LeisureInternetIn October 2000 the company Leisure Net, life style and wellness Fitness Company, was provisionally liquidated, holding been listed merely five old ages earlier on the JSE. Today Leisure Net has passed its ill-famed dirt and is being presently run by managers ; Mike Hill and David Monkhous. Peter Gardener and Rodney Mitchell, at the clip of 2000 moving executive managers of Leisure Net, were convicted in 2012 on charges of conflicting s234 ( 1 ) of the companies act61 of 1973, they served merely 19 months of a 7 twelvemonth sentence.
They were convicted of this fraud through the usage of company bank histories and inflating of net incomes. The Leisure Net dirt has had far making consequence on South African jurisprudence and concern. It is asked whether the prostration of Leisure Net was the consequence of Peter Gardener and Rodney Mitchel were they entirely to fault, or the inability of the board of managers to place and halt these two work forces. Many criticize the events environing whistle blower Wendy Addison, saying it was non her exclusive duty to expose the corruptness of these two persons. The South African concern requires all concerns act and follow the highest of codification of behaviors and moralss to advance itself to future investors.
Cases like Leisure Net harm South African concern image, as their actions could hold possible scared off possible investors. This survey will expose the deceitful activity and impractical internal controls of Leisure Internet. The ProblemsIt is usual for wellness nines to roll up money by agencies of debit orders. So it is easy to duplicate the debit run which LeisureNet did in December ; debiting one time at the beginning of the month and one time at the terminal of the month.
This so showed increased gross for the period. This increased gross would be deceitful. Furthermore leisureNets fiscal statements for 1999 besides stated that they have been approved and that their histories Deloitte and Touche had approved them. This was non true.
The two work forces used offshore histories to wash Dalmore money ; a company acquired by Leisure Net and in which the executive managers Peter Gardener and Rodney Mitchell held 20 % of the portions. Using concern histories they were able to avoid revenue enhancement and hide assets. However the existent ruin of Leisure Net is owed to Peter Gardener and Rodney Mitchell clever method of blow uping net income by taking advantage of the debit order system which all electronic left no statements doing its easy to duplicate the subscription tally. Internal controlsInternal controls are defined as holding five constituents:1. Control Environment-sets the tone for the organisation, act uponing the control consciousness of its people.
It is the foundation for all other constituents of internal control. 2. Risk Assessment-the designation and analysis of relevant hazards to the accomplishment of aims, organizing a footing for how the hazards should be managed3. Information and Communication-systems or processes that support the designation, gaining control, and exchange of information in a signifier and clip frame that enables people to transport out their duties4. Control Activities-the policies and processs that help guarantee direction directives are carried out.
5. Monitoring-processes used to measure the quality of internal control public presentation over clip. Internal controls are implemented in:Delegated authorizationBankCashFixed assetsVehiclesStockssPayrollWe see here a failure in three major countries of internal control ; delegated authorization, bank and hard currency. Delegated Authority:The Board of Trustees delegates authorization through the Chief Executive for the daily running of the administration. In a big and busy administration it is non practical to anticipate one individual to do all the determinations and empower all minutess.
The Chief Executive will, hence, farther delegate authorization to members of the staff squad to alleviate the burden and to guarantee smooth operation during absences of cardinal staff. Peter Gardener and Rodney Mitchell benefited from an internal system that was non right employed, the commissions did non depute duties decently go forthing Peter Gardener and Rodney Mitchell in charge of points that on a regular basis over-sighted by more than one manager. The actions of the commission of managers should hold been to depute sensitive places to more members to decrease opportunities of fraud. Another failure that occurred due to hapless deputation of responsibilities was the hiring of the internal hearer who at no point found fraud during Peter Gardener and Rodney Mitchell direction. Committees should depute with profession guaranting no member has the ability to perpetrate fraud, every bit good as creative activity of an audit commission. Bank:The company had many histories go forthing a great possibility for usage of these hibernating histories, taking to Peter Gardener and Rodney Mitchell illegal usage to avoid revenue enhancement and assistance in laundering of money.
Business, particularly big corporations need to pay careful attending to histories and guarantee that no history is being used outside of concern us. Simple controls such as shutting fresh histories would of greatly help Leisure Net. Cash:The companies debit orders provide an easy country for fraud as about no internal controls where in topographic point, it must therefore autumn upon the company to update its payment options to unsure less fraud can take topographic point. The bellow image provides a clear apprehension of good corporate administration and its construction.
