Ethics – Moving Into The 21st Century

Presented by:

Steve Burrage, CPAState Auditor and Inspector

■ Introduction

□ Ethics – An old-fashioned concept?

■ What is Ethics?

□ Sociologist Raymond Baumhart’s question to people in business, “What does the term “ethics” mean to you?”

□ The question produced a wide range of responses.

Source: Issues in Ethics, IIE V1 N1 (Fall 1987)

■ What Ethics is not.

□ Not a matter of one’s feelings.

□ Not the same as following the law.

□ Not simply doing whatever society “accepts”.

■ What is Ethics then?□ The American Heritage Dictionary, 4th Ed., defines ethics as:

a. A set of principles of right conduct.

b. A theory or system of moral values.

c. The study of the general nature of morals and of the specific moral choices to be made by a person; moral philosophy.

d. The rules or standards governing the conduct of a person or the members of a profession.

Source: American Heritage Dictionary, 4th Edition

■ Hallmarks of a profession:

□ Specialized body of knowledge requiring proficiency by its practitioners.

□ Recognition of proficiency through licensure, certification, etc.

□ Ethical code of conduct.

■ AICPA Code of Professional Conduct

□ Preamble to the AICPA Code of Professional Conduct (emphasis added):

.01 By accepting membership in the American Institute of Certified Public Accountants, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.

.02 The Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.

Source: AICPA Code of Professional Conduct

■ Institute of Internal Auditors Code of Ethics

□ Purpose

□ Includes two essential components –

Principles

Rules of Conduct

Source: Institute of Internal Auditors IA Code of Ethics

■ For 10 million points . . .

Who can tell me the four principles of the Institute of Internal Auditors Code of Ethics?

■ Institute of Internal Auditors Code of Ethics

□ Principles

Integrity

Objectivity

Confidentiality

Competency

■ Other Examples

□ Association of Certified Fraud Examiners Code of Ethics

□ Government Auditing Standards Ethical Principles

□ PCAOB Ethics and Independence Rules

□ Oklahoma State Ethics Laws

■ Existence of a code of ethics alone will not ensure ethical behavior

■ The importance of understanding and focusing on ethics

■ Examples of those who have failed to do so in recent history

■ Adelphia

□ Cable TV giant founded by the Rigas Family.

□ Appearances versus reality.

Source: N.Y. Times, The Company They Kept, Roger Lowenstein, February 1, 2004

■ Adelphia

□ What went wrong?

■ Blurred lines between personal and company finances.

■ Break down in controls and processes.

■ Lack of intervention by those with the knowledge and ability to do so.

■ Greed and a break down in personal ethics.

■ Adelphia

□ What went right?

■ One person made a stand.

■ State Government Examples□ Carroll Fisher, former State Insurance Commissioner

□ Convicted of embezzlement and perjury on 02/08/06.

■ Deposited $1,000 campaign check into his overdrawn personal checking account –– a clear violation of state ethics laws.

■ Not the first hint of ethics “issues”.

□ Previously reprimanded by the State Ethics Commission for inappropriately obtaining private information about a political opponent.

□ Investigated by the Ethics Commission for accepting gifts from those he was charged with regulating.

■ State Auditor and Inspector

800 lb gorilla

■ State Government Examples

□ Jeff McMahan, former State Auditor and Inspector

■ Convicted of conspiracy and Travel Act violations on 06/14/08.

□ Inappropriately accepted cash and gifts from state businessman.

■ It’s important to note that while these were personal failures – they may have cast an unwarranted cloud of doubt on the organizations in the perception of the general public.

□ While this is not fair to the hard-working employees of the organizations, it is the reality with which they are faced.

□ This has required effective leadership at the top and hard work at every level to reverse public perception.

■ What is the State Auditor’s Office doing to address ethics?

□ Making sure we learn the lessons from others’ mistakes.

□ Quality Assurance Division

□ Tone at the top.

□ Communication on the importance of ethical behavior at every staff level.

■ SAI Quality Assurance Division

□ Melain Eavenson, CPA – Director

□ Mike Starchman, CPA

□ Diana Nichols, CPA

□ Don Powers, CPA

■ Over 75 years of combined experience in governmental auditing.

■ How does all of this affect me?

□ You have opportunities!

■ Professionally

■ Personally

■ How can I make a difference in our profession related to ethics?

□ Make a personal commitment to ethics.

■ How can I make a difference in our profession related to ethics?

□ Adopt a personal ethics decision-making process.

■ Simple model developed by Mary Gormandy White involves asking four questions:

□ Is my decision a truthful one?

□ Is my decision fair to everyone affected?

□ Will it build goodwill for the organization?

□ Is the decision beneficial to all parties who have a vested interest in the outcome?

Source: Mary Gormandy White, SPHR, MTI Business Solutions

■ How can I make a difference in our profession related to ethics?

□ The AICPA has a slightly more developed model.■ AICPA Model

□ Recognize the ethical issue□ Gather the critical facts□ Identify the stakeholders□ Consider your alternatives□ Consider the effect on stakeholders□ Consider your comfort level with alternatives□ Consider rules, regulations, and laws□ Make a decision□ Document your efforts□ Evaluate the outcome

Source: American Institute of Certified Public Accountants

■ How can I make a difference in our profession related to ethics?

□ Consider conducting ethics audits of your organization.

■ How can I make a difference in our profession related to ethics?

Become an Ethics Advocate!

Questions?