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Ethics Per the GAO

April 2009

Hello, Readers!

In 2007, the GAO added a new chapter to the Yellow Book (or government auditing standards) on ethics. I started to write an article about this chapter and realized how futile my attempts were to "better" -- or improve on -- the chapter. My interpretation is pretty meaningless and subject to debate.

Minutes later, I received an email from a colleague regarding study of the Bible. It said, in part, "Knowledge of 'the deep things of God' can give us strength to resist temptation to engage in lawless acts and can move us to be 'zealous for fine works.' (1 Corinthians 2:10; Titus 2:14) Understanding deep things requires study. However, study is not the same thing as reading something superficially. It involves carefully examining information to see how it fits the pattern of what we already know. It entails perceiving the reasons for what is said. Bible study should include meditating on how we can use what we learn in making wise decisions and in helping others."

And that convinced me to just shut up and let you read what the GAO has to say. The Yellow Book is an auditor bible, after all (thanks for allowing me that stretch!).

As you read this, think of how it applies to:

• The auditor's responsibilities regarding the federal stimulus package as it is passed down to local governments
• Your relationship with the audit committee and your organizational power and credibility
• Your ability to persuade the auditee
• The strength of your relationship with your audit team
• The report you are working on right now
• That time you stood up for what is right in the exit conference
• That time you drank too much at the holiday party

My favorite quote from this chapter is in section 2.07: A distinguishing mark of an auditor is acceptance of responsibility to serve the public interest.

I even had a temporary tattoo made to commemorate this meaningful sentence:

If you would like one, just send me an email with your address and I'll put it in the mail to you.

Excerpts from Chapter 2 of GAGAS:
Ethical Principles in Government Auditing

2.01 Because auditing is essential to government accountability to the public, the public expects audit organizations and auditors who conduct their work in accordance with generally accepted government auditing standards (GAGAS) to follow ethical principles. Management of the audit organization sets the tone for ethical behavior throughout the organization by maintaining an ethical culture, clearly communicating acceptable behavior and expectations to each employee, and creating an environment that reinforces and encourages ethical behavior throughout all levels of the organization. The ethical tone maintained and demonstrated by management and staff is an essential element of a positive ethical environment for the audit organization.

2.05 The ethical principles that guide the work of auditors who conduct audits in accordance with GAGAS are:

a. the public interest;
b. integrity;
c. objectivity;
d. proper use of government information, resources, and position; and:
e. professional behavior.

The Public Interest:

2.06 The public interest is defined as the collective well-being of the community of people and entities the auditors serve. Observing integrity, objectivity, and independence in discharging their professional responsibilities assists auditors in meeting the principle of serving the public interest and honoring the public trust. These principles are fundamental to the responsibilities of auditors and critical in the government environment.

2.07 A distinguishing mark of an auditor is acceptance of responsibility to serve the public interest. This responsibility is critical when auditing in the government environment. GAGAS embody the concept of accountability for public resources, which is fundamental to serving the public interest.

Integrity:

2.08 Public confidence in government is maintained and strengthened by auditors' performing their professional responsibilities with integrity. Integrity includes auditors' conducting their work with an attitude that is objective, fact-based, nonpartisan, and nonideological with regard to audited entities and users of the auditors' reports. Within the constraints of applicable confidentiality laws, rules, or policies, communications with the audited entity, those charged with governance, and the individuals contracting for or requesting the audit are expected to be honest, candid, and constructive.

2.09 Making decisions consistent with the public interest of the program or activity under audit is an important part of the principle of integrity. In discharging their professional responsibilities, auditors may encounter conflicting pressures from management of the audited entity, various levels of government, and other likely users. Auditors may also encounter pressures to violate ethical principles to inappropriately achieve personal or organizational gain. In resolving those conflicts and pressures, acting with integrity means that auditors place priority on their responsibilities to the public interest.

Objectivity:

2.10 The credibility of auditing in the government sector is based on auditors' objectivity in discharging their professional responsibilities. Objectivity includes being independent in fact and appearance when providing audit and attestation engagements, maintaining an attitude of impartiality, having intellectual honesty, and being free of conflicts of interest. Avoiding conflicts that may, in fact or appearance, impair auditors' objectivity in performing the audit or attestation engagement is essential to retaining credibility. Maintaining objectivity includes a continuing assessment of relationships with audited entities and other stakeholders in the context of the auditors' responsibility to the public.[Footnote 19]

Proper Use of Government Information, Resources, and Position:

2.11 Government information, resources, or positions are to be used or official purposes and not inappropriately for the auditor's personal gain or in a manner contrary to law or detrimental to the legitimate interests of the audited entity or the audit organization. This concept includes the proper handling of sensitive or classified information or resources.

2.12 In the government environment, the public's right to the transparency of government information has to be balanced with the proper use of that information. In addition, many government programs are subject to laws and regulations dealing with the disclosure of information. To accomplish this balance, exercising discretion in the use of information acquired in the course of auditors' duties is an important part in achieving this goal. Improperly disclosing any such information to third parties is not an acceptable practice.

2.13 As accountability professionals, accountability to the public for the proper use and prudent management of government resources is an essential part of auditors' responsibilities. Protecting and conserving government resources and using them appropriately for authorized activities is an important element in the public's expectations for auditors.

2.14 Misusing the position of an auditor for personal gain violates an auditor's fundamental responsibilities. An auditor's credibility can be damaged by actions that could be perceived by an objective third party with knowledge of the relevant information as improperly benefiting an auditor's personal financial interests or those of an immediate or close family member; a general partner; an organization for which the auditor serves as an officer, director, trustee, or employee; or an organization with which the auditor is negotiating concerning future employment. (See paragraphs 3.07 through 3.09 for further discussion of personal impairments to independence.)

Professional Behavior:

2.15 High expectations for the auditing profession include compliance with laws and regulations and avoidance of any conduct that might bring discredit to auditors' work, including actions that would cause an objective third party with knowledge of the relevant information to conclude that the auditors' work was professionally deficient. Professional behavior includes auditors' putting forth an honest effort in performance of their duties and professional services in accordance with the relevant technical and professional standards.

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Leita Hart-Fanta, CPA, CGFM
Resides in Austin, Texas and can be reached at www.auditskills.com