Image:Companies rely on solid construction to map ; this construction is made from internal controls that have been put in topographic point to assist direction and to advance a ethical professional concern imageThis is an infusion from Nomura Holdings hypertext transfer protocol: //www. nomuraholdings. com/investor/cg/intcon. html Nomura holds high criterions with respects to internal controls they focus to a great extent on the commission system. Internal Controls System“As a Company which utilizes the Committee System, the cardinal function in concern inadvertence is taken by the Board of Directors and the Audit Committee ( the bulk of the members of the Audit Committee are Outside Directors ) . The Chair of the Board of Directors is held by a non-executive manager, leting the Board to better supervise the concern conducted by the executive officers.
The Audit Committee is chaired by an outside manager, doing its independency from direction even clearer. Further, in order to guarantee effectual and equal internal controls, the Group Internal Audit Department, which is independent from the concern executing maps, and other similar audit subdivisions placed in major attached subordinates conduct internal audits of the Company and its subordinates. The execution position of the internal audit is reported to the Internal Controls Committee, which includes a member of the Audit Committee, and the affairs discussed at the Internal Controls Committee are besides reported to the Board of Directors. Consequences of single internal audits are besides reported sporadically ( monthly as a general regulation ) to the Audit Committee by the Group Internal Audit Department.
In add-on, to beef up the independency of the internal audit subdivisions from the concern executing maps, execution programs and preparation of the budget of the Internal Audit Division, every bit good as the election and dismissal of the Head of the Internal Audit Division, require the consent of the Audit Committee, or a member of the Audit Committee designated by the Audit Committee. Audit Committee members may urge to Executive Officers alterations to the execution program, extra audit processs or betterment program preparations. ”DecisionLeisure cyberspace has merely to follow its international community’s actions. The universe of concern has changed. Ethical motives are now held high with the image of a company.
Was the prostration of Leisure Net the full making of Gardener and Mitchell? Yes and no, yes their actions lead to settlement, the fixed books led investors isolated, but the larger image is that of a failure of the full board of managers, hearers and stockholders for being unable to place the deceitful behavior of the two managers. I have listed and provided working illustrations of internal controls that one time in topographic point would guarantee no fraud can happen without traveling unnoticed, these like everything in life is non a sap cogent evidence unbeatable system, but they require big sums of attempt and work to rip off, Gardener and Mitchell found a cringle clasp in the interior workings of Leisure Net, their evildoings have led to the prostration of a south African company and have weakened the image of our concern and economic system sectors. The actions of these two work forces have ensured that in order to perpetrate fraud once more in South Africa, the full company would hold to be corrupt to acquire away with it. hypertext transfer protocol: //www.
nomuraholdings. com/investor/cg/intcon. htmlhypertext transfer protocol: //www. mango.
org. uk/guide/icexampleshypertext transfer protocol: //www. iol. co. za/news/crime-courts/leisurenet-whistleblower-speaks-out-1.
1460904hypertext transfer protocol: //www. leisure-net. orghypertext transfer protocol: //www. aabschools. com/case_studies/424. htmlEthical CHALLENGES IN SOUTH AFRICAN BUSINESSESThe existent job with the subject of concern moralss is non merely the cost of being caught or punished but the impact on the perceptual experience of the company.
Awareness is increasing. But research suggests that many concerns have a conformity attack to pull offing moralss – it’s about clicking boxes – it does non interpret into existent desired behaviour. ”The ethical jobs I am traveling to talk about are Nepotism, Corruption, Sexual Harrasment and Illegal Strikes. NepotismNepotism by and large means supplying workplace chances to employees based on personal relationships instead thanon their makings for the place. This will cut down the overall productiveness of the company.
This deficiency of equity can besides do a concern to lose its best employees as their bitterness will do so to seek to travel to more ethical concerns. In add-on, it becomes a job for directors who are non able to give just intervention to their subsidiaries because they are connected to person of authorization in the company. It besides gives these employees a sense of entitlement and that the effects do non use to them. CorruptnessCorruptness is the maltreatment of entrusted power for private addition. It hurts everyone who depends on the unity of people in a place of authorization.
Corrupt activity affects development, it contributes to less local and foreign direct investing. Sexual HarrasmentSexual torment is identified as unwanted behavior of a sexual nature. Sexual torment in the workplace is inexcusable. It is the employer ‘s duty to guarantee that policies and processs are followed in order to halt sexual torment in the workplace. Employees need to be able to place Acts of the Apostless of sexual torment so that the necessary action may be taken to extinguish this.Employers should develop and implement policies and processs that will take to the creative activity of workplaces that are free of these patternsIllegal StrikesManagement must walk the talk if there is to be a alteration in concern moralss