CORPORATE GOVERNANCE IN CONVERSION PROCESSES (STUDY OBJECTIVE 7)

Recall that Chapter 5 presented the four primary functions of the corporate governance process: management oversight, internal controls and compliance, financial stewardship, and ethical conduct. Each of these functions is applicable to the conversion processes, which must include a proper corporate governance structure in order to properly discourage fraud, theft, and misuse or manipulation of conversion-related resources.

The systems, processes, and internal controls described in this chapter are part of a corporate governance structure. When management designs and implements conversion processes, it assigns responsibility for executing the related logistics and reporting functions to various managers and employees. It must be mindful of the risks of stolen or misused inventories and fixed assets, alteration of documents or reports, and other frauds in this process. Accordingly, it must also implement and monitor internal controls to minimize these risks. As management considers these assignments and subsequently monitors the underlying processes and controls, it is carrying out its corporate governance functions of proper management oversight and internal controls and compliance.

When management has designed, has implemented, and continually manages processes and internal controls, it is helping to ensure proper stewardship of the company's assets. Corporate governance requires proper financial stewardship, and since inventories and fixed assets are frequently the largest assets reported on a company's balance sheet, financial stewardship in these areas is especially important. It is also especially challenging, due to the ever-changing nature of the company's inventory items throughout the various stages of the conversion process.

Finally, good corporate governance depends upon the ethical conduct of management. When management sets an appropriate tone at the top by consistently demonstrating and encouraging ethical conduct, it is more likely that a stronger system of corporate governance will result. Improved effectiveness and efficiency and reduced risks of fraud tend to accompany workplace environments marked by effective corporate governance.