THE IMPORTANCE AND EFFECTIVE OF THE ETHICAL PRINCIPLES WITHIN AN ORGANIZATION (BUSINESS) TO CURB FRAUDULENT BY NGUYEN THI BINH Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER 2011 DECLARATION OF ORGINALITY AND WORD COUNT I hereby declare that the graduation project is based on my original work except quotations and citations, which has been duly acknowledged I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University or other institutions The word count is 12,624 words NGUYEN THI BINH 17 OCTOBER 2011 ii ACKNOWLEDGEMENT To complete this thesis, first at all, I want especially to thank sincerely to my supervisor Dr Pham Duc Hieu, International School, Vietnam National University Hanoi He is the teacher who is not only caring me during my thesis work but also a mentor to teach me all those years in International School I would like to express my thanks to Ms Sumathi, Help University College, who initiated and give so much instruction and support about the dissertation Additionally, I also wish to take this opportunity to thank all others Vietnamese teachers at International School and the Malay teachers at Help University College who taught and helped me during the study process at the International School Now Based on knowledge accumulated over years of study and major in accounting literature time, I have completed the course of this dissertation I cannot express all my thoughts here I will never forget he teachers and friends who have worked closely with me throughout my five years of study at the University Finally, I would like to express want to send thanks for my parents who are laid on my background and create everything for my completeness of course during five years at school iii THE IMPORTANCE AND EFFECTIVE OF THE ETHICAL PRINCIPLES WITHIN AN ORGANIZATION (BUSINESS) TO CURB FRAUDULENT BY NGUYEN THI BINH OCTOBER 2011 Supervisor: Dr PHAM DUC HIEU ABSTRACT Fraud is the sensitive problem in any organization in business It’s not easy for us to get information about this problem It’s also link with code of ethic In this thesis, I test with three hypotheses As the results, I examine whether economic conditions influence the propensity to commit accounting fraud I find that the incidence of observed accounting fraud is increasing and is at its highest in the periods leading up to an economic peak One more result, new accountants who have less experience have high accounting transparency than old accountants who have more experience But they also break money culture than who have more experience Because of all the things, so we constantly learn about fraud and errors in accounting and auditing iv TABLE OF CONTENT DECLARATION OF ORGINALITY AND WORD COUNT ii ACKNOWLEDGEMENT iii ABSTRACT iv TABLE OF CONTENT v LIST OF TABLES viii LIST OF ABBREVIATIONS ix CHAPTER 1: INTRODUCTION 1.1 Research background 1.2 Problem statement 1.3 Research question 1.3.1 Fraudulent in developed countries 1.3.2 Fraudulent in Vietnam 1.4 Thesis structure 1.5 Objective of thesis CHAPTER 2: LITERATURE REVIEW 2.1 Definition of Fraudulent 2.1.1 Detecting Fraud 2.1.2 Why does the definition matters 10 2.1.3 Small, medium and large enterprises 11 2.1.4 Internal and external fraud 11 2.1.5 Outsourcing fraud control 12 2.2 Code of Ethics 15 v 2.2.1 Definition of business ethic and factors affecting business ethics 15 2.2.2 Code of ethics 2.3 Related Theory 16 18 2.3.1 Control fraud theory 18 2.3.2 Ethical theory 19 2.3.3 Utilitarian approach 19 2.4 The Factors that Contribute to Accounting Fraud 21 2.4.1 Corporate Transparency 21 2.4.2 Money Culture 23 2.5 Relationship between fraudulent and ethic 25 2.6 Hypothesis statement 25 CHAPTER 3: RESEARCH AND METHODLOGY 3.1 Research method 28 28 3.1.1 Quantitative methodology 28 3.1.2 Qualitative methodology 28 3.2 Data source 29 3.2.1 Secondary data 29 3.2.2 Primary data 30 3.3 Research tool 30 3.3.1 Internet tool 30 3.3.2 Questionnaire 31 CHAPTER 4: FINDING AND DISCUSSION 32 4.1 Questionnaire Results 33 4.2 Result Analysis 34 4.2.1 Hypothesis 34 vi 4.2.2 Hypothesis 36 4.2.3 Hypothesis 39 4.3 General Discussion CHAPTER 5: CONCLUSION AND RECOMMENDATION 5.1 Implications 41 43 43 5.1.1 Implications