CHAPTER 9 - Managing and

Controlling Ethics Programs

1
TABLE OF CONTENT
 Summary
 Implementing Ethics Programs
 The Ethics Audit
 Benefits of Ethics Auditing
 The Auditing Process
 The Strategic Importance of Ethics Auditing
SUMMARY
 This chapter examines the concept of an ethics audit
as a way to help implement an effective ethics
program. The chapter begins by discussing the
implementation of ethics programs. We define the
term ethics audit and explore its relationship to a
social audit.
 Next, we examine the benefits and limitations of this
implementation tool. The challenges of measuring
nonfinancial ethical performance are examined, and
evolving standards are reviewed from AA1000, the
Global Reporting Initiative, and the Open Compliance
Ethics Group.
SUMMARY
 We then detail a framework for an ethics audit,
including securing the commitment of directors and
top managers; establishing a committee to oversee
the audit; defining the scope of the audit process;
reviewing the firm’s mission, values, goals, and
policies and defining ethical priorities; collecting and
analyzing relevant information; verifying the results;
and reporting them.

 Finally, this chapter considers the strategic

importance of ethics auditing.
 IMPLEMENTING
ETHICS PROGRAMS
IMPLEMENTING ETHICS
PROGRAMS
 In order to implement a
successful ethics program, an
organization must have ways
of Managing
 managing,
 evaluating, and
 controlling business ethics
programs.
Controlling Evaluating
IMPLEMENTING ETHICS
PROGRAMS
Content
 Five factors can impact success
of ethics programs
 The content of the code of
ethics
 The frequency of Role of Local Frequency of
communication regarding the Management Communication

ethics program Success Factors

for Ethics
 The quality of communication Program
Implementation
 Senior management’s ability
to incorporate ethics into the
organization
 Local management’s ability to
do the same
Role of Senior Quality of
Management Communication
IMPLEMENTING ETHICS
PROGRAMS
 Viewing a business ethics
program as a part of strategic
planning and management
activities is critical to the
success of any firm.
Business Ethics
 Shared values among
employees are the “glue” of
successful management and
control of business ethics
programs.
Strategic Management
 When the business ethics Planning Activities
program helps to align and direct
activities toward an ethical
culture, there will be a
commitment to the long-term
ethical progress of the firm.
IMPLEMENTING ETHICS
PROGRAMS
Formal
Controls
 Three types of controls are
involved with implementing
and managing an ethics
program.
 Formal controls
 Process controls Types of
Control of
 Output controls
an Ethics
Program

Output Process
Controls Controls
IMPLEMENTING ETHICS
PROGRAMS
Formal
Controls
 Three types of controls are
involved with implementing
and managing an ethics
program.
 Formal controls for
business ethics include input
controls that provide the Types of
proper tools and resources Control of
(proper selection of an Ethics
employees, ethics training, Program
and structural systems,
including communication Output Process
systems). Controls Controls
IMPLEMENTING ETHICS
PROGRAMS
Formal
Controls
 Three types of controls are
involved with implementing
and managing an ethics
program.
 Process controls include
management commitment to Types of
the ethics program and the Control of
methods or system for an Ethics
evaluation. Program

Output Process
Controls Controls
IMPLEMENTING ETHICS
PROGRAMS
Formal
Controls
 Three types of controls are
involved with implementing
and managing an ethics
program.
 Output controls involve
setting standards against Types of
actual behavior. One of the Control of
most popular methods of an Ethics
evaluating ethical Program
performance is an ethics
audit. Output Process
Controls Controls
THE ETHICS AUDIT
THE ETHICS AUDIT
 An ethics audit is a systematic
evaluation of an organization’s ethics Ethical
program and performance to Standards
determine whether it is effective.

 It includes regular, complete, and

documented measurements of
compliance, measuring conformity to
the firm’s desired ethical standards.

