Archive for the ‘Governance’ Category

Nigeria: Corrupt Auditors and Auditing Practices

* (en) Nigeria Location * (he) מיקום ניגריה
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Sometimes its good to read about the auditing profession in other countries to get a sense of perspective about auditing in the USA.

This story published in the News Service provides a good sense of the lack of ethics, oversight and reliability of auditors in Nigeria. I’ve always wondered (and sometimes admired) how some companies do business in places like these and consistently stay in compliance with the FCPA.  At other times I just wonder how it is that half of the officials in these places are corrupt, but the foreigners who do business with them are always ethical and lawful.   After you read the excerpt below, you can read the complete article by clicking on the link at the bottom of the post:

“Abuja – When the EFCC carried the anti-corruption war to the Federal Ministry of Agriculture and Water Resources recently, it yielded good results. The head of internal audit received marked bills totalling N2 million as a bribe from some contractors. He was caught in the act!

The story has not attracted undue attention, partly because it is common and “normal” in government ministries, departments and agencies. Auditors are envied even by other corrupt colleagues. They obstruct free flow of files so that contractors, suppliers and even workmates are forced to offer bribes to them. Often, they do not act alone: they have the backing of their bosses who also have itchy fingers. In the private sector, internal and external auditors collaborate to doctor the books of quoted and unquoted companies.”

To finish reading the story from the News Service, click the link below:

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*** Important Update ***

Soon after I posted the article above, I was contacted by a Nigerian person who directed me to a Nigerian Blog that carried a story on the subject of fraud, auditors and the Nigerian Oil and Gas Industry.   Although, I am not a follower of business, political or social events in Nigeria, I found it appropriate to add information about this story, and link it for the benefit of those interested.    The story shows how real efforts are being made in Nigeria to combat corruption and how local auditors are not all corrupt.  Below is an excerpt of the story, posted in the Nigeria General Discussion Blog Website which you can read in its entirety by following the link on the bottom of this update:

“How Corruption, Theft Ruin Nigerian Oil and Gas Industry.  Is PIB the Way Out? – From DENNIS MERNYI, Abuja.

The high level corruption and theft in the extractive industry particularly the oil and gas industry has been exposed for the second time by the Hart Group and Sam Afemikhe group of auditors that carried out the audit report on the activities of the multinational firms in the oil and gas sector, the Nigerian government institutions responsible for both revenue, tax collections and regulations of all financial transactions in sector.

The auditors were commissioned by the National Stakeholders Working Group of NEITI under the chairmanship of Professor Assisi Asobie and their report was unprecedented for their independence and comprehensiveness. In that report, both financial and physical audits were carried out. Nigerian National Petroleum Corporation, NNPC, Central Bank of Nigeria, CBN, several government institutions as well as oil companies were indicted for stealing chunk of moneys either during crude production or refined oil product export or supply.

In the report also, the auditors found some discrepancies among the Petroleum Profit Tax (PPT), royalties and gas flaring penalties the companies declared they have paid and what the CBN said it had received.

NNPC’s reported cash calls were reconciled with receipts by the joint venture operators, but when the audit moved away from the CBN to focus on PPT and royalties in more detail, it ran into several problems because the companies’ assessments of production differed from the Federal Inland Revenue Service others’ records.

NEITI was created in 2004 essentially to develop a framework for and ensure transparency and accountability in the reporting and disclosure by the extractive industry companies, of revenue, owing to or paid to the government. As a subset of the global Extractive Industries Transparency Initiative, EITI, the main task of NEITI is the reconciliation of payment s made by the extractive industry companies with receipts recorded by public agencies.”

The article goes on to mention the challenges faced by the auditors who undertook the investigation, attempts to influence or derail their report by political forces, the large amounts of moneys involved and identifies some of the the foreign companies investigated.

To read entire article, please follow this link:

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Does Wikileaks Support Corporate Whistleblowers?


Is this the norm for Whistleblowers?

For those who did not read my previous post about, here is an explanation of what Wikileaks does, copied from their website:

“Wikileaks is an uncensorable version of Wikipedia for untraceable mass document leaking and analysis. It combines the protection and anonymity of cutting-edge cryptographic technologies with the transparency and simplicity of a wiki interface.

