Transcript United Nations Office of Internal Oversight Services

Ethical Decision-Making For
Auditors
A Graduate School Program
Alan Z. Goodman,
Presenter
Goodman Professional Development,
Inc.
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Proprietary Material
Please Do Not Copy
• This material comes from the Institute for
Global Ethics (globalethics.org)
• It is based on the work of the late, Dr.
Rushworth M. Kidder, founder and President
of the Institute for Global Ethics
• …more information in “How Good People
Make Tough Choices…” and “Moral Courage”
along with other books by Dr. Kidder
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Goals for this Presentation
Participant Goals
1. Describe a wider range of auditor or
financial manager ethical dilemmas;
2. Familiarize you with some tools to
analyze dilemmas …
3. As well as tools to resolve those
dilemmas …
4. Begin to develop ETHICAL FITNESS®
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Goals for this Presentation
Professional Goals
Begin to integrate Ethical Fitness®
into the control environment of the
organizations you examine/manage
2. Enhance your influence re
implementation of recommendations
3. Respond to the critical issues in
ethics raised by you and your
colleagues
1.
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Control Systems: What do they tell us?
CONTROL SYSTEMS seek to
standardize behavior so people can
predict how others will operate
“Ethics control systems” can be
described in terms of:
SCOPE – complexity and resources
ORIENTATION – compliance,
values
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Control Systems: What do they tell us?
Corp. Ethics Programs as Control
Systems*
Weaver, Tervino, Cochran,
Academy of Management Journal,
February ‘99
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Control Systems: What do they tell us?
COMPLIANCE orientation –
coercive laws, rules, sanctions for
misconduct as well as mechanisms
to identify, investigate and
prosecute misconduct
VALUES orientation – achieving
commitment/buy-in to organizational
goals and values including
mechanisms to ensure an
environment supportive of ethics
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Questions
What is it about THE NATURE OF
ETHICAL DILEMMAS that makes
them so difficult to resolve?
2. How many CATEGORIES OR TYPES
of ethical dilemmas can you
describe?
1.
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Questions
3. Describe some ETHICAL PRINCIPLES
that can help resolve dilemmas
4. What is MORAL COURAGE and what
gets in its way?
5. What are 3 types of IMPAIRMENTS TO
INDEPENDENCE and how they lead to
ethical dilemmas?
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What Is Your Mission?
•
•
•
•
What do you do?
Who do you do it for?
Why is it important?
How does it tie into the big
picture?
• What kinds of ethical dilemmas
derive just from your mission?
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How We Are Going To Proceed?
• By discussing influences on ethics in
general and in auditing/financial
management in particular
• By considering the ethical environments
we live and work in
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Our Working Definitions
• Ethics = study of the way we OUGHT to
act (philosophy)
• Ethics is the stuff of daily life it’s about
“obedience to the unenforceable.”
• Ethical Fitness® is not a luxury item …
part of our survival kit for the future
• At the very least it diminishes suffering
and averts lawsuits. At its best, it saves
lives.”*
* Rushworth Kidder (founder,
IGE) Development,
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Nine Checkpoints
1.
2.
3.
4.
5.
6.
7.
8.
9.
Recognize you have an ETHICAL ISSUE
Determine the ACTOR (whose dilemma?)
Get the FACTS (motives, context)
Test for RIGHT VS. WRONG
Test for RIGHT VS. RIGHT (4 paradigms)
Apply the (3) RESOLUTION PRINCIPLES
Investigate TRILEMMA Options
Make a DECISION & ACT (Moral Courage)
REFLECT on decisions down the road
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Reasons To Be Ethical
• How does technology advance over time?
– 1900
1920 1940 1960 1980 2000 2010
• Exponentially! So what?
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Advancing Technology
• What happened at Chernobyl?
• What happened in Alaska re the Exxon Valdez?
• What current business technology affects
auditing and financial management?
• How many people does it take to produce a
catastrophic business failure?
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Reasons to be Ethical: The C.E.M.
• Take one INTELLIGENT person
• Whose ACTIONS AFFECT OTHERS
• Works in an environment of RAPIDLY
MOVING EVENTS
• Stir in an ETHICAL LAPSE
• Bake briefly and you have
• A ________________________!
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The Formula for a V - CEM:
• Take one INTELLIGENT person WHO WORKS
FOR YOU OR WITH YOU
• Whose ACTIONS AFFECT many PEOPLE
• Place him or her into an environment of RAPIDLY
MOVING EVENTS
• Stir in an ETHICAL LAPSE
• Bake briefly and you have
• A _____________ CAREER ENDING MOVE!
