Ethics Audits: You Get What You Pay For

By Frank J. Navran

As a potential client considers engaging the services of an ethics auditor it is useful and appropriate for this client to be familiar with the broad range of options available under the generic rubric “ethics audit”.

Ethics audits are the latest means of entree into the ethics consulting arena for those who wish to offer ethics related services to their clientele. This is especially true for those accounting firms which see the ethics audit as a natural extension of the financial audit, especially since many times ethical irregularities are unearthed when conducting a routine audit of a client’s books.

As a potential client considers engaging the services of an ethics auditor it is useful and appropriate for this client to be familiar with the broad range of options available under the generic rubric “ethics audit”.

The spectrum of available offerings is wide and poorly understood, even within the profession of ethics auditors. After all, this is a new field and has not been subject to the professionalization and scrutiny of the more traditional systems for ensuring that one’s books are in order. In describing the continuum of available services presented as ethics audits we will focus on three points of consideration: compliance audits, cultural audits and systems audits. The least comprehensive ethics audit is the compliance audit. This is the process whereby the auditor determines the degree to which one’s ethics program meets the standards set forth in applicable law, regulation and policy, and the degree to which organizational and individual behavior satisfies the requirements of that program.

Cultural audits explore how employees and other stakeholders feel about the standards and behavior of the organization. They assess perceived priorities and ethical effectiveness of individuals, groups, units or the organization as a whole. The other extreme of the audit continuum is the systems audit. In this process the auditor assesses compliance and culture as part of a bigger whole; the degree to which the ethical principles, guidelines and processes of the organization are integrated within the organizational system.

Each type of audit is progressively more complex and offers the client a set of data which is more comprehensive. There is nothing wrong with any of them. Each serves a different purpose.

What is wrong is when clients’ needs are not served because they have received the wrong audit for their desired outcomes. If, for example, the client organization has an existing program to “prevent and detect ethics violations” and merely wishes to ensure that the program satisfies the requirements specified in the 1990 federal sentencing guidelines for ethics violations, then a compliance audit is an appropriate response.

• If the client suspects intentional or unintentional wrongdoing and wants to understand why it is occurring then a cultural or systems audit may be a better choice.
• If the client wants to address the root causes of unethical behavior then a systems audit may be the only effective alternative.

For some clients a compliance audit may be all that they know to ask for. These clients may not appreciate what else might be accomplished through a culture or systems focused ethics audit.

Their auditor, especially if that service provider is a legal or financial professional, also may not know to offer, or have the wherewithal to provide, a more appropriate ethics audit alternative.

One limitation of the legal/financial approach is the difficulty managers may have recognizing themselves in the findings and accepting responsibility. Compliance audits are narrowly focused and represent a high risk to anyone identified as “out of compliance”. Many leaders go to great lengths to distance themselves from these types of findings.

The organization’s response to negative findings is often punitive and highly individualized. It might change or remove the specific actor but do little to alter the forces which motivated the undesirable act.

Going Beyond Compliance

There are two traditional ways to go beyond a check on organizational and individual compliance: the cultural audit and the systems audit.

Cultural audits have been used extensively by management consultants over the years. They assess perceptions and identify issues relating to how specific groups of stakeholders view targeted aspects of an organization, such as leader effectiveness, decision-making and change management.

Their inherent limitation is that they, like the compliance audit, do not identify underlying causes.

Several years ago those management consulting firms that had become involved in ethics management, including Ethics Resource, saw the value of applying this methodology to ethics questions, such as employee perceptions of leader integrity, the effectiveness of ethics policies and confidence in ethics systems, such as employee hot lines as a supplement to compliance audits.

These audits uncovered whole new sets of data, very different from that available through compliance audits. Managers, accustomed to other culture audits, were comfortable with the way the data were presented and understood their responsibility for addressing the issues raised. These data were often viewed as less threatening than the findings of compliance audits. They often pointed to widespread patterns of behavior within the organization and raised broader issues of how the cause of the behavior might be identified and altered to change future results. Culture-based ethics audits were thus more likely to produce the desired change over the long run.

Systems Audits

But the culture audit still was limited and narrowly focused, this time on the consequences of leader rather than specific systems. The newest type of ethics audit goes even further. Systems audits view the organization as a system and examine the ethics issues within that system, and between that system and critical elements of the environment within which it operates.

Systems - based ethics audits, at a minimum, examine the relationships within and between these eleven components:

Environment – The ethical alignment between the organization and stakeholders existing outside the organization, including: customers, suppliers, competitors, unions, regulators… every external entity that has a stake in the organization.

Resources – How tangible and intangible resources enable or limit the organization’s ability to function within its predefined ethical boundaries.

History – How the organization’s history shapes or limits its ability to operate per its stated values and ethical goals.

Mission – The ethical imperatives of mission, vision and stated values and how well are those imperative being met.

Strategic Goals – The ethical issues associated with setting and attaining strategic goals and how congruent those goals are with the organization’s vision and values.

Strategic Plans – How the organization goes about attaining its strategic goals and ethics issues raised by those plans.

Task Definition – How the organization defines its work and the ethical implications of preparing employees to do the work and the inherent rewards derived from doing it.

Formal Systems – The ethical issues in the formal organizational systems. (Compliance audit)

Informal Systems – The ethical issues in the informal, especially leader-based, systems. (Culture audit)

Individuals – The values and principles motivating the workforce and how well they match the values of the organization and its stakeholders.

Feedback – How the organization learns from its experience and the impact of learning (or not learning) on the ethical growth and maturity of the organization and its employees.

Conclusion

Not every ethics audit should be a systems audit. There is a time and place for compliance and culture audits. But we should never forget that organizations are complex systems made up of interconnected parts and are themselves part of a larger, more complex industry and society. Often understanding systems requires a systemic approach.

When the issue is change, fundamental and ethically consistent change, the systems audit provides the decision makers and change leaders with the breadth and depth of information needed to make that change happen and endure. The systems audit is the tool for today, when organizations are undergoing fundamental change in what they do and how they do it, but are choosing to hold on to their core values, principles and ethics, where the ultimate goal is the more ethical organization.

1998 Ethics Resource Center.

Reprinted with permission.