7/9/13 1 Ethics in Jeopardy By Jill VonOsten ORG Agents, LLC. July 10, 2013 Institute for Internal Auditors Expectations Present Cell phones on stun Check messages on break No other work, please Participate Ask questions Feel free to disagree Share your experience Fill in the Blanks Pause for Breaks Review the ‘Language of Ethics’ Understand the complexity of ethics in the workplace. Discover how ethics (or the lack of it) affects organizational effectiveness. Learn how Internal Auditors can promote ethical behavior in organizations. Learning Objectives
Transcript
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Ethics in Jeopardy By Jill VonOsten
ORG Agents, LLC. July 10, 2013
Institute for Internal Auditors
Expectations Present § Cell phones on stun § Check messages on break § No other work, please
Participate § Ask questions § Feel free to disagree § Share your experience § Fill in the Blanks
Pause for Breaks
§ Review the ‘Language of Ethics’
§ Understand the complexity of ethics in the workplace.
§ Discover how ethics (or the lack of it) affects organizational effectiveness.
§ Learn how Internal Auditors can promote ethical behavior in organizations.
Learning Objectives
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Overview: The Language of Ethics Part 1
§ Ethics
§ Professional Ethics
§ Business Ethics (Organizational)
The Language of Ethics
§ Refer to the Handout
§ On your own, rank your top 3 values in order of importance
§ Rank your 3 least important values
§ Share with neighbor § Do you share any values in common?
Your Values
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Values & Ethics
Values may be § Ethical § Unethical § __________
Some Non-‐Ethical Values
Non-‐Ethical, What’s that?
What are Ethics? § Involve how we “should” treat one another
§ Concerned with what one “ought” to do § “Right” and “wrong” conduct, behavior, actions
§ Ethical ________ should trump non-‐ethical values when deciding how to behave
Ethical Dilemma
SOURCE: Kidder, R. M. (1996). How good people make tough choices: Resolving the dilemmas of ethical living (1st Fireside ed.). New York: Simon & Schuster.
Defines ethical dilemmas… § Right vs. Right § When ethical values compete
Can you think of an example?
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Decision Making 1. Based: “categorical imperative” -‐ Rules exist for a purpose: they promote order and justice and should be followed.
2. Based: “utilitarianism” -‐ “the greatest good for the greatest number.”
3. Based: The Golden Rule: “Do unto others as you would have them do unto you.”
SOURCE: Kidder, R. M. (1996). How good people make tough choices: Resolving the dilemmas of ethical living (1st Fireside ed.). New York: Simon & Schuster.
Part 2
Ethics in the Workplace
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Legal is Required, Ethical is Expected
Legal ≠ Ethical
Ethical
Legal
Illegal & Probably Unethical
Rules vs. Principles
§ Workplace Rules
§ Codes of Conduct § ______–Based (compliance)
§ ______-‐Based (aspirational)
Variation in Conduct
Follow their own ideas
Try to follow
company policies and
rules
Go along with work groups
Take advantage if risk is low
SOURCE: John Fraedrich and O.C. Ferrell, “Cognitive Consistency of Marketing Managers in Ethical Situations” Journal of the Academy of Marketing Science, 1992.
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§ Culture is what is characterized by normal behavior in the organization.
§ _________ is acceptable and unacceptable behavior defined by a set of ethical principles.
It’s about Culture
Values
Principles
Standards
What Makes Culture?
} Culture
They can either be:
§ Ethical -‐ Actively encourage and support ethical behavior
§ Unethical -‐ Actively encourage people to engage in misconduct
§ Indifferent -‐ Passively accept ethical behavior that is/is not present
Org. Cultures Exist
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Ethical culture § Ethical cultures are not a given § Established shared values, standards and principles for conduct and accountability
§ Takes dedication and work
§ Takes the whole organization
Take a Break
Part 3
Workplace Cultures at Risk
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Source: 2011 National Business Ethics Survey, Ethics Resource Center
Conflicts of Interest § When you put your personal interest ahead of the public/org interests.
§ COIs jeopardize your credibility – independence and objectivity
§ Conflicts of Interest undermines trust
§ Even the appearance of impropriety undermines the public’s faith
KPMG -‐ COI Breech § Scott London -‐ KPMG partner arrested and fired over allegations he: § Provided confidential info on clients to his golf buddy,
Bryan Shaw § Shaw traded in those companies’ securities and paid
London $55K
§ Now, KPMG forced to resign from 5 companies, nullifying 5 yrs. of audit opinions
§ Companies reeling to get in compliance & have their audit on file with SEC.
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Studies Show… § _________________ effect § We overestimate our abilities,
behavior, ethics
§ Reality: behaviors driven far more by the situation or environment than by force of our personality
§ What someone else did in that situation is a very strong warning about what we would do
SOURCE: NY Times article http://www.nytimes.com/2009/05/05/health/05mind.html?_r=1
#3. Lose their job #2. None of their business #1. Fear of alienation from colleagues
SOURCE: Ethics Resource Center, National Business Ethics Survey, 2011.