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The Domain of Ethics
• Lord John Moulton’s 3 Domains
“Positive Law”
People do what
they do or
refrain from
doing them
because, there
are sanctions
for breaking the
law
“Obedience to the
Unenforceable”
People do the “right
thing” because, it’s
the right thing to do!
Ranging from “I really
should or should not
do this” to “I really
don’t have to, but I
will anyway”
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“Free Choice”
People do what
they based on
impulse because,
anything they
choose to do is
right
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Reasons to be Ethical:
The Domain of Ethics
• Can you think of any examples of Lord
Moulten’s framework in action?
• New York City examples?
• Federal laws/regulations?
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The Ethical Barometer
• What does a barometer do?
• Measures change
• What evidence is there that the ethical
barometer in the government is falling?
• What evidence is there that the barometer is
rising?
• What can YOU do about it?
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Compliance vs. Ethics?
• Does legal = ethical?
• When does a question of ethics arise?
• When you are TEMPTED to do
something that causes you to pause
(based on your VALUES)
• Right vs. Wrong = TEMPTATION
Codes of Ethics/Values
• What are MORAL VALUES? (vs.
instrumental values)
• Intrinsically good or right
• What is the test for a moral value?
• If Smith does not have the value of
________ can he/she still be ethical?
• If Smith has the value of ________ does
that lead to him/her being ethical?
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Codes of Ethics/Values – Attributes
1. BRIEF and EASILY memorized
2. GENERAL and not too detailed in
most cases
3. Stated as shoulds and should nots
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Codes of Ethics, Values – Establishes a:
1. … CONSENSUS and a BASELINE or
REFERENCE POINT for the
“unenforceable”
2. Basis to talk about VALUES and hold
people ACCOUNTABLE
3. An ENVIRONMENT within which we can
create and carry out the mission…
4. A BASIS to evaluate and analyze policies
5. Way to create support for goals, plans,
and tactics
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Codes of Ethics – Examples
Examples: Gandhi's List of Evils
• Cowboy Code
• Code of the Warrior
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Gandhi's
•
•
•
•
•
•
List of Evils to Remember
Wealth without WORK
Commerce without MORALITY
Science without HUMANITY
Pleasure without CONSCIENCE
Politics without PRINCIPLES
Knowledge without CHARACTER
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Cowboy Code Of Ethics
1.
2.
3.
4.
5.
Never shoot first, hit a
smaller man, or take
unfair advantage
Never go back on your
word or a trust confided
in you
Always tell the truth
Always be gentle with
children, the elderly and
animals
Must not advocate or
possess racially or
religiously intolerant
ideas
6. Must help people
in distress
7. Must be a good worker
8. Must keep clean in
thought, speech, action,
and personal habits
9. Must respect women,
parents and his nation’s
laws
10. The cowboy is a patriot
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Code of the Warrior
1.
2.
3.
4.
Gi –Right decision, based on truth
Gu – Bravery
Jin – Benevolence, compassion
Rei – Right action. Reishiki etiquette It is better to
die than to be impolite
5. Mokoto – Sincerity, truth of heart
6. Meigo – Glory without ego
7. Chugo – loyalty and devotion to the one who will
teach you
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Codes of Ethics Workshop
•
1.
2.
3.
4.
We are charged with coming up with the
VALUES that will be inscribed in granite over
the office door
Brainstorming – list all of the “moral” values
Individually - select your top eight
In groups - derive the top eight for the group
Now, let’s merge those into a consensus eight
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Compared to other lists:
•
1.
2.
3.
4.
5.
6.
7.
8.
IGE around the world research:
LOVE
TRUTH
FAIRNESS
FREEDOM
UNITY
TOLERANCE
RESPONSIBILITY
RESPECT FOR LIFE
Compared to other lists:
• 2.05 The ethical principles that guide the work
of auditors who conduct audits in accordance
with GAGAS are
• a. the public interest;
• b. integrity;
• c. objectivity;
• d. proper use of government information,
resources, and position; and
• e. professional behavior.
Compared to other lists:
Ethical Fitness Seminar in Tokyo (July 1998)
1. HONESTY
2. FREEDOM
3. RESPONSIBILITY
4. FAIRNESS
5. LOVE
Compared to other lists:

1.
2.
3.
4.
5.
6.
7.
8.
Assessors - Newburgh:
HONESTY
LAWFUL
FAIRNESS
KNOWLEDGEABLE
EQUITY
COMPASSION
INTEGRITY
RESPECT
Independence
• 2 overarching principles re non-audit
services:
• Auditors should NOT perform management
functions or make management decisions;
and
• …should NOT audit their own work provide
non-audit services in situations where it is
significant/material to the audit
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Independence
• In all matters relating to the audit work, the
audit organization and the auditor should be
free both in fact and appearance from:
• PERSONAL,
• EXTERNAL, and
• ORGANIZATIONAL impairments to
independence
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Independence – Personal Impairments
• Immediate/close family works for entity under
review or can influence or has …
• … a financial interest in the entity or program
• … responsibility for managing/decisions that
effect..
• Auditor maintained accounting records for…
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Independence – Personal Impairments
• Preconceived ideas re people, organizations or
objectives …
• Biases – political/social (from employment or
loyalty to a group, organization, or level of
government)
• Seeking employment with an audited
organization…
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Independence – External Impairments
• Interference …
• …pressure that could limit or modify the
scope, including pressure to reduce the work
to reduce costs
• …with selection/application or audit
procedures or in selection of transactions to
be examined
• …in assignment, appointment, promotion
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Independence – External Impairments
• Restrictions on funds/other resources ...
• Authority to overrule/influence auditor
judgment as to the content of the
report
• Influence that jeopardizes auditor
employment ..
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Checkpoint 2–Determining the Actor
•
•
•
•
Am I INVOLVED ?
Am I RESPONSIBLE?
Am I MORALLY OBLIGATED?
Am I EMPOWERED to do
anything?
• Are my CORE VALUES involved?
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Checkpoint 3 – Gathering the Facts
•
•
•
•
Determine MOTIVES
Determine CONTEXT
Assess POTENTIAL CONSEQUENCES
Look down the road as far as
possible (annoy/hurt/kill)
• Who can/should we consult with?
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Checkpoint 4 – Right vs. Wrong
•
1.
2.
3.
4.
5.
Makes issues that should be “obviously”
wrong stand out and easier to resolve
LEGAL/CODE OF ETHICS Test – Does it
violate a law or published code?
PROFESSIONAL STANDARDS Test – Does
it violate any unwritten expectations?
Gut Level or STENCH Test
FRONT-PAGE Test
MOM & DAD ethical role model test
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Checkpoint 4 – Right vs. Wrong
•
•
•
•
•
•
•
If it fails 1 test use CAUTION
If it fails 2 or 3 then STOP!
Legal Test – laws/codes/regs
Professional Standards Test
Gut Level or Stench Test
Front-Page Test
Mom & Dad ethical role model
test
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Checkpoint 5 – Right vs. Right
• An ethical dilemma is
• A conflict of core moral values di means two
and lemma means principle – It’s the
situation and not the choices
• The IGE research has developed FOUR
categories or paradigms of ethical dilemmas
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Checkpoint 5 – Right vs. Right
•
•
•
•
•
TRUTH VS. LOYALTY
INDIVIDUAL VS. COMMUNITY
SHORT-TERM VS. LONG-TERM
JUSTICE VS. MERCY
What is the point?
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Checkpoint 5 – Right vs. Right
1. Cuts through the MYSTERY,
COMPLEXITY and CONFUSION…
2. Strips away EXTRANEOUS
DETAILS..
3. Separates RIGHT v. RIGHT from
RIGHT v. WRONG…
4. Helps us see if we have a BIAS …
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Right vs. Right Paradigms
• TRUTH VS. LOYALTY - Other
variations could be:
• Honesty vs. Sensitivity
• Objectivity vs. Subjectivity
• Knowledge vs. Feelings
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Right vs. Right Paradigms
• Why is the value of loyalty so problematic?
• Personal loyalty:
– pays my salary,
– determines my assignments,
– does my evaluations
•
•
•
•
•
Emotional loyalty I love him/her, the job
Tribal loyalty - Us versus Them
Political loyalty - They represent my beliefs
Intellectual loyalty the earth is flat!
Organizational loyalty to job values
• Integrated loyalty to core values
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Right vs. Right Paradigms
• INDIVIDUAL VS. COMMUNITY -- Other
variations could be:
• Him or her vs. Them
• Us vs. Them
•
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Right vs. Right Paradigms
• SHORT-TERM VS. LONG-TERM – Other
variations could be:
• Now vs. Later
• Immediate vs. Delayed
•
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Right vs. Right Paradigms
•
•
•
•
JUSTICE VS. MERCY – Other variations?
