{"id":2465,"date":"2024-02-28T08:53:41","date_gmt":"2024-02-28T08:53:41","guid":{"rendered":"https:\/\/sudhadigital.com\/GMSI\/?p=2465"},"modified":"2024-03-09T14:39:34","modified_gmt":"2024-03-09T14:39:34","slug":"auditing-an-organizations-governance-and-ethics","status":"publish","type":"post","link":"https:\/\/gmsisuccess.in\/?p=2465","title":{"rendered":"Auditing an organization\u2019s governance and ethics"},"content":{"rendered":"

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We have no universally accepted definition of the word \u201cgovernance.\u201d The Institute of Internal Auditors (IIA)\u00a0defines corporate governance\u00a0as \u201cthe combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives.\u201d While many organizations throughout the world follow this definition, others apply it differently. \u00a0For instance, the Geneva Court of Accounts (Cour des comptes, Geneva Switzerland) follows the IIA\u2019s interpretation of governance, but a chief audit executive (CAE) might use a different application for audit purposes when the organization has adopted a different framework or model.<\/p>\n

According to the ACFE\u2019s\u00a0Fraud Examiners Manual<\/i>, corporate governance\u00a0is broadly used to describe the oversight responsibilities of different parties for an organization\u2019s direction, operations and performance.<\/p>\n

More specifically, the Organisation for Economic Co-operation and Development (OECD) defines corporate governance as: \u201c[The] procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization \u2014 such as the board, managers, shareholders and other stakeholders\u2014and lays down the rules and procedures for decision-making. (See the OECD\u2019s\u00a0Glossary of Statistical Terms, July 2005.)<\/p>\n

Even though definitions vary, it\u2019s widely accepted that an organization\u2019s ethics is an important part of its governance.<\/p>\n

A detailed description of what constitutes the \u201cethical dimension\u201d in an organization\u2019s governance is beyond the scope of this article. Put simply, the ethical dimension can be defined as an organization\u2019s code of conduct and acceptable employee behavior.<\/p>\n

An internal auditor usually analyzes an organization\u2019s ethics when it has an important impact on other key governance aspects, such as risk management, compliance, strategy and how it conducts its business. Strong ethics helps an organization perform better.<\/p>\n

Here are some practical difficulties that auditors might face when auditing an organization\u2019s governance (not an exhaustive list):<\/p>\n

Code of silence<\/h4>\n

During an audit of an organization\u2019s governance, executives and employees might be tempted to describe the ethical climate as ideal. And the organization\u2019s documentation often corroborates the interviews. However, this ideal picture doesn\u2019t always correspond with the real situation. Much unethical behavior doesn\u2019t necessarily leave any paper trail! For example, the\u00a0Cour des comptes\u2019 2015 and 2016 audits\u00a0determined that certain employees omitted important elements during the interviews.<\/p>\n

The audit showed employees were performing personal tasks during office hours or using company resources outside the office. These included plumbing work and a gate repair at executives\u2019 homes, selling personal items during office hours and intervening in a bid to favor one company over another.<\/p>\n

Proper training<\/h4>\n

Verifying the accuracy of the received information is a paramount task. Often, the only way to do this is by cross-checking the information and detecting the discrepancies during the interviews. Auditors should be very careful when conducting interviews. Applying proper interviewing techniques like those taught by the ACFE helps to identify deceitful statements about the ethical climate.<\/p>\n

The common PEACE interviewing method focuses on information gathering instead of obtaining a confession: planning and preparation, engage and explain, account, closure and evaluation.<\/p>\n

Auditors who conduct interviews also should be proficient notetakers. They sometimes must handwrite an interview\u2019s proceedings that the interviewee will sign at the end of the interview. This can be particularly helpful when executives or employees are being deceitful or fear retaliation from management. The prospect of signed handwritten interview notes can impede employees from willfully lying about facts that the interviewer has established or confirmed during the interview.<\/p>\n

External pressures<\/h4>\n

Even though it\u2019s rare, an organization\u2019s executives or employees might try to exert pressure on the auditors conducting the interviews. For example, during the Cour des comptes audit mentioned earlier, an employee said, \u201cOne word from this person and your audit will be shut down immediately!\u201d (Of course this didn\u2019t happen.)<\/p>\n

Auditors might feel even more pressure when they encounter unethical behaviors that don\u2019t constitute criminal offenses.<\/p>\n

Self-censorship<\/h4>\n

Auditors also might place undue pressure on themselves. They might fear for their future professional careers, so they\u2019ll attempt to please their organizations. An organization\u2019s management must support its auditors and create an environment that promotes strong ethical values for them.<\/p>\n

Organizations must understand that auditors don\u2019t necessarily have the proper training to audit governance and ethics, or they simply have no desire to obtain it. Organizations also must realize certain auditors simply don\u2019t wish to be enmeshed in potential conflicts.<\/p>\n

The atmosphere during an ethics examination can be heavy, especially if the ethical dimension isn\u2019t adequate. Some executives and employees might be hostile against the ongoing audit. Others might have a hard time accepting the unethical climate on a personal level and break down during interviews (in several interviews I\u2019ve conducted, executives and employees started crying during the interview).<\/p>\n

Sometimes, the governing body fails to promote ethical values and might wish to minimize the facts. So the auditor might be tempted to also minimize the findings, such as treating each occurrence as a separate, non-related event rather than knitting them together into a whole picture.<\/p>\n

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Possible solutions<\/h3>\n

Here are some ways to conduct successful governance and ethics audits:<\/p>\n