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Case Study
Debrief 1. Who are the key stakeholders & what are
their stakes? 2. What should Lisa consider before
responding to Cyndi’s request? 3. What alternative solutions might she
propose, including modifications to her annual audit plan, risk assessment and recommended governance practices?
⚑ Overestimating our own ethical fortitude ⚑ A compliance-‐only mentality ⚑ Unethical co-‐workers ⚑ Poor morale – tone in the middle lacking ⚑ Deliberate anonymity – lack of accountability
⚑ Fast-‐paced/pressure – short-‐term thinking
Cultural Red Flags
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Part 4
Ethics Framework
Org. Responsibilities § Comply with society’s legal/regulatory rules
§ Satisfy business norms, ethical precepts, & social expectations
§ Provide overall benefit to society & specific stakeholders (short & long-‐term)
§ Report fully & truthfully to owners, regulators, stakeholders, public to ensure accountability
SOURCE: IIA, Inc. International Standards for the Professional Practice of Internal Auditing, Practice Advisory 2130-1, Feb. 1, 2001.
Governance
Governance consists of: § Organizational Culture
§ Board oversight § Management style
§ Policies, procedures, & other organizational rules
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Ethical Org. Cultures 5 Pillars to creating & sustaining an ethical organization culture
SOURCE: Tone in the Middle, Nunez, Ted, “Want to Build Ethical Culture, Play Up the Middle” 7/29/12
…an Ethics Advocate Together you: § Define ___________ § Educate Each Other
§ Act as a Resource and support one another
Everyone Must be…
“Never underestimate
the ability of a small group of committed
individuals to change the world.
Indeed, they are the only ones who
ever have.”
Margaret Mead,
Cultural Anthropologist
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Take a Stretch Break
Once Upon A Time…
Part 5
Role of the Auditor
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Ethical culture § Ethical cultures are not a given § Established shared values,
standards and principles for conduct and accountability
§ Takes dedication and work
§ Takes the whole organization
Takes you to be an ethics advocate!
IIA Standard -‐ Governance Internal audit activity must assess & recommend improvements to the governance process in its accomplishment of the following objectives: • Promote ethics within the organization; • Ensuring effective organizational performance, management
and accountability; • Communicate risk & control info to appropriate areas in the
organization; and • Coordinate/communicate among board, executive
management, internal auditors & management.
SOURCE: Standard 2110 – Governance, IIA - International Standards for the Professional Practice of Internal Auditing, http://www.theiia.org July 3, 2013.
Specifically…
…requires the Internal Audit activity to: “evaluate the design, implementation and effectiveness of the organization’s ethics-‐related objectives, programs and activities.”
SOURCE: Standard 2110.A1 – Governance, IIA - International Standards for the Professional Practice of Internal Auditing, http://www.theiia.org July 3, 2013.
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Ethics Training
How often are ethical climate surveys conducted?9%
34%
18%
30%
9%
Semi-AnnuallyAnnuallyBiennially
PeriodicallyOther
While it has long been debated whether ethics can be taught, ethics training is often required as a process of communicating the organization’s expectations of ethical conduct. To understand the organization’s requirements and Internal Audit’s involvement, we asked whether training is required and, if so, whether Internal Audit participates in providing such training. Of the 110 respondents who answered the question, 76 responded “yes” to whether ethics training was required and, of those, 25 responded “yes” that Internal Audit participated in providing the training.
Ethics Training
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Internal Audit participatein providing it
Required
Yes No
While most respondents do not participate in providing ethics training, questions about providing input to ethics policies and other ethics or values-related advice supported significant activity in this area. Of the 105 respondents who answered the question, 53
11 The IIA Research Foundation, Donald J. Ricketts Research Award, March 2010
SOURCE: The Internal Auditors Role in Promoting Tone from the Top, IIA, Austin Chapter, 2009-‐2010
Fraud Training
indicated that they provide input to the organization’s ethics policies, and 54 said that they provide ethics/value related advice or guidance to the organization.
Ethics-Related Activities
0 10 20 30 40 50 60
Provides ethics-related advice
Provides input to ethics policies
Participates in providing ethics training
Conducts surveys of ethical climate
More of the respondents’ organizations require ethics training than fraud training, but Internal Audit was more likely to be involved in training for fraud prevention than ethics. When asked whether the organization required fraud training, and if so, whether Internal Audit participated in providing it, 59 of the 109 respondents who answered the question answered “yes” that it was required, and of those, 35 responded “yes” that Internal Audit participates in providing the training. This higher level of involvement by Internal Audit is likely a reflection of the expertise auditors have related to fraud, whereas often organizations rely on the General Counsel to provide guidance on ethics.
Fraud Training
0% 20% 40% 60% 80% 100%
Internal Auditparticipates in
providing it
Required
Yes No
A major topic in seminars and conferences over recent years and one that continues to receive widespread interest is Information Technology (IT) governance. Almost 85 percent of the 103 who answer the question responded that their organization has an IT governance process, and 60 of those that responded to the follow-up question indicated that Internal Audit had reviewed the process.