for Government 43 5.1.2 Implications for the enterprise 44 5.2 Prevention 45 5.3 Conclusion 46 REFERENCES 48 APPENDIX A: QUESTIONAIRE SAMPLES 51 APPENDIX B: CHI-SQUARE TESTS 54 vii LIST OF TABLES Table 2.1: Outsourcing fraud control Table 4.1: show respondents of each statement Table 4.2: Descriptive statistics for hypothesis (economic survey) Table 4.3: Chi-square test for economic survey Table 4.4: Descriptive statistics for hypothesis (transparency survey) Table 4.5: Chi-square test for transparency survey Table 4.6: Descriptive statistics for hypothesis 3(CEO and money culture survey) Table 4.7: Chi-square test for CEO and money culture survey viii LIST OF ABBREVIATIONS APS Australian Public Service CEO Chief Executive Officer CFO Chief Financial Officer EPS Earnings Per Share FS Financial Statements GAAS Generally Accepted Auditing Standard GAAP Generally Accepted Accounting Principles IFAC International Federation of Accountants IESBA International Ethics Standards Board for Accountants ODA Official Development Assistances PE Price per Earning PMU Project Management Unit WTO World Trade Organization ix CHAPTER 1: INTRODUCTION 1.1 Research background During the period when Vietnam joined the WTO-World Trade Organization, the economy of my country is facing with a new challenge and Vietnam and auditing industry entered a period of great development with many difficulties and new opportunities The auditing firm was established competition Hence, organizations tend to fraud in order to serve the purpose of personal firm to harm interests of the community The organization can survive in the competitive era without resorting to unethical practices This study provides readers with an understanding of the necessity of the role of ethics in the modern organization It mentions the importance of leadership in the establishment and maintenance of ethical principles in the organization and pinnacles with a set of recommendations that leaders can be assigned to ensure that our moral remains This study examines the growing emphasis that companies place on business ethics, business ethics as well as inform the lives of people in business Current perspective and legal only enhance the importance of moral codes, making them an important part of the landscape of the company The increasing relevance of the cost regardless of business ethics is recorded Emphasis is placed on the importance of stressing business ethics in society, and about teaching the concept to us that they will carry a strong sense of ethics in the business world effect Conversely, any problem in an y field has two aspects, particularly moral in an organization, too There are ethical and unethical behaviors Concretely, in unethical of some Vietnam organizations nowadays, the The preventive measures to identify and mitigate specific risks of fraud include: - Fraud risk assessment - identify vulnerable areas to fraud as other types of common fraud to most enterprises, the specific type of fraud in the business of the company and / or risks in common specific geographical area; - Monitoring and control - compare risks from identified fraud risk assessment process with the control measures and evaluate the effectiveness of such control in preventing or detecting fraud The method to be applied when dealing with suspected fraud or detecting fraud, including: - The plan to deal with fraud - set the rules of investigation, which involves analyzing the root causes of the problem, since then determine the corrective measures to prevent or detect fraud in the future and strengthen the discipline process to ensure consistency To application successful of anti-fraud program, it should have professional knowledge, skills and experience Each enterprise should underestimate the importance of fraud prevention programs based on their size and status 5.2 Prevention Prevention of fraud by government employees starts at the top of the department or agency Department heads or agency boards are responsible for instituting controls and for making employees aware of the fact that the organization will not tolerate fraud by its employees, or anyone else Department and agency ethics