Toughness vs. Compassion
Factual vs. Interpretative
Honor vs. Discretion
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Analyzing Dilemmas
Participants will have an opportunity to
tell their stories without telling what
ultimately happened
End each story with:
• “On one hand it would be right to
________ because it would be ___”
“On the other hand it would be right to
________ because it would be ___”
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Checkpoint 6 – Resolution Principles
• How do we choose the higher right?
• Consider 3 principles that have come down
through time:
• ENDS-BASED THINKING (Utilitarianism)
• RULE-BASED THINKING (Duty or obligation)
• CARE-BASED THINKING (Golden rule)
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Resolution Principles
• ENDS-BASED THINKING (Utilitarianism)
• A one-time decision for this instance and the
criterion to use is:
• Which choice will produce THE GREATEST GOOD FOR
THE GREATEST NUMBER of people or the least harm
to the fewest people
• What are the problems with this approach?
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Resolution Principles
• RULE-BASED THINKING (Immanuel Kant)
• An “always” decision and the criterion to use is:
• Which choice coincides with a moral/ethical duty or
obligation that should apply universally?
• “If everyone followed the rule of action I am
considering, is that the kind of ethical world I want
to live in?”
• What are the problems with this approach?
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Resolution Principles
• CARE-BASED THINKING (Golden Rule)
• Do unto others as you would have them do
unto you…
• Do NOT do unto others that which you do
NOT want done to you…
• Apply the rule of reversibility.
• What are the problems with this approach?
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Applying the Resolution Principles
• The goal is to THINK!
• Recall your dilemma and try to determine the higher
right by using EACH OF THE PRINCIPLES
• Which will produce the GREATEST GOOD?
• Which choice reflects my PRINCIPLE /DUTY/
OBLIGATION?
• Which choice if I CHANGE PLACES with a
stakeholder?
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Checkpoint 7 –Trilemma Options
• One of the benefits of doing this analysis is
that sometimes a THIRD WAY OUT emerges.
• Check it against your values and don’t cop out
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Checkpoint 8 – Making A Decision
Acting With Moral Courage
• What is COURAGE?
• Webster – that quality of mind which
enables one to encounter danger and
difficulties with firmness, or without fear,
or fainting of heart.
• John Wayne – “Courage is being
scared to death and saddling up
anyway.”
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Checkpoint 8 – Making A Decision
Acting With Moral Courage
PHYSICAL COURAGE
Risks are of:
• Physical harm or injury
• Pain
• Loss of life
Risks occur if you are
UNSUCCESSFUL
Who is capable of it?
MORAL COURAGE
•
•
•
•
•
Risks are of:
Humiliation
Ridicule
Contempt
Unemployment
Loss of social standing
Risks occur if you are
SUCCESSFUL
Who is capable of it?
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Checkpoint 8 – What Makes Moral
Courage So Challenging?
• Three latent fears
• AMBIGUITY – Issues are becoming more
complex and we can rarely be “sure”
• PROMINENCE – Human nature leads us to
want to shrink from prominence, to find
hiding places and to avoid leadership roles
• DISCOMFORT – Moral courage can be
messy, uncomfortable, and disturbing. We
may have to challenge our own
fundamental beliefs.
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Checkpoint 9 – Reflecting on the
Decision
• Not about second-guessing ourselves
• About the possibilities and insights
• What does my pattern of decision-making tell
me about myself?
• If I always come down on the side of _______
what does that tell me?
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Action Plan
• What will I do differently tomorrow?
• What dilemmas or tough choices do I
expect to be facing at work?
• What dilemmas or tough choices to I
expect to be facing at home?
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The Nine Checkpoint Process
1.
2.
3.
4.
5.
6.
7.
8.
9.
Recognize MORAL/ETHICAL ISSUES involved
Determine the ACTOR
Get the FACTS
Test for RIGHT VS. WRONG
Test for RIGHT VS. RIGHT
Apply the RESOLUTION PRINCIPLES
Investigate the TRILEMMA Options
Make a DECISION AND ACT (moral courage?)
Revisit and REFLECT on decisions down the road
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Thank You For Your Participation
• Please complete the evaluation and feel
free to contact me with any questions or
comments. Email Alan Goodman at:
• [email protected]
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