Wikileaks looks like Wikipedia. Anybody can post comments to it. No technical knowledge is required. Whistleblowers can submit documents anonymously and untraceably. Users can publicly discuss documents and analyze their credibility and veracity. Users can discuss the latest material, read and write explanatory articles on leaks along with background material and context. The political relevance of documents and their veracity can be revealed by a cast of thousands.

Wikileaks incorporates advanced cryptographic technologies to ensure anonymity and untraceability. Those who provide leaked information may face severe risks, whether of political repercussions, legal sanctions or physical violence. Accordingly, sophisticated cryptographic and postal techniques are used to minimize the risks that anonymous sources face.”

Now that you know what they do, the excerpt below copied from the Wikileaks  “About” page at provides information on Wikileaks views regarding Corporate Whistle blowers.    I believe that the work these folks are doing will likely have a far reaching impact on our professions, corporate ethics, fraud investigations and governance in general.   Read and reach your own conclusions:

“Does Wikileaks support corporate whistleblowers?

It is increasingly obvious that corporate fraud must be effectively addressed. In the US, employees account for most revelations of fraud, followed by industry regulators, media, auditors and, finally, the SEC. Whistleblowers account for around half of all exposures of fraud.

Corporate corruption comes in many forms. The number of employees and turnover of some corporations exceeds the population and GDP of some nation states. When comparing countries, after observations of population size and GDP, it is usual to compare the system of government, the major power groupings and the civic freedoms available to their populations. Such comparisons can also be illuminating in the case of corporations.

Considering the largest corporations as analogous to a nation state reveals the following properties:

1. The right to vote does not exist except for share holders (analogous to land owners) and even there voting power is in proportion to ownership.
2. All power issues from a central committee.
3. There is no balancing division of power. There is no fourth estate. There are no juries and innocence is not presumed.
4. Failure to submit to any order may result in instant exile.
5. There is no freedom of speech.
6. There is no right of association. Even romance between men and women is often forbidden without approval.
7. The economy is centrally planned.
8. There is pervasive surveillance of movement and electronic communication.
9. The society is heavily regulated, to the degree many employees are told when, where and how many times a day they can go to the toilet.
10. There is little transparency and something like the Freedom of Information Act is unimaginable.
11. Internal opposition groups, such as unions, are blackbanned, surveilled and/or marginalized whenever and wherever possible.

While having a GDP and population comparable to Belgium, Denmark or New Zealand, many of these multi-national corporations have nothing like their quality of civic freedoms and protections. This is even more striking when the regional civic laws the company operates under are weak (such as in West Papua, many African states or even South Korea); there, the character of these corporate tyrannies is unobscured by their civilizing surroundings.

Through governmental corruption, political influence, or manipulation of the judicial system, abusive corporations are able to gain control over the defining element of government — the sole right to deploy coersive force.

Wikileaks endeavors to civilize corporations by exposing uncivil plans and behavior. Just like a country, a corrupt or unethical corporation is a menace to all inside and outside it.”

I’ve heard calls for reforms in the board room, but what these folks are talking about goes a little beyond that!

CalPERS Pushes for Change at Texas Industries

VanDyck, Man in armor 1625
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Anyone who knows what the CalPERS Corporate Governance Focus List is, knows that CalPERS is one of those organizations that is not afraid to advocate for changes in corporate America.   Especially if it is a major stockholder in the company in question.   I found this article at and felt it provides an excellent example of the types of conflicts taking place today between those who advocate for systematic changes in Corporate Governance, and those who want to see changes at a slower pace or not at all.   After you read the excerpt below you can read the whole article by clicking on the link at the bottom of this post:

“The California Public Employees Retirement System (CalPERS) has made its case to revamp the board of directors at Texas Industries, according to the Sacramento Business Journal. Texas Industries, which will host its annual shareholder meeting on October 22, is facing a dissident slate of directors from CalPERS through Shamrock Activist Value Fund, which invests $200 million for CalPERS.  “The experienced and diverse Shamrock director slate can more effectively oversee CalPERS interests as a long-term shareowner of Texas Industries by better focusing the board’s attention on optimizing the company’s operating performance, profitability and returns to shareowners,” said CalPERS’s Anne Simpson, senior portfolio manager of corporate governance.”

