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Risks Of Noncompliance In Corporate Governance

3160 words - 13 pages

Running head: RISKS OF NONCOMPLIANCE IN CORPORATE GOVERNANCE PAGE \* MERGEFORMAT 1 RISKS OF NONCOMPLIANCE PAGE \* MERGEFORMAT 13
Risks of Noncompliance in Corporate GovernanceMMPBL/570Risks of Noncompliance in Corporate GovernanceIntroductionCorporations such as Enron, WorldCom, and Tyco forced Congress to enact the Sarbanes-Oxley Act (SOX) because of mismanagement and fraud. This new law requires financial reporting and disclosure within corporate governance. To meet the expectation of investors, McBride Financial Services, Inc. (MFSI), must develop corporate governance and find solutions that will address any issues of noncompliance that could hurt their reputation. To create the best ...view middle of the document...

"The problem, is it often is in federal legislation, is that the detailed rules required to put those tenets into place result in cumbersome and highly bureaucratic procedures to ensure their proper implementation" (Gandossy, 2004, p.p.110).The cost of the compliance remains high and the certification requirement is diverting time and efforts of the management from running the company efficiently. The costs for auditing internal controls remains high, for instance, companies paid an average of $ 4.36 million to comply with Sarbanes-Oxley Act.Part of a well thought out strategic plan is risk management, which most organizations cannot afford to overlook. The two recommendations selected for McBride Financial Services, Inc. (MFSI), are to create internal controls and an audit committee. There are costs associated with the risks of noncompliance. MFSI will be in direct violation of SOX if Hugh McBride is persistent on having Paul T. to handle the "accounting stuff" without the oversight of auditors. The newly created board of directors should create committees with authority and oversight over internal controls processes. To reduce the risk of noncompliance of SOX and the SEC, the board of directors should create Audit Committee with authority and oversight of the accounting and financial reporting processes. An alternative to an in-house committee, MFSI could hire auditors and accounting firms and to help mitigate the financial management risk. However, initially there are associated costs but will be worth the expense for the company to remain in compliance. By not creating an audit committee, there will be no checks and balances for Hugh McBride, allowing him to remain noncompliant with the SEC and SOX. The benefits from staying in compliance through the above recommendations outweigh the costs of noncompliance.Two recommendations offered to McBride Financial Services, Inc. require diligence in compliance to reach the end state goals successfully. The first, creating a culture of ethics encompasses the recommendation to create an audit committee to govern the oversight of hiring independent directors and ensuring that McBride adheres to ethical decision making in the best interest for McBride Financial and the stakeholders. McBride chose potential directors that would follow the lead of the current CEO, allow that CEO to choose senior executive's compensation packages and make all decisions about the direction McBride Financial advances. According to the text, "Small, insular boards lack the outside perspective that is necessary in case a company finds itself in trouble". (Gandossy & Sonnenfield, 2004, p. 243) It is critical that the board established for McBride financial work in partnership with the oversight committee to stabilize the company. McBride Financial will face serious repercussions if Hugh McBride is not diverted from the current course of unethical decision- making. In the case of Enron the text states, "They were ceding far...

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