 Can be a precursor to setting up an

Ethic
ethics program. It identifies the firm’s
current ethical standards, policies,
Audit
and risk areas so that an ethics
program can effectively address Risk
Policies
problem areas. Areas
THE ETHICS AUDIT
Economic
Responsibilities
 A social audit is the process
of assessing and reporting a
business’s performance in
fulfilling the
 economic
Philanthropic Social Legal
 legal responsibilities Responsibilities
Audit
 ethical, and
 philanthropic responsibilities
expected of it by its
stakeholders
Legal
Responsibilities
Next, a video on
Social Audit
THE ETHICS AUDIT
 Social reports often discuss
issues related to a firm’s
performance in the four
dimensions of social
responsibility as well as to
specific social responsibility
and ethical issues such as Ethics Social
staff issues, community Audit Audit
economic development,
volunteerism, and
environmental impact.
THE ETHICS AUDIT
 In contrast, ethics audits focus
on more narrow issues related
to assessing and reporting on
a firm’s performance in terms
of ethical and legal conduct.
 An ethics audit can be a
component of a social audit. Ethics Social
Ethics auditing is similar to Audit Audit
financial auditing in that it
employs similar procedures
and processes to create a
system of integrity that
includes objective reporting.
 BENEFITS OF
ETHICS AUDITING
BENEFITS OF ETHICS
AUDITING

#1 #3 Identify potential
#5 Sets goals against
Detect misconduct ethical issues and
which to measure
before it becomes a improve legal
actual performance
major problem compliance

#2
Improve relationships #4 Preparing for
with stakeholders who Ethical Crisis and
demand greater Recovery
transparency
BENEFITS OF ETHICS
AUDITING
#1 Detect Ethical Misconduct Early

 There are many reasons why companies choose to

understand, report on, and improve their ethical
conduct.

 One reason is to detect ethical misconduct before it

becomes a major problem.
BENEFITS OF ETHICS
AUDITING
#1 Detect Ethical Misconduct Early
 Accounting scandals and legal and ethical
transgressions have encouraged companies to better
account for their actions in a wide range of areas
including corporate governance, ethics programs,
customer relationships, employee relations,
environmental policies, and community involvement.
 Measuring the ethical work climate is one way to learn
about the ethical culture of an organization. The auditing
process can highlight trends, improve organizational
learning, and facilitate communication and working
relationships
TOP CHALLENGES OF
CEOs
BENEFITS OF ETHICS
AUDITING
#2 Improved Relationships with Stakeholders

 One of the greatest benefits of the auditing process is

improved relationships with stakeholders.
BENEFITS OF ETHICS
AUDITING
#3 Identify potential ethical issues and improve
legal compliance

 Just as companies develop crisis management plans

to prepare to, respond to, and recover from natural
disasters, they should also prepare for ethical
disasters, which can result in substantial legal and
financial costs, disrupt operations, reduce productivity,
destroy organizational reputation, and erode
stakeholder confidence.
BENEFITS OF ETHICS
AUDITING
#3 Identify potential ethical issues and improve
legal compliance

 Despite the high costs of misconduct, U.S. companies

are failing to identify and manage ethical, social,
economic, and environmental concerns.
BENEFITS OF ETHICS AUDITING
#3 Identify potential ethical issues and improve legal
compliance
 Stages of an Ethical Disaster
 Ethical disasters follow recognizable phases of escalation, from
 ethical-issue recognition
 the decision to act unethically
 organization’s discovery of and response to the act.

Organization’s
Ethical-issue The Decision To Discovery Of
Recognition Act Unethically And Response
To The Act
BENEFITS OF ETHICS AUDITING
#4 Preparing for Ethical Crisis and Recovery
 Contingency planning
 Anticipation of and intervention during these situations can stave off organizational disaster.
 Contingency planning
 assesses risks,
 plans for these potential occurrences, and
 provides ready tools for responding to ethical crises.

Plans for
these
potential
occurrences
Provides
Assesses
ready tools
risks
to respond

Purpose of
Contingency
Planning
BENEFITS OF ETHICS AUDITