Slow down for better ethics

Interesting tidbit (and relevant for internal audit) from an article in the latest Economist on how taking time to make decisions results in getting the ethics right:

Slowing down makes us more ethical. When confronted with a clear choice between right and wrong, people are five times more likely to do the right thing if they have time to think about it than if they are forced to make a snap decision. Organizations with a “fast pulse” (such as banks) are more likely to suffer from ethical problems than those that move more slowly… The authors suggest that companies should make greater use of “cooling-off periods” or introduce several levels of approval for important decisions.

Several levels of approval for important decisions sounds like a fantastic idea to me. What I find is that too many decisions are made or approvals given orally in meetings, with scant evidence to support their existence later, in case of an audit. Surely introducing more rigor around this aspect of approvals would further improve ethical behaviour!

Delay even works in fields where time might seem to be of the essence. Doctors and pilots can profit from following a checklist, even when doing things they have done many times before. A list slows them down and makes them more methodical, as Atul Gawande describes in “The Checklist Manifesto”.

Now you’re beginning to see why this article prompted me to write a blog post for the first time in umpteen weeks! Not just levels of approval, but checklists too? Be still my beating heart!

Auditors have been employing checklists to improve quality for eons. It’s great to see articles like this extolling their virtues to all people and for all tasks.

Mystery payments at Canadian construction company

This is interesting: An internal review at Canadian construction company SNC-Lavalin of certain payments approved by the CEO has resulted in that executive’s departure from the company.

The payments in question were approved directly by the CEO after the CFO rejected them. Documentation was apparently sketchy, as the review revealed that the projects they were attributed to were incorrect.

[The review] reveals payments to contracts that didn’t exist, mysterious agents whose identity “is without substance,” and staffers using emails and password-protected devices that the company couldn’t access.

They can’t be sure that the payments in question weren’t related to their controversial involvement with the former Gaddafi regime in Libya, since the recipients appear to be fictitious. They believe they weren’t, but there’s really no basis for that belief since the report is inconclusive.

SNC-Lavalin has operations in over 100 countries and earned over $7-billion in revenue last year.

The company said improper payments are a result of “management override, flawed design or ineffective enforcement of controls” in relation to hiring agents for two of its projects.

Design is one aspect of internal control, and operating effectiveness is the other. Add to that management’s ability override them, and they’ve pretty much covered all their bases!

Some former employees have conducted company affairs using non-corporate email addresses or had password protected devices to which the company does not have access.

This is incredibly suspicious, as what good reason could there be for using non-corporate email to conduct company business? Always a red flag, but tough to uncover. The article doesn’t discuss how it was in this case, unfortunately.

The original investigation, which was reported at the end of February, was over $35-million in payments which were undocumented. The reporting of this information resulted in a 20% decline in the company’s stock, which has since recovered only about ⅓ of the drop. Clearly, controls at the company are not strong enough and the market believes the environment may be such that more of these types of situations exist.

Now, with these recent developments, it seems that the “tone at the top,” a critical component of a strong control environment (see COSO Internal Control Framework), was not one of uncompromising integrity.

Depending on the nature of the payments, if it is ever determined satisfactorily, this could have implications related to the Corruption of Foreign Public Officials Act, Canada’s version of the Foreign Corrupt Practices Act in the US.

E&Y: Internal Audit should drive strategy

BusinessDay, a South African business news website, published a recent article referencing an E&Y study involving “more than 100 industry analysts from more than 20 disciplines”:

Organisations need to break out of the compliance cocoon and evolve into a fully fledged leadership role that delivers real value to the business. In the current economic climate, the biggest risk for most companies is not a failure to meet compliance requirements, but a failure to meet strategic targets.

The study also assessed last year’s top 10 business risks. In it, the analysts ranked the aftershocks of the credit crunch and the deepening global recession as the most important business risks, displacing regulation and compliance from the top spot.

Still more evidence that the Internal Audit profession demands an expanding skill set and well-rounded people with experience in more varied aspects of business. Auditors are going to have to continue to push themselves outside of their comfort zone in order to provide the greater value that shareholders require of the function.

How does your IA department stack up?

Ethics enhanced by clean smells

I wonder if this is something businesses (including accounting firms) might want to look into: A study at Brigham Young University has found that people are “unconsciously fairer and more generous” in clean-smelling environments.

The research found a dramatic improvement in ethical behavior with just a few spritzes of citrus-scented Windex.

The researchers see implications for workplaces, retail stores and other organizations that have relied on traditional surveillance and security measures to enforce rules.

“Companies often employ heavy-handed interventions to regulate conduct, but they can be costly or oppressive,” said [Katie Liljenquist, assistant professor of organizational leadership at BYU’s Marriott School of Management], whose office smells quite average. “This is a very simple, unobtrusive way to promote ethical behavior.”

I wonder if the persistence of a citrus smell at a business would affect the assessment of audit risk for that business? Maybe a cost-effective way to justify reduced audit testing? I can see it now: “Well, the assessment says we test a sample of 25, but does anyone else smell lemons?”

The study is at this point still “soon to be published,” but the article at BYU’s website details the tests performed to support the conclusions.

Interview for a job, get paid

A blog I follow, JobsintheMoney’s CareerWire, has drawn my attention to a very interesting site, especially for in-demand professionals such as accountants.

The site is called NotchUp and allows employers to pay to interview job candidates who otherwise wouldn’t be looking for a new job.

Associated Press has the lowdown:

How it works: You plug in your industry, job, pay and experience into a calculator on the site to help you set your pay for an interview. (NotchUp recommends a range between $200 and $500.) Then you submit your profile to the site.

If a hiring company is interested in you, it deposits the money with NotchUp and talks to you. If you seem like a real, engaged candidate, NotchUp will transfer the money to your PayPal account once the interview is over.

Interesting twist on the usual way things are done, and potentially a great way for employers to snatch up quality candidates. No mention of course on whether accounting firms are using the service yet, but it’s probably only a matter of time.