Ais Chapter 3

AIS CHAPTER 3: ETHICS, FRAUD, INTERNAL CONTROL •

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Ethical standards  are derived from societal mores and deep-root deep-rooted ed personal beliefs about issues of right and  wrong that are not universally agreed upon. pertai ains ns to the the prin princip ciple less of cond conduc uctt that that Ethics - pert indi indivi vidu duals als use use in maki making ng choi choice cess and and guid guidin ingg thei theirr behavior in situations that involve the concepts of right and  wrong. !sin"ss "thics in#ol#"s $indin% th" ans&"rs to t&o '!"stions: (1) How do managers decide what is right in conducting their business? (2) nce managers have recogni!ed what is right" how do they achieve it? #thical issues in business can be di#id"d into $o!r ar"as:

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#$uity *ights

Honesty sty

e%ercise of corporate power

#%ecutive &a &alaries 'o 'omparable orth roduct ricing 'orporate +u +ue r rocess #m #mployee Health &creening #mployee rivacy &e%ual Harassment +iversity #$ual #mployment pportunity histle-,lowing #mployee an and a anagement 'onflicts of /nterest &ecurity of rgani!ation +ata and *ecords isleading 0dvertising uestionable ,usiness ractices in oreign 'ountries 0ccurate *eporting of &hareholder /nterests olitical 0ction 'ommittees orkplace &afety roduct &afety #nvironmental /ssues +ivestment of /nterests 'orporate olitical'ontributions +ownsi!ing and lant 'losures

,usiness organi!ations have conflicting responsibilities to their employees" shareholders" customers" and the public. Seeking a balance between these consequences is the (ana%"rs) "thical r"s*onsi+ilit

Ethical *rinci*l"s PROPORTIONALIT.  3he benefit from a decision must outweigh the risks /!stic". 3he benefits of the decision should be distributed fairly to those who share the risks. 3hose who do not benefit should not carry the burden of risk. 0ini(i1" ris2. #ven if 4udged acceptable by the principles" the decision should be implemented so as to minimi!e all of the risks and avoid any unnecessary risks.

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CO0PUTER ETHICS - analysis of the nature and social impact impact of computer computer technolog technologyy and the corresponding corresponding formulation and 4ustification of policies for the ethical use of such technology 3hree levels of computer ethics 1) Po* co(*!t"r "thics is simply the e%posure to stories and reports found in the popular media regarding the good or bad ramifications of computer technology. 2) Para co(*!t"r "thics involves taking a real interest in computer ethics cases and ac$uiring some level of skill and knowledge in the field 5) Th"or"tic interes erestt to Th"or"tical al co(*!t"r co(*!t"r "thics, "thics, is of int multidisciplinary researchers who apply the theories of philosophy philosophy"" sociology sociology"" and psychology psychology to computer computer scie scienc ncee with ith the goal oal of bri bringin ngingg som some new understanding to the field. &evera &everall issues issues of concer concernn for studen students ts of accoun accountin tingg information systems 1) Pri#ac - eople desire to be in full control of what and how much information about themselves is available to others" and to whom it is available. 3his 3his rais raises es the issue issue of o&n"rshi* in the personal information industry 4 S"c!r S"c!rit it 5Ac 5Acc!r c!rac ac and and Con$i Con$id"n d"ntia tialit lit4 4 Computer Computer security  security  is an atte attemp mptt to avoi avoidd such such undesirable events as a loss of confidentiality or data integrity. 34 O&n" O&n"rs rshi hi* * o$ Pro Pro*" *"rt rt 64 E'!it '!it in in Acc"s cc"sss 74 En#i En#iro ron( n("n "nta tall Iss! Iss!"s "s 84 Arti Arti$i $ici cial al Int" Int"ll lli% i%"n "nc" c" 94 Un"( Un"(*l *lo o(" ("nt nt and and Dis*l Dis*lac ac"( "("n "ntt 4 0is! 0is!s" s" o$ Co(* Co(*!t !t"r "rss the most most sign signifific ican antt Sar+ Sar+an an"s "s-O -O;l ;l" " Act Act 5S 5SO< Oender o raud Aosses by 0ge o raud Aosses by #ducation o O**ort!nit is the factor that actually facilitates the act (fraud). pportunity - access to assets and@or the information that controls assets

Corr!*tion Corr!*tion involves an e%ecutive" manager" or employee of the organi!ation in collusion with an outsider. our principal types of corruption9 1. ,ribery 2. /llegal gratuities 5. 'onflicts of interest 7. #conomic e%tortion 1.

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O**ort!nit $actor ";*lains (!ch o$ th" $inancial loss di$$"r"ntial in "ach o$ th" d"(o%ra*hic cat"%ori"s   Position. /ndividuals in the highest positions within an organi!ation are beyond the internal control structure and have the greatest access to company funds and assets. @"nd"r. omen are not fundamentally more honest than men" but men occupy high corporate positions in greater numbers than women. 3his affords men greater access to assets. A%". lder employees tend to occupy higher-ranking positions and therefore generally have greater access to company assets. Ed!cation. >enerally" those with more education occupy higher positions in their organi!ations and therefore have greater access to company funds and other assets. Coll!sion. hen individuals in critical positions collude" they create opportunities to control or gain access to assets that otherwise would not e%ist FRAUD SCHE0ES 3hree broad categories of fraud schemes are defined9 fraudulent statements 'orruption asset misappropriation • • •

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Fra!d!l"nt stat"("nts are associated with management fraud 3he Bnderlying roblems9 1. Aack of 0uditor /ndependence 2. Aack of +irector /ndependence 5. uestionable #%ecutive 'ompensation &chemes 7. /nappropriate 0ccounting ractices.

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RIER. ,ribery involves giving" offering" soliciting" or receiving things of value to influence an official in the performance of his or her lawful duties. ILLE@AL @RATUITIES.  0n illegal gratuity involves giving" receiving" offering" or soliciting something of value because of an official act that has been taken  3his is similar to a bribe" but the transaction occurs after the fact. CONFLICTS OF INTEREST occurs when an employee acts on behalf of a third party during the discharge of his or her duties or has self-interest in the activity being performed ECONO0IC E