Auditors as Ethicists - In My Opinion

Internal Auditor, Feb, 2003 by Mark Conrad Ledman

Mark Conrad Ledman, CPA, MPA, is director, internal audit/corporate compliance and corporate compliance officer at Brooks Health System in Jacksonville, Fla.

SINCE THE INCEPTION OF INTERNAL AUDITNG, THE ROLE OF AUDIT professionals has undergone several permutations. Initially, auditors focused primarily on safeguarding assets and ensuring compliance with internal policies and external regulations. Over time, practitioners devoted more attention to helping the organization improve efficiency and effectiveness, and eventually began focusing on managing risk, creating new opportunities for improvement, and partnering with management to help achieve organizational objectives. Today, internal auditing must prepare for another major shift in priority -- one that addresses oversights that may have been made in our recent past and recognizes the need to devote more attention to soft-control issues. Specifically, internal auditors will need to increasingly focus their attention on corporate ethics.

Although most organizations likely aspire to high standards of ethical conduct, internal auditors may not have always devoted enough time to ensuring this goal was achieved. Occasionally, auditors might have investigated ethical issues that would arise as a by-product of an audit, but not necessarily as a primary focus of their work. As a profession, we may have been too trusting as we moved to partner with management. Auditors were trying hard to produce value-added audits through quantitative measures and identification of hard-control issues, striving toward cost savings and increased revenues. Soft control improvements -- which are generally difficult to "dollarize" -- and identification of ethics or conflict-of-interest issues may not have been at the forefront of corporate agendas and, hence, not a priority for auditors. Recently, however, the need for change in this area has been made clear.

Corporate failures such as those at Enron and WorldCom have led to heightened awareness of ethics-related issues and increased scrutiny of business practices. The Sarbanes-Oxley Act of 2002, for example, requires publicly listed companies to disclose whether they have adopted a formal code of conduct for senior financial officers. If the issuer has not adopted a code of conduct, the reason must then be disclosed. Likewise, the New York Stock Exchange, American Stock Exchange, and Nasdaq have each proposed similar regulations regarding ethical conduct.

Some organizations have also been driven to higher ethical standards through industry-specific regulatory requirements. In the health-care industry, for example, the U.S. Office of Inspector General (OIG) introduced the OIG Model Compliance Program for Hospitals, which included a provision that all employees periodically reaffirm their adherence to a company code of conduct. In addition, more and more organizations are voluntarily increasing their commitment to high ethical standards and accountability by establishing committees to discuss ethics-related issues and develop companywide policies.

Now, more than ever, management will be looking to internal auditors for assistance in meeting ethics-related regulatory requirements and establishing new standards of ethical behavior throughout the organization. The increasing demand for corporate integrity will inevitably require internal auditors to incorporate the role of ethicist into their repertoire of value-added services.

To comment on this essay, e-mail the author at mledman@theiia. org.

The opinions expressed are solely those of the author.