The only way is ethics

In the wake of shocking results from CIPFA’s ethical survey, Graham Liddell challenges public sector accountants to take his three-step ethical workout

The situation was tight, but the longer-term outlook was promising.

The company needed one more round of funding to tide it over until the cash from the new order came rolling in.

Without that funding, redundancies would follow and everything it had worked so hard for could be lost.

And to convince investors to part with their money, the company’s financial performance needed to reflect what the directors believed the true potential of the company to be.

So the chief finance officer took some accounting decisions that she knew to be overly optimistic, certain that when the promised order came in, she would be able to present a more prudent financial position.

And all would be well.

She wasn’t doing this for personal gain, after all, but for the future of the company — a company she not only cared deeply about but one she had every reason to believe would be successful — and for the benefit all of its stakeholders.

In her mind, she was doing the right thing, for the greater good.

When that big order failed to materialise, the company’s financial condition worsened.

When an ensuing audit investigation discovered the truth, the CFO argued that her intentions had been good.

Others saw it differently.

(Slightly amended from How good intentions can mask rationalisations – and fraud by Kristin Rivera The White Collar Crime Committee Newsletter, Summer/Fall 2017 (ABA Criminal Justice Section)

Of course, it couldn’t happen in the public sector, could it?

Well, the results from CIPFA’s recent ethical survey suggest that it already has and that public sector accountants are in the midst of an ethical crisis.

57% of the 487 respondents said they had been put under pressure or felt under pressure to act in a professionally unethical way.

36% of those who felt under pressure had carried out (either in full or partially) an unethical action.

The CIPFA survey is based on a self-selecting sample and some have argued that there isn’t really a widespread problem.

I disagree.

The results are consistent with my experience at a range of public sector bodies and conversations I have had with colleagues up and down the country.

This is a wake-up call for all of us and CIPFA deserves a lot of credit for raising the issue.

The question is, where do we go from here?

CIPFA can’t raise ethical standards on its own.

We all have a role to play and I was very struck by former CIPFA president Margaret Pratt’s comment that public sector accountants should have regular “ethical workouts”.

And so here is my contribution, the UK’s very first three-step ethical workout for public sector accountants. Give it a go, I dare you.

Three-step ethical workout for public sector accountants

1. Read the six ethical scenarios below

2. Answer A, B or C to each scenario as follows:

A. No, have never done this and would never do so;

B. I’ve done this or asked others to do so and am beginning to feel a little uncomfortable;

C. This is the real world and not an ethical issue.

3. Develop your personal ethical action plan based on the ready reckoner 

Six scenarios for an ethical work-out

• Try to find ways of getting around local policies, standing orders, financial instructions or procurement regulations;
• Present a business case in an overly favourable or unfavourable light to achieve a particular outcome;
• Submit savings plans that are not backed by evidence;
• Use technical accounting issue to achieve a particular financial outcome. (This could include, for example changing MRP policy, increasing amounts charged to the HRA, capitalising items that are not capital, over or underestimating provisions, over or under-accruing expenditure. The key issue here is about whether the technical accounting issue has been used to achieve a particular outcome);
• Try to influence the view of professional advisers, such as actuaries or valuers, to achieve a particular financial outcome;
• Rely on smoke and mirrors (reserve accounting, statutory overrides etc) to ensure that members don’t ask difficult questions.

Ethical workout ready reckoner to develop your personal ethical action plan

• Mainly As – Impressive, it would seem that you’ve either led a very sheltered life or are a paragon of virtue. But as a final check, go through again and make sure you have answered honestly;
• Mainly Bs –OK, so you’re not a paragon of virtue. But at least you know what you should be doing and have completed your first ethical work out. Take some time out and start to think through what you are going to change;
• Mainly Cs –You are in ethical denial. In no circumstance is C the right answer. Keep trying until you get it right.

And finally, I know that quite a few local government auditors read Room 151 and have probably assessed themselves as paragons of virtue having scored mainly “A”s.

Be careful -these questions are aimed at accountants and an ethical workout for public sector auditors is currently in development.

Watch this space.

Graham Liddell is Managing Director of LPFG Ltd which provides financial reporting, governance and transformation support for the public sector
www.lpfg.co.uk

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