 1982; Williamson, 1975; 1985).

combination of regulation and impending deregulation

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Three principal agencies are involved in electric utility regulation. The Federal Energy Regulatory Commission (FERC), a division of the U.S. Department of Energy, oversees wholesale prices and generation and transmission of power nationwide, mergers among power companies, and issuance of certain types of stock and debt securities. The U.S. Securities and Exchange Commission (SEC) requires financial disclosure of publicly traded companies. In the utility industry, it also enforces the Public Utility Holding Act, which restricts non-utility activities (often referred to as "unregulated activities") of utility holding companies and requires that service territories of utility operating companies be contiguous. Retail sale of electric services to homeowners, businesses, and other users is primarily regulated by state public utility commissions; oversight centers on service territories, rates, reliability, access, and public safety. All three of these principal entities have signaled increasing deregulation of the electrical power industry. The deregulation process is long and complicated, with uneven impact on different segments of the industry, casting immense uncertainty over the competitive landscape of the future (deregulation details are beyond the scope of this paper; see McCann, 2004 for a useful discussion). For the near term, it appears that power generation and the wholesale market will become deregulated first, breaking down the traditional vertically integrated model where a firm generates, transmits and sells power in its service territory; deregulation of the retail market (enabling consumer choice of electricity provider) will vary by state; and merger and acquisition restrictions will be relaxed (U.S. Industry and Trade Outlook, 2000).
This combination of regulation and impending deregulation has several effects that influence electric company strategies. While deregulation evolves, the industry remains characterized by legally protected service territories that preclude competition but limit geographical expansion. Efforts to grow by encouraging increased electricity use have been curtailed by regulatory pressures to emphasize energy efficiency. Consequently, most electric utility companies can only experience the natural growth stemming from increased population or industrial activity in their territory, estimated at 1.3% nationwide through 2010 (U.S. Industry and Trade Outlook, 2000).
As exclusive providers of an essential service, electric companies do enjoy a continuous revenue stream, stable operations, and steady profits in their electric service businesses (operating margins commonly about 15% for investor-owned electric utilities) afforded by state-regulated rates that seek a balance between company and consumer interests (McCann, 2004). Dependable profits and associated borrowing power enable electric utilities to acquire new lines of business offering both higher growth prospects and defensive options in the face of deregulation uncertainties. Deregulation promises new competition, but enhances operating flexibility. As a result, increasing diversification of electric utility firms has been a notable industry trend for the past ten years (U.S. Industry and Trade Outlook, 2000).

THE ELECTRIC UTILITY INDUSTRY

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Utilities, particularly electric utilities, are presently operating in an environment characterized by an awkward combination of tight regulation and impending but uncertain change. The highly regulated electric service operations provide profit but restricted growth, while looming deregulation spawns defensive forays into new business arenas. Following industry calamities including the 2000-2001 California brownouts, the 2003 power blackouts in the Eastern U.S. and parts of Canada, and corporate scandals such as that of Enron, there is heightened concern about business practices and their potential impact on energy reliability and cost. Various stakeholders --regulators, community leaders, investors and consumers--are uneasy about corporate strategies, mergers and acquisitions, accounting practices, and possible bankruptcies. So while many utility companies appear to be supplying energy reliably and affordably, aggressive growth and increasing diversification is viewed warily by the diverse set of observers.
Considering the generally poor track record of diversification in other industries, particularly unrelated diversification via acquisition that is prominent as utilities buy instant entry into new lines of business, skepticism about the long-term value of many diversification moves is well placed. Further, considering the role of utility companies in providing affordable essential services, questions arise about whether growth and profit should be primary objectives of these firms anyway. Is diversification a viable strategy for electric utility companies? Is the strategy broadly beneficial for stakeholders? Such basic questions warrant study in the electric utility industry.
Accordingly, this exploratory study examines diversification in electric utilities. First we explain relevant features of the electric utility industry, and review diversification literature pertinent to this inquiry. Then we describe the study's methodology, including sample selection and data sources. Results of the study reveal that diversification is generally less extensive than expected, with publicly traded electric providers being more diversified than rural electric cooperatives. The varied performance outcomes are interpreted in light of current diversification theory and the utility industry context. The study concludes with recommendations for diversification strategy in the electric utility industry, and suggestions for advancing future research through data refinements.
Natural gas was used almost exclusively as a source of light during most of the 19th century. With the advent of the simple light bulb by Thomas Edison in 1879, an new industry emerged in the United States and the rest of the world. Initially known as the illuminating industry, the new energy source and its economic extensions rapidly developed into the electric power industry. Services provided by early electric companies were inefficient and redundant. Frequently operating under nonexclusive franchises and in competition with one another, different companies provided for different needs such as street lighting, industrial power, residential lighting, and streetcar service. Companies used dissimilar equipment, voltages and frequencies, and their systems often were not compatible. Power companies had to acquire franchise rights from the local municipality; the franchise territories differed greatly in size (even as small as a city block) and were frequently granted through bribes and payoffs to city officials. This franchise process kept the young electric power industry fragmented and inefficient (Edison Electric Institute, 2004; NaturalGas.org, 2004). Electric utilities required an infrastructure that was, and still is, expensive. Due to the franchise process at the time and resulting low returns, power companies often found it difficult to maintain investor confidence and attract adequate capital. Around 1900 industry leaders began to push for regulation by state agencies rather than city councils to better control the franchising process, service standards and rates, and to increase both public and investor support. By 1916, 33 states had regulatory agencies. Early regulation of the industry proved beneficial to both the electric companies and their customers. Today, in return for protected service territories, utility companies are expected to serve all existing and future customers equally and at reasonable cost. This natural monopoly is allowed based on the premise that a single company providing electric service is economically more efficient through elimination of duplicated infrastructure, service and equipment. The stable environment created also facilitates financing in this highly capital-intensive industry (Edison Electric Institute, 2004; NaturalGas.org, 2004).