copyright © houghton mifflin company. all rights reserved.9-1 chapter 9 implementing and auditing...

Copyright © Houghton Mifflin Company. All rights reserved. 9-1

Chapter 9

Implementing and Auditing Ethics Programs


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


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


Employee Observed Misconduct by Risk Factor


How would you defend ethics auditing in a company?


Benefits of Auditing

Ethical crisis management and recoveryChallenges of measuring non-financial performanceRisks and requirements in ethics auditing


Benefits of AuditingThe 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


Channels That Employees Feel Comfortable Using to Report Misconduct


Ethical Crisis Management and Recovery

Crisis management– 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


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.


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.


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.


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.


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


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.


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.


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.


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.


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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ethics auditan ethics

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audit process

organizations ethics

ethical performance