1. Financial Bootcamp – Module 2 Ethical Financial Management

2. Objectives
Introduce fundamentals of ethical accounting / financial management
Explain the importance of ethical operations
Provide suggestions for monitoring finances and maintaining an ethical environment

3. Definition
“[Ethics are] the proper business policies and practices regarding potentially controversial issues, such as corporate governance, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. Business ethics are often guided by law and provide a basic framework businesses may choose to follow in order to gain public acceptance.” -- Investopedia [amended]

4. The Importance of Ethics
Maintaining a high degree of ethics in regards to financial management is critical to success
Unethical behavior is the most serious threat to an affiliate’s health
Unethical behavior is the number one cause of donors refusing to support a not-for-profit

5. The Importance of Ethics
An affiliate that is even perceived as being unethical will inevitably struggle
Even the appearance of unethical behavior is dangerous
The key to success is maintaining an atmosphere where ethics are encouraged, supported, and monitored
Being ethical is not an option for Habitat affiliates

6. Foundation of Ethics An ethical affiliate…
Obeys all applicable laws, codes, and ordinances
Places transparency and ethics first
Encourages ethical behavior in its staff, Board members, volunteers, and partner families
Errs on the side of caution

7. Conflicts of Interest
Any person with governing powers who has direct or indirect financial interests in the affiliate is said to be interested
Such interests must be disclosed in-writing to the Board of Directors
Disclosures must occur before the interested party makes a decision that may cause them direct or indirect financial impact

8. Conflicts of Interest
Affiliates must have a written conflict of interest disclosure signed by Board and staff members each year
Interest disclosures should be kept on file and open for Board review
All potential conflicts should be disclosed prior to any financial decisions being made

9. Conflicts of Interest
Example: An affiliate needs to hire an electrician to wire a home. A Board member knows a licensed electrician who promises to give the affiliate a good price on doing the work. The electrician is a friend of the Board member and often does work for the Board member’s rental property. This Board member therefore has a conflict of interest. There are several steps the Board must take before hiring the electrician…

10. Conflicts of Interest Steps to resolve a conflict of interest:
The interested Board member must disclose, in-writing their relationship with the electrician
The Board must receive a written quote with a scope of work from the electrician
This quote and scope of work must be compared with other potential electricians
The Board should vote whether to hire the electrician, with the interested party abstaining from discussion or vote

11. Arm’s Length Transactions
All affiliate transactions are should be conducted “at arm’s length”
Such a transaction is one in which all parties are on equal footing and without prior relationship
It shows the transaction was freely made and that the price, requirements, and other conditions were fair and real

12. Proper Bid Processes
The proper way to award affiliate contracts for goods and services is through an open bidding process
Potential contractors / suppliers should be issued a Request for Bid, which details the affiliate’s needs
Requests for Bids should be submitted to a minimum of two potential contractors / suppliers

13. Proper Bid Processes
The same Requests for Bid should be submitted to all potential bidders at the same time
No late or incomplete bids should be accepted
All bids should remain sealed and then opened at the same time

14. Proper Bid Processes
Re-bidding should only be allowed in cases where bidders are extremely close in their prices and products
Re-bidding should only occur once
Bid information should never be disclosed to opposing bidders
All bids should be reviewed by multiple parties

15. Business Relationships
Relationships are critical to the success of every Habitat affiliate
All relationships should be scrutinized to ensure the affiliate is not being taken advantage of
Affiliates should only maintain relationships with reputable businesses / businesspersons

16. Segregation of Duties
Accounting / financial duties need to be divided among staff and Board members so as to prevent fraud, theft, or other unethical behavior
Segregating duties about staff and Board members creates a sense of accountability
Segregating duties adds multiple layers of protection

17. Segregation of Duties Examples:
Bank reconciliations should be approved by someone other than the person doing the reconciliations
The person making cash deposits should be not be doing bank reconciliations
The person who receives ordered goods should not be the same person who orders / pays for said goods

18. Potential Problem #1
An affiliate has a long-time construction manager who also owns several rental properties. This manager is responsible for ordering all of the construction tools and supplies. The accountant receives the invoices, the manager assigns the invoices to an home, the accountant cuts a check to the vendor, and the Executive Director signs the check. This presents several potential problems…

19. Potential Problem #1
Who approves the order of construction materials before the construction manager?
Who confirms the construction manager receives the materials?
How can the affiliate prove the materials are being used for their specified purpose?
The solutions to all of these are simple…

20. Potential Problem #1
The affiliate should have an approved construction budget for each home and the materials ordered should match this budget
The Executive Director should review all receipts for discrepancies before issuing payment
Random site visits by the Executive Director and/or Board members should be performed to ensure material is not being wasted or stolen

21. Potential Problem #2
An affiliate receives monthly mortgage payments in the mail. The administrative assistant is responsible for issuing the mail every day and distributing it throughout the office. The assistant doubles as bookkeeper and is also responsible for making all daily deposits. The Executive Director checks the books weekly for any anomalies. This situation has several major problems…

22. Potential Problem #2
The person receiving mortgage payments is also responsible for depositing the mortgage payments.
The person depositing the mortgage payments is also responsible for recording the mortgage payments.
Oversight is being done weekly, rather than daily.
The solutions for these problems are…

23. Potential Problem #2
Mortgage payments, ideally, should be made directly to a bank rather than to an affiliate.
If that is not possible, then at the very least the person depositing the payments should not be responsible for recording the payments.
Ideally, the person receiving the mail should not be responsible for daily deposits.
The Executive Director should request a daily report on all mortgage payments deposited and recorded.

24. Tips Maintain, implement, and audit ethical financial policies
Ask yourself, “What if this transaction/event was posted in the newspaper?”
Only do things you would be willing to let everyone know about

25. Conclusion It is better to be overly cautious in regards to ethics
Anything that can be questioned should be questioned