and culture should, in and of themselves, promote ethical behavior by its employees and deter illegal acts It is understood that the ethics and attitudes of board members and management largely influence the ethics and attitudes of the lower 45 employees of a department or agency This is commonly referred to as “the tone at the top”, where employees observe the behavior of department heads and boards, and tends to adopt the same behavior Management that sets an example of ethical behavior and implements strict, but not too strict, policies as to what behavior is expected of employees will likely oversee employees that are ethical and loyal Ultimately it is the department head or the board’s task to ensure adequate policies are in place to promote ethical behavior It is also the responsibility of the department head or the agency board to ensure that appropriate internal controls are in place to deter and detect potential fraudulent activities by employees It is important that employees know the repercussions of fraudulent activities against their employer When employees witness their colleagues being prosecuted for fraud and theft crimes against their employer, future incidents of these crimes by employees will be deterred It is impossible to prevent all losses due to fraud, and other illegal acts by employees; however governments should implement steps to ensure losses are minimized Most government that require departments and agencies to report losses also require, along with the amount of the loss, the report indicating steps taken to prevent similar loss in the future 5.3 Conclusion Fraud and other illegal acts against the government by its employees cost taxpayers millions of dollars each year Government should ensure that an adequate process is in place to ensure that all frauds are reported A government’s best chance of combating and detecting these illegal activities is from the reporting of these 46 incidents by other employees Government should provide their employees with a convenient and confidential method for the reporting of these incidents to the proper authorities I think that confidential hotlines are an excellent way to promote this reporting Studies of fraud and specific fraud on the financial statements have been many contributions to society Understanding the methods of fraud, the conditions giving rise to fraud will help many different careers in the establishment of measures to prevent and detect fraud in order to minimize the losses to society, help improve the quality of financial reporting information When I finished the thesis, I want to prove the problem of ethics in an organization The research will provide the definition of ethics and the knowledge about it Besides, it also provides the relationship between ethics when happened fraud in organization In this project, I describe the important role fraud in organization and effect for internal and external in an organization If fraud is increasing in organization, it leads to effected badly for social at least I'm doing this thesis in hopes of fraud in an organization will no longer happen And hope that the government may make strict rules about this fraud It is important that these regulations have been people, each individual consciousness and follow or not? Or personal interests that the ethics of fraud increasingly downward 47 REFERENCES Sivakumar Velayutham (2003) THE ACCOUNTING PROFESSION’S CODE OF ETHICS: IS IT A CODE OF ETHICS OR A CODE OF QUALITY ASSURANCE? Critical Perspectives on Accounting, Volume 14, Issue 4, May, Pages 483-503 Teri Shearer (2002) Ethics and accountability: from the for-itself to the for-the-other Accounting, Organizations and Society, Volume 27, Issue 6, August, Pages 541-573 Stephen E Loeb (1999) Accounting ethics research, Journal of Accounting and Public Policy, Volume 18, Issues 4-5, winter, Pages 333-334 Websites, control fraud theory, available at: http://en.wikipedia.org/wiki/Control_fraud, Assess on 27 August, 2011 Collard, D., 1996 Pigou and Modern Business Theory The Economic Journal: no.106, 912-924 Janakiraman, S., Lambert, R., Larcker, D., 1992 An Empirical Investigation of the Relative Performance Evaluation Hypothesis Journal of Accounting Research: vol.30, no.1, 53-69 Caplan, D., 1999 Internal Controls and the Detection of Management Fraud Journal of Accounting Research: vol.37, no.1, 101-117 IFAC, (2010), The Code of Ethics for Professional Accountants Available at: http://www.ifac.org/Ethics/Pronouncements.php Accessed on 15 September 2011 Chad Albrecht "Financial fraud: the how and why: understanding the conditions in which fraud occurs is the key to its detection and prevention" European Business 48 Forum FindArticles.com,17Sep,2011.http://findarticles.com/p/articles/mi_hb4779/is_29/ai_ n31045419 Ken McPhail (2003) Relocating accounting and business ethics: reflections on a business ethics retreat in Scotland's National Park, The British Accounting Review, Volume 35, Issue 4, December 2003, Pages 349-366 Wikipedia, (2010), Accounting ethics Available at: http://en.wikipedia.org/wiki/Accounting_ethics Accessed on September 2011 WorldCom: Why it matters, at http://news.bbc.co.uk/2/hi/business/2066959.stm visited Tuesday, August 19, 2011 Yuthas, Kristi, Dillard, Jesse, and Rogers, Rodney, “Beyond agency and structure: Triple-Loo learning,” Journal of Business Ethics, 2004, 51(2), pp 229-243 Yu, F (2005), “Accounting transparency and the term structure of credit spreads”, Journal of Financial Economics 75(1), 53- 84 Fama, E & French, K (1997), “Industry costs of equity”, Journal of Financial Economics 43, 153-193 Houweling, P & Vorst, T (2003), “Pricing default swaps: Empirical evidence”, Forthcoming, Journal of International Money and Finance International Federation of accountants 545 fifth avenue, 14 th floor New York, New York 100017 USA 1.Messier, W.F., Glover, S.M., Prawitt, D.F and Boh, M (2007) Auditing and Assurance Services in Malaysia, 3rd edition, McGraw Hill, Kuala Lumpur, Malaysia page 13, 14, 16, 19, 53, 54, 576, 568, 558, 559, 561 49 International Federation of Accountants (IFAC) 545 Fifth Avenue, 14th, Floor NY, NY 10017USA, Handbook of International auditing, assurance and ethics pronouncements Albrecht, WS & CO Albrecht, Fraud examination & prevention, Thomson SouthWestern, Mason, Ohio, 2004 American Institute of Certified Public Accountants, Fraud and the responsibilities of the Audit Committee an overview, AICPA, New York, 2004, viewed August 2011, (http://www.aicpa.org/audcommctr/toolkits/10.htm) Association of Certified Fraud Examiners, Fraud examiners manual, US edn, ACFE, Austin, Texas, 2003 Fraud Control Section 2003, Australian Government Attorney-General’s Department, Canberra, viewed August 2011, HM Treasury, Fraud report 2002-2003 an analysis of reported fraud in government departments, HM Treasury, London, 2004, viewed March 2004, 50 APPENDIX A: QUESTIONAIRE SAMPLES Company: _ Industries:  Business  18-30 Age: Gender:  Construction  31-40  Male  41-50  Education  Above 50  Female This survey on ethical principles and accounting fraud Hypothesis Question 1: With the economic development today, according to you, is ethical elements of a professional accountant important or not? □ Yes □ No Question 2: As an accountant of a business, you have to comply with ethical principles of an accountant or not? For example: Transparency in corporate financial reporting, information you provide to manager is reliable or not? □ Yes □ No Question 3: According to the current economic situation, you are an accountant for a large business, you think the economic efficiency and accounting fraud is a positive or not? □ Yes □ No 51 Hypothesis Question 1: In your opinion, has transparency in financial accounting contributed to increased economic efficiency for business or not? □ Yes □ No Question 2: As a new accountant, are you willing to make financial statements with not transparent at the request of your manager, especially when your bonus periodically depending on the company's revenue? □ Yes □ No Question 3: Present trends published financial statements are not transparent with an increasing tendency Do you think increasing fine is the effective way to prevent this situation? □ Yes □ No 52 Hypothesis 3: Question 1: If you are a corporate manager and you participate in bidding a large