To read the article, please click the link below:

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The photo above is of Don Pedro de las Marias Heinkel Windham III, the first Texas cowboy in recorded history.   He founded the famous San Antonio tavern “Los Borrachitos” (near River Walk) and fathered 27 children with  Anne Marie Johnston Wyler and 20 other women.  He owned the first rapid fire 67 caliber flintlock outside of New Spain.

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The Dark Side of DLP and Employee Monitoring

56/365: I-Spy.
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My sense as an auditor is that most CIO’s are ethical and conscientious of the responsibility they have over the IT infrastructure, and that includes the opportunity to monitor anyone in the company undetected (especially when there is little or no Segregation of Duties over the IT Security infrastructure).    However, I heard once that one or two CIO’s in the USA can not be trusted because they suffer from a psychological need to spy on who ever they dislike, but no one knows who these CIO’s are.

It is the responsibility of every organization to protect itself from thieves, fraudulent activities and those who plot against it in the market place.  In order to effectively do that it must implement security processes and it must invest in security infrastructure.   One of the processes required for effective security is the monitoring of its valuable assets and personnel which may be deemed at high risk resulting from some form of risk assessment.    However, as always, the effectiveness and value of the monitoring process depends on how it is done, who does it and how it is perceived.   If discovered, heavy handed employee monitoring can sour good employees and creates a culture of distrust.   For companies that want the trust and good will of their employees, this would be a serious problem.

The excerpt below is from an article published in dealing with this problem:

“Technology allows for flexibility in how, when, and where people work. However, instead of building a foundation of trust, employers are resorting to heavy-handed monitoring of employees’ actions.”

To read the rest of this article from click the link below:

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The guy above with the binoculars looks very familiar to me.   I think his name is Igor and he is the Manager of security somewhere.   Stay away from him, he has no conscience, and spies on his mother just for fun.

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SCCE Survey Shows Companies Lag On Social Networking Policies

Preserved GWR locomotive Bradley Manor, until ...
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Based on my experience as an auditor, it will be a long time before most companies catch up and publish relevant and realistic social media policies.  Most are still struggling with simple email policies, and the meaning of Segregation of Duties!  The excerpt below from an article published by SCCE discuses this problem:

“On September 23, 2009, SCCE reported, “Apparently Social Media has caught many employers by surprise.” According to a recent survey conducted by the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA), company policies have not yet caught up with the explosion of Social Media usage by their employees.”

To read the full article click the link below:

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The train in the photo is carrying all the policies, guidelines and procedures missing from American public companies.   Look at it carefully, because if you are like me, you’ve heard the CFO and CIO constantly say that the dammed policies are coming soon.   When I ask, “but where are they now,” the answer is  always that they are on the train.   So here is the train, but where the heck is that station, and who is the woman with the bag?

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Directors Keeping Jobs in Spite of Shareholder Nonsupport

Willie Anderson (left), the U.S. Open champion...
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How many of us would be keeping our jobs if less than 50% of our bosses / peers did not approve of our work?

Between the news of unethical executive compensation schemes bombarding us from the media on a daily basis and these types of  board problems, it is clear that American corporate governance is ill and in need of major surgery.

The article linked below, from says that unpopular Board members where not removed because there are few challengers or replacements available.   Doesn’t this sound suspect?   The problem may be that the way that boards are structured, governed and financially maintained does not provide incentives for change.   Hasn’t there been a huge ruckus about bringing more women and minorities on corporate boards but according to what one reads in the media, there just aren’t enough qualified people from those groups.   If outsiders can’t get into boards, of course those in them are pretty secure from competition.

To read the full article from please click the link below:

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The photo above is of two well known board members from a Fortune 500 company based in NYC.   The photo taken at a Golf outing in 1915 was used last year in an Annual Report.   When the media inquired as to why not use a “more recent” photo, the answer was “Mr. XXX and Mr. YYY wanted to make sure they portrayed a youthful image for the company, and it was either this photo or one where they are both being assisted by nurses into a Segway scooter!

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Governance, Risk, and Compliance |


A well trained GRC Professional is always in demand.

If you are not familiar with the Brighttalk service, you are missing out on a great source of video and multimedia materials on the web.  It is a good training tool and visual information site for staying on top of industry changes.  Go to the link listed below and open up an account, then subscribe to the “Channel” of your choice. Mine of course, is the Governance, Risk and Compliance channel.

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