1. Implementing and Auditing Ethics Programs
Chapter 9
Implementing and Auditing Ethics Programs
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The Ethics Audit
Ethics audit—systematic evaluation of an organization’s ethics program and performance to determine whether it is effective
Regular, complete, and documented measurements of compliance with the company’s published policies and procedures
Opportunity to measure conformity to the firm’s ethical standards
Similar to financial auditing
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Social Auditing
Social auditing—process of accessing and reporting a business’s performance in fulfilling the economic, legal, ethical, and philanthropic responsibilities expected by its stakeholders
Broader in scope than an ethics audit
An ethics audit might be a component of a social audit
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4. Employee Observed Misconduct by Risk Factor
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5. How would you defend ethics auditing in a company?
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Benefits of Auditing
Ethical crisis management and recovery
Challenges of measuring non-financial performance
Risks and requirements in ethics auditing
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Benefits of Auditing
The results of the auditing process can be a key component in improving organizational performance.
Improves organizational learning, facilitates communication and working relationships
Can improve their operating efficiencies and reduce costs
It can help identify potential risks and liabilities and improve compliance with the law.
It can improve relationships with stakeholders.
Exhibiting greater transparency
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8. Channels That Employees Feel Comfortable Using to Report Misconduct
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9. Ethical Crisis Management and Recovery
Plans to respond to and recover from natural disasters and ethical disasters which can disrupt routine operations, paralyze employees, reduce productivity, destroy organizational reputation and erode shareholder confidence
Involves contingency planning, assessing organizational risks, planning for potential occurrences and providing ready tools to respond
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10. Risks and Requirements in Ethics Auditing
Ethics audits may uncover ethical problems that a company cannot immediately remedy.
Stakeholders may be dissatisfied with the information in the audit.
Conducting the audits poses a financial and record keeping burden for the company.
There is no guarantee that auditing is the solution to ethics concerns.
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The Auditing Process
Secure top management and board commitment.
Establish an ethics audit committee.
Define the scope of the audit.
Review the organizational mission, goals, and values.
Collect and analyze relevant information.
Verify the results through an outside agent.
Report the findings to:
Audit committee, managers, and stakeholders.
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12. Secure Commitment from Top Management and the Board
Board members may initiate audits based on specific stakeholder concerns or in response to corporate governance reform.
Board members have been held responsible for the ethical and legal compliance programs of the company’s they oversee.
Top management may want a way to benchmark their ethical performance.
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13. Establish an Ethics Oversight Committee
Establish a committee to oversee the audit process.
Ideally, the board of directors’ financial audit committee would oversee the ethics audit.
However, in most companies managers or ethics officers conduct the audits.
Individuals within the firm should be involved as well as external auditors.
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14. Define the Scope of the Audit
The ethics audit committee should establish the scope of the audit and monitor progress.
Scope is determined by the type of business, risks faced, and the opportunities to manage ethics.
Subject matter definition:
-Environmental -Privacy -Legal compliance
-Product liability -Fraud -Discrimination
-Employee rights -Financial reporting
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15. Review Organizational Mission and Goals
Ethics audits compare an organization’s ethical performance to its goals, values, and policies.
Current missions and objectives should be reviewed:
Review all formal documents that make explicit comments about ethical, legal, or social responsibilities.
Define the organization’s ethical priorities.
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16. Collect and Analyze Relevant Information
Identify the tools or methods for measuring progress in improving employee’s ethical decisions and conduct.
Collect internal and external documents.
Determine a baseline level of compliance.
Determine commitments met and unmet.
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Verify the Results
Verify results through an independent party:
Social/ethics audit consultant
Financial accounting firm
Nonprofit special interest group
Verification is not required, although many organizations are treating ethics audits as they would financial audits.
They want to determine the reliability and validity of the findings.
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Report the Findings
Issue the ethics audit report to the board of directors and top executives until approved; and then submit it to external stakeholders.
The report should identify the purpose and scope of the audit, methods used, role of the auditors, and guidelines followed.
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19. Strategic Importance of Auditing
Audits should be conducted regularly rather than in response to problems.
Audits provide a benchmark as to the overall effectiveness of ethics initiatives and can be important in asset allocation and program development.
Quality and effectiveness in ethics auditing
Inclusivity
Comparability
Completeness
Evolution
Management policies and systems
Information disclosure
Continuous improvement
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