project With the potential of your business now will not win the contract Do you use the money to bribe in order to have this project? □ Yes □ No Question 2: With the role as a corporate accounting, the manager force you to make financial statements misleading information on some of the revenue to benefit his personal and not to your company, you agree with it? □ Yes □ No Question 3: If you have been promoted as a manager, a position higher than now, but you not have enough skills, ability to make a good manager, you agree with that? □ Yes □ No Question 4: In case, your boss present for you big amount of money in order to implement unethical behavior of an accountant, you agree with it? □ Yes □ No Question 5: If you agree with answer in question 4, when you get that amount of money, you think that it break the money culture? □ Yes □ No 53 APPENDIX B: CHI-SQUARE TESTS Gender survey Hypothesis H1A: The relation between macroeconomic performance and accounting fraud is positive H1B: The relation between observed accounting fraud and the years before an economic peak is positive Test statistic: Degree of freedom: = (the rule of five is applied) Level of significant: α = 0.05 Decision rule: Reject if Value of the test statistic: Yes No Total Male 95 28 123 Female 92 19 111 Total 187 47 234 54 Sex Yes No Total Male 98.2949 24.70513 123 Female 88.7051 22.29487 111 187 47 234 Total Value of 95 98.2949 -3.29487 10.85618 0.110445 92 88.7051 3.294872 10.85618 0.122385 28 24.70513 3.294872 10.85618 0.43943 19 22.29487 -3.29487 10.85618 0.486936 1.159196 Conclusion: Since 55 Age survey Hypothesis H2A: New accountants who have less experiences have high accounting transparency than old accountants who have more experience H2B: Old accountants who have more experience have high accounting transparency than new accountants who have less experience Test statistic: Degree of freedom: = (the rule of five is applied) Level of significant: α = 0.05 Decision rule: Reject if Value of the test statistic: Age Yes No Total 18-30 107 38 145 31-40 32 14 46 41-50 13 20 Above 50 13 10 23 Total 165 69 234 56 Age Yes No Total 18-30 102.24359 42.75641 145 31-40 32.4358974 13.564103 46 41-50 14.1025641 5.8974359 20 Above 50 16.2179487 6.7820513 23 165 69 234 Total Value of 107 102.24359 4.7564103 22.6234385 0.22127 32 32.4358974 -0.4358974 0.19000657 0.0058579 13 14.1025641 -1.1025641 1.2156476 0.0862005 13 16.2179487 -3.2179487 10.355194 0.6385021 38 42.75641 -4.7564103 22.6234385 0.5291239 14 13.564103 0.4358974 0.19000657 0.014008 5.8974359 1.1025641 1.2156476 0.2061315 10 6.7820513 3.2179487 10.355194 1.5268528 3.227947 Conclusion: Since 57 Industries survey Hypothesis H3: The relation between observed accounting fraud and CEO incentive compensation and net worth is positive Test statistic: Degree of freedom: = (the rule of five is applied) Level of significant: α = 0.05 Decision rule: Reject if 147 Value of the test statistic: Industries Yes No Total Business 112 50 162 Construction 86 42 128 Education 65 35 100 Total 263 127 390 58 Industries Yes No Total Business 109.2461538 52.75384615 162 Construction 86.31794872 41.68205128 128 Education 67.43589744 32.56410256 100 263 127 390 Total Value of 112 109.2461538 2.753846154 7.583668639 0.069418175 86 86.31794872 -0.31794872 0.101091387 0.001171151 65 67.43589744 -2.43589744 5.933596318 0.087988691 50 52.75384615 -2.75384615 7.583668639 0.143755748 42 41.68205128 0.317948718 0.101091387 0.002425298 35 32.56410256 2.435897436 5.933596318 0.1822128 0.486971864 Conclusion: since 59 ... present the theme: ? ?The importance and effective of the ethical principles within an organization (business) to curb fraudulent? ?? 1.3 Research question This study concern about” the important and effective. .. an understanding of the necessity of the role of ethics in the modern organization It mentions the importance of leadership in the establishment and maintenance of ethical principles in the organization. .. inform the lives of people in business Current perspective and legal only enhance the importance of moral codes, making them an important part of the landscape of the company The increasing relevance