Download CUAV Conference Spring 2014 Blacksburg, Virginia Ethics Session Presented by John S. Aldridge, CPA

CUAVConferenceSpring2014
Blacksburg,Virginia
EthicsSession
PresentedbyJohnS.Aldridge,CPA
CourseObjectives
• Learn the meaning ofethicsandintegrity
▫
▫
▫
▫
LookatdifferentapproachestoEthicsthroughouthistory
TheRoleofRulesinEthics
Values
Sampleprocessforevaluatingethicalsituations
• Lookatthecausesoffraud
▫ Thefraudtriangle
▫ Thefrauddiamond– andthehumanelement– Capability
Introduction
Current Environment
 Doestheeconomyplayapartinadheringtohighethical
standards?
 Pressuresbroughtonbyasluggisheconomymay
effectyourabilityto________________?
BeVigilant
 Be awareofthepressuresandremainvigilant
 Ethicaldilemmasfor:
•
•
•
•
•
•
Auditors
BoardMember
Taxpreparers
Businessvaluation
Consulting
Business:
o Industry(internalaudit,CFO)
o Academia
o Government
WhatisEthics?
•
•
•
•
•
Somethingwecanjustmakeup?
Themoralfinepoints?
Compliancewithrulesandregulations?
Anechoofpastphilosophies?
Knowingrightfromwrong?
EthicsDefined

EthicsDefined:
• Principlesofrightorgoodconduct;asystemofmoral
principlesorvalues;ortherulesorstandardsgoverning
conductofmembersofaprofession
 Ethicsdealswithprinciplesthatdrivehumannature
TheUtilitarianApproach
 Conceivedinthe19th century
 JeremyBenthamandJohnStuartMill
 Greatestbalanceofgoodoverevil
Application
• Identifythevariouscoursesofaction
• Askwhowillbeaffected
• Whatbenefitsorharmswillbederivedfromeach
• Choosetheactionthatwillproducethegreatestbenefits
andtheleastharm
TheRightsApproach
• 18th century
• ImmanuelKant
• Individual’srighttochooseforherselforhimself
• Peoplearenotobjectstobemanipulated;itisa
violationofhumandignitytousepeopleinways
theydonotfreelychoose
Application
• Wemustask,Doestheactionrespectthemoral
rightsofeveryone?
TheFairnessorJusticeApproach
• AncientGreekphilosopherAristotle
• “Equalsshouldbetreatedequallyandunequals
unequally”
Application
• Howfairisanaction?
• Doesittreateveryoneinthesameway,ordoesit
showfavoritismanddiscrimination?
TypesofEthics
• Personal
• Professional
• Organizational
PersonalEthics
• A theory or system of moral values
• Value is a principle, standard or quality considered
worthwhile or desirable
• Determined by an individual based on their
culture and upbringing and experiences
• A determination of what is good and bad, right and
wrong, moral duty/obligation for that individual
Values
• “Valuesarethefoundationofourcharacterandof
ourconfidence.Apersonwhodoesnotknowwhat
hestandsfororwhatheshouldstandfor,will
neverenjoytruehappinessandsuccess.”
(L.LionelKendrick)
• “Nothinggivessomuchdirectiontoaperson’slife
asasoundsetofprinciples.”
(RalphWaldoEmerson)
ValueExamples
•
•
•
•
•
•
•
•
Adventure
Affection
Competence
Country
Ecology
Ethicalbehavior
Excellence
Friends
•
•
•
•
•
•
•
•
Family
Freedom
Religion
Reputation
Wealth
Wisdom
Honesty
Integrity
Values
Whatareyourcorevalues?
Values(cont.)
Top5Valuesformost:
1. Personalcontrolovertheenvironment (the
futureisnotlefttofate)
2. Change/Mobility (thismeansprogress,
improvement)
3. Timeanditsimportance(achievementofgoals
dependsontheproductiveuseoftime)
4. Equality (peopleareimportantasindividuals,for
whotheyare,notfromwhichfamilytheycome)
5. Individualism,Independence,andPrivacy
(Peoplehaveindividualneeds)
ProfessionalEthics
• RulesorStandardsthatgoverntheconduct
ofapersonormembersofanorganization
OrganizationalEthics
• Asystemofprinciplesof“rightconduct”
‐
‐
‐
‐
Determinedby:
ACodeofConduct
ACodeofEthics
PoliciesandProcedures
Specifictoabusinessentityandapplicabletoall
owners,employeesandbusinessassociates
What’sthedifferencebetweenethicsand
integrity?
Ethics
Integrity
INTEGRITY
• Firmadherencetoacodeofespeciallymoraland
artisticvalues(e.g.anethicalcode)
• Qualityorstateofbeingofsoundmoral
uprightness,honestyandsincerity
• Anunimpairedcondition;beingcompleteor
undivided
• Thesoundnessandauthenticityofsomethingor
someone
Integrityinvolvesthreesteps
In his book titled, Integrity, Stephen L. Carter says
integrity requires three steps:
1. Discerning what is right and what is wrong
(moral reflectiveness)
2. Acting on what you have discerned even at
personal costs (steadfast individual)
3. Saying openly that you are acting on your
understanding of right from wrong (unashamed
individual)
Whatareyouwillingtodofor$10
million?