12 The IIA Research Foundation, Donald J. Ricketts Research Award, March 2010
SOURCE: The Internal Auditors Role in Promoting Tone from the Top, IIA, Austin Chapter, 2009-‐2010
Ethical Climate Surveys
Survey Results In addition to understanding the demographics of the respondents, it was important to understand the interaction the Internal Audit Department has with the organization in areas that impact governance. The last question of each section asked the respondent to rate Internal Audit’s effectiveness in the specific area. Additionally, the final question of the survey asked respondents to rate the organization in key areas and activities related to governance and tone at the top. Internal Audit’s Role in Governance The first group of questions discussed ethics and fraud as well as Internal Audit’s involvement in developing related training and providing input and guidance to the organization. Performance Standard 2110.A1 requires the Internal Audit activity to “evaluate the design, implementation and effectiveness of the organization’s ethics-related objectives, programs, and activities.” To understand how the respondents meet this requirement, the survey asked about various activities of the Internal Audit activity including surveys of ethical climate, involvement in ethics and fraud training, provision of input to the ethics policy, advice or guidance, and other activities. Respondents were asked whether the Internal Audit Department conducts surveys of the ethical climate of the organization, and if so how often and to whom the results are reported. Of the 111 respondents who answered the question, just under one-third (34) answered “yes” with a variety of responses as to their frequency. Those who responded “other” noted that the survey has only been conducted once; the frequency is dependent on the risk analysis; and multi-year (which could also be interpreted as periodically). Most of the respondents indicated multiple levels of reporting the results including the board, audit committee, executive management, external auditors, agency-wide, and others.
Does the Internal Audit Department conduct surveys of the ethical climate of the organization?
0% 20% 40% 60% 80% 100%
Yes No
10 The IIA Research Foundation, Donald J. Ricketts Research Award, March 2010
SOURCE: The Internal Auditors Role in Promoting Tone from the Top, IIA, Austin Chapter, 2009-‐2010
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IT Governance
IT Governance Process
0% 20% 40% 60% 80% 100%
Has audited it
Has an IT governanceprocess
Yes No
To determine what type of audit activities are conducted specific to board members and executive management, we asked whether Internal Audit had audited travel expenses and financial statements for these individuals. Response to these questions identified that departments were more likely to have audited executive management than board members. While these responses appear low, it is not known how or whether this has changed since the frauds committed in recent history or as a result of the economic conditions over the past couple of years.
Audit Activities
0%10%20%30%40%50%60%70%
Board Executive Management
Travel Exp Fin Statements Time/Leave Records
In addition to the areas specifically questioned, respondents indicated that they perform other ethics/values-related activities in their organizations. Some of these include reviewing potential conflicts of interest; writing and promoting anti-fraud and whistle-blowing policies; and conducting annual governance reviews. A full list of the activities reported can be found in Appendix A on pages 38-39.
13 The IIA Research Foundation, Donald J. Ricketts Research Award, March 2010
SOURCE: The Internal Auditors Role in Promoting Tone from the Top, IIA, Austin Chapter, 2009-‐2010
Other Ethics Activities
indicated that they provide input to the organization’s ethics policies, and 54 said that they provide ethics/value related advice or guidance to the organization.
Ethics-Related Activities
0 10 20 30 40 50 60
Provides ethics-related advice
Provides input to ethics policies
Participates in providing ethics training
Conducts surveys of ethical climate
More of the respondents’ organizations require ethics training than fraud training, but Internal Audit was more likely to be involved in training for fraud prevention than ethics. When asked whether the organization required fraud training, and if so, whether Internal Audit participated in providing it, 59 of the 109 respondents who answered the question answered “yes” that it was required, and of those, 35 responded “yes” that Internal Audit participates in providing the training. This higher level of involvement by Internal Audit is likely a reflection of the expertise auditors have related to fraud, whereas often organizations rely on the General Counsel to provide guidance on ethics.
Fraud Training
0% 20% 40% 60% 80% 100%
Internal Auditparticipates in
providing it
Required
Yes No
A major topic in seminars and conferences over recent years and one that continues to receive widespread interest is Information Technology (IT) governance. Almost 85 percent of the 103 who answer the question responded that their organization has an IT governance process, and 60 of those that responded to the follow-up question indicated that Internal Audit had reviewed the process.
12 The IIA Research Foundation, Donald J. Ricketts Research Award, March 2010
SOURCE: The Internal Auditors Role in Promoting Tone from the Top, IIA, Austin Chapter, 2009-‐2010
Practice Advisory 2130-‐1
“At a minimum, the internal audit activity should periodically assess the state of the ethical climate of the organization and…” Refer to handout page 2., 7. a-k
SOURCE: IIA Practice Advisory 2130-1: Role of the Internal Audit Activity and the Internal Auditor in the Ethical Culture of an Organization, 2001.
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