Meeting Recap
by Rick Osborn

Initially, Rolan established a base as far as “ethics” being accepted and expected behavior with such expectations as being reliable, honest, unbiased, responsible, accountable, objective, and “just doing the right thing."

The expectations listed above can be influenced buy a variety of “environmental” issues including politics, job stress, funding, performance measures, policies and procedures.  They can also be impacted by the “public” such as media accounts, annual financial report, media accounts, televised committee hearings and actions, and media accounts.

Finally, there is the influence or impact of laws, regulations, accounting principles and auditing standards.  Rolan noted and the attendees agreed that these were “minimums” and excellent audit groups and agencies went beyond these.

An additional thought was that “just because it is legal or maybe an action is not specified as “illegal”, does not necessarily mean that it is right or ethical”.

Rolan presented five case studies and posed the following questions –

• What is the issue in this situation?

• How is this situation an ethical matter?

• Do the standards apply in this situation?

• What are your options?

• What is the right thing to do?

• What are the potential positive and negative out comes of doing the “right thing”?

The attendees were asked to discuss the cases amongst themselves and then to verbally respond to the questions.

Case #1:  The setting was a professional audit unit of a County Government with an Audit Manager and staff auditors.  The manager has an office and the staff is assigned cubicles.  You finish an analysis of a spreadsheet and want to check with somebody for a “sanity” check.  You approach an associate’s cube and they are busy operating a flight simulator program.  You ask them if you can send them the spreadsheet and then return to your cube.  The issues that were brought up were use of time, “personal software” on an “office computer”, and unauthorized use of office resources.  The consensus was that it should be reported to the Audit Manager.

Case #2:  Same office and setting, but two weeks later and you note a gathering at one cubicle and being the curious individual that auditor’s are, you wander over to see what is happening and to possibly join in.  Based upon your observation, it appears that all involved are assisting or participating in the online buying and selling of investments.  Included in the group is the Audit Manager.  The consensus of the attendees was that this is not ethical behavior, you are not allowed to use “public” resources to make a profit, and you are consuming communication bandwidth that could affect the operations of other agency systems.  This was actually reported and resulted in disciplinary actions and terminations.  According to Rolan, the daily dollar volume was substantial.

Case #3:  You are staff auditor in an audit group that reports directly to highest ranking elected official in a mid-size municipality.  Among other operations, the Agency provides direct and pass-through financial assistance to social service organizations operated by the Agency and by contractors for the Agency.  One of the organizations that is supported is the Women and Children Assistance Department and they are holding interviews of daycare center applicants that they may assist.  You note from the hallway that the individuals at the interview table appear to be husband and wife.  You realize that the man is a fellow auditor and you sit down in the back of the room to observe the process.  As the interview draws to a close, the question of recordkeeping and financial condition come up and your fellow auditor states – “Look, this is really not an issue.  I work as an auditor here in the Agency and am routinely assigned to audit the financial activities of the Women and Children Agency.  I am familiar with the accounting practices of the Agency, this program, and it will not be difficult for us to keep proper records.”  You leave the room before your presence is noted.  The attendees noted that this appeared to be a potential violation of GAGAS, a conflict of interest that your fellow auditor should disclose, he should be re-assigned, and his interview comments bordered on coercion of the interviewer.

Case #4:  You are recognized in the Internal Audit arena as a competent professional.  The mayor of a large Eastern city offers you the position of the city’s Internal Audit Manager.  The Internal Audit Department includes 30 performance auditors and 12 financial auditors.  You accept the position on the basis that you and your department will be independent and adhere to GAS.  Over the next two years, you and your department prove your worth.  As you enter a new budget cycle, the Mayor suggests a risk-based audit plan that will cover 3 major construction projects and 2 major enhancements to the City’s social service programs.  You develop your budget and audit plan on this basis and eventually, along with the Mayor, present it to the City Council.  The Council accepts your budget, but requires a quarterly update of your progress.  Two weeks after the budget is adopted, the Mayor tells you he needs 75% of your performance auditors and 50% of your financial auditors to work for 3 committees that are outside your Division to work on “unbudgeted initiatives”, but they will be charged to your budget.  He also suggests that you not participate in the quarterly reports to the City Council.  The attendees realized this had to potential of being ethical responsibility versus one’s paycheck.  They suggested declining the request, offering to prepare a budget transfer and staff re-assignment request, or otherwise negotiate with the Mayor.  The suggestion was made to report the request to the Finance Committee Chair.  Finally, if you are that highly thought of in the industry and had done well the last two years to start looking for a new job.

Case #5:  You are recognized and promoted by being appointed to the position of State Inspector General.  You function separately from the State, but your budget is funded by the State.  The office includes a professional audit group, a group of investigators, and 6 attorneys.  As part of the legislative creation of the State Inspector General’s office, it was provided the power to issue subpoenas.  Three years after your appointment, a routine audit of a $300 million construction project raises concerns.  The bid was awarded to the 5th out of 6th bidders.  The audit team requested the documentation justifying the elimination of the first 4 bidders and they have been “stonewalled."  You contact the Department Director to seek assistance in gaining access.  Nothing happens, so you contact the Governor to ask for assistance.  The response it that the Governor will look into it, but nothing happens.  Finally, you request that one of your attorney’s to file a subpoena.  This is done and the response to the court is that the requested files are protected by attorney-client privilege and will thus not be provided.  In a “chance encounter” with the Governor’s Chief Deputy, a comment is made about your not being much of a “team player."  As far as the audit, the attendees concluded that you would either have issue a qualified report for lack of access to the records or disclaim altogether.  There were also the concerns about the political overtones and possible impacts.

All of the case were challenging and resulted in a lively discussion.  It turns out the attendees were a “beta” group for this presentation, as it may be developed into a more formal 4 to 8 hour class.