Asurveyof2000Americansacrossthecountryshowed
thefollowingofwhattheymightpersonallydo:
•
•
•
•
•
•
•
•
•
25%wouldabandontheirchurchorfamily
23%wouldturntoprostitutionforaweek
16%wouldgiveuptheirAmericancitizenship
16%wouldleavetheirspouses
10%wouldwithholdtestimonyandletamurderergofree
7%wouldkillastranger
6%wouldchangetheirrace
4%wouldchangetheirsex
3%wouldputtheirchildrenupforadoption
Howdowedecidethe“right”answer?
• Whatprocessdoweuse?
• Whatcriteriadoweuse?
• Whodoweask?
UsinganEthicalDecisionMakingModel10Steps
ProbingQuestionsforAssessingOptions
orChoices
• Whatwouldmymothersaywhenshelearnedof
mychoice?
• CouldIdefendmychoicebeforeanethics
committee?
• Whatwouldmypersonalandprofessionalpeers
say?
• WouldIwantthesamechoicemadeformyselfor
mychild?
• Howdoesmychoicemakemefeel?
FraudOverview
FraudOverview
• FraudDefinition
▫ Intentionalperversionofthetruthinorderto
induceanothertopartwithsomethingofvalueorto
surrenderalegalright
• Fraudinvolves
▫
▫
▫
▫
Deception
Intent
Confidence
Trust
FraudOverview(cont.)
• TypesofFraud
▫ Againstanorganization
 Employeeembezzlement
 Vendorfraud
 Customerfraud
▫ Fraudonbehalfofanorganization
 Managementfraud
 Investmentscams
FraudOverview(cont.)
VendorFraud
• Businessesareoftenthetargetofunscrupulous
contractors/vendorsovercharging,overbilling,kick
backs,failingtoperformcontractedworkorservice,
andotheractions.
• Examples
▫ Acarpetcleanerishiredtoworkforabusinessafter
hours.Thebusinessisbilledforweeklyservicewhenin
realityserviceisrenderedonlymonthly.
▫ Abusinessplacesanorderfor50chairs,butonly45are
delivered.Noonenoticesthedeliberateshortageand
thebillispaidinfull.
FraudOverview(cont.)
CustomerFraud
• Customerfraudhasemergedasawaragainstcompanies
andisadaptedtospecificsituations.Surprisingly,ethics
haslittletodowithsometypesofcustomerfraud.Rather,
insomecasesthecustomer’smotivationisaneedtoget
even.Somefraudstersbelievetheyhaveanobligationto
commitfraud;theydoittoretaliateagainstwhatthey
perceiveasunethicalactsthatbusinessescommitagainst
them.
• Abasicexampleofcustomerfraudistheft.Thisincludes
outrighttheftofgoods,butcanalsoincludeforgery,
counterfeitmoneyanddeceittoobtainmorecashback.An
exampleissomeonesayingtheygaveyouafifty‐dollarbill
whentheyonlygaveyouatwenty.
TheOriginsofFraud
TheFraudTriangle
 Opportunityisgenerallyprovidedthroughweaknessesininternal
controls:
▫ Noseparationofduties
▫ Littlesupervisionandreview
▫ Lackofmanagementapproval
▫ Fewsystemcontrols
 Pressurecanbeimposeddueto:
▫ Personalfinancialproblems
▫ Personalvicessuchasgambling,drugs,extensivedebt,etc.
▫ Unrealisticdeadlinesandperformancegoals
 Rationalization– justificationforfraudulentactivities:
▫ “IreallyneedthismoneyandI’llputitbackwhenIgetmypaycheck…”
▫ “I’dratherhavethecompanyonmybackthantheIRS…”
▫ “Ijustcan’taffordtolosemyhome,car,everything…”
▫ “Ineedtomakemynumbersforthisquarter…”
TheFraudDiamond
David Wolfe and Dana Hermanson
Incorporates the human element – CAPABILITY
“Opportunity opens the doorway to fraud, and incentive (pressure) and
rationalization can draw a person toward it; but the person must have the capability
to recognize the open doorway as an opportunity and to take advantage of it by
walking through, not just once, but time and time again.”
Opportunity
Pressure
Rationalization
Capability
TheFraudDiamond(cont..)
 Sixtraitsinthepersonalityofthefraudsterassociatedwith
thecapability element:
1. Positioning– Placewithinanorganization
2. IntelligenceandCreativity
3. Ego– mustthinktheywillnotgetcaught
4. Coercion– oftentimesabullyingpersonality
5. Deceit– mustbeabletolieconsistently
6. Stress– theyhavetobeabletohandlestresswell
CASESTUDIES
• CountyofNoFraudCaseStudy
• MedicalSchoolFraudCaseStudy
Questions?
• Thankyouforyourattentiontoday.Ifyouhave
anyfollow‐upquestions,pleasedonothesitateto
calloremailme.
▫ (540)345‐0936
▫ [email protected]