Separating management from governance policy-making

Here at the Bank of Australia, we realise the importance of separating management from governance policy-making, and I want to ensure that you understand why. You may have heard of the collapse of Enron in 2001 where the board of directors, including the CEO, allowed the CFO to use off-balance sheet transactions and manipulate the accounts (Stewart 2006, 118). This enabled senior level management to commit fraud and cause one of the world’s worst corporate accounting scandals. The same threats occur in financial institutions, and we need to prevent this from happening in our organisation. I haven’t experienced this firsthand, but Enron was mentioned repeatedly by academics when I attended university, highlighting its significance.

(BBC News 2016)

COBIT 5 is a framework that recognises the distinction between governance and management. A key responsibility of governance is to evaluate, direct and monitor. Management then plans, builds, runs and monitors activities to support the governance objectives (Escoute Consulting 2014).

(Fox IT 2016)

Without this separation, our company would be susceptible to fraud, bribery and corruption, which can have devastating consequences. From April to September 2015, out of 91 fraud cases with a value of just over $128 million, 34% were committed by management (KPMG 2015). Our industry experiences the greatest number of fraud incidents (Grant Thornton 2015), and that is why we must reduce this risk.

Relevant Links

For more information on the collapse of Enron, you can view a timeline here:

http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm

If you would like to read more about COBIT 5 or request a copy of the framework, you can do so here:

http://www.isaca.org/COBIT/pages/default.aspx

References

BBC News. “ENRON: Timeline.” Accessed April 17, 2016.

http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm.

Escoute Consulting. 2014. “The difference between governance and management.” Accessed March 20, 2016. http://www.escoute.com/2014/03/14/the-difference-between-governance-and-management/.

Fox IT. “COBIT 5 Training Courses.” Image. Accessed April 17, 2016.

http://www.foxit.com/it-training/cobit-5-training-courses/.

Grant Thornton. 2015. “Fraud in focus: Fraud and corruption in Banking and Financial Services.” Accessed March 20, 2016. http://www.grantthornton.com.au/client-alerts/2015/fraud-and-corruption-in-banking-financial-services/.

ISACA. “COBIT 5: A Business Framework for the Governance and Management of Enterprise IT.” Accessed April 17, 2016. http://www.isaca.org/COBIT/pages/default.aspx.

KPMG. 2015. “Fraud Barometer: The fact of Australian fraud in 2015.” Accessed 20 March, 2016. https://home.kpmg.com/au/en/home/insights/2015/12/fraud-barometer-december-2015.html.

Stewart, Bennett. 2006. “The Real Reasons Enron Failed.” Journal of Applied Corporate Finance 18 (2): 116-119. Accessed March 17, 2016. doi:10.1111/j.1745-6622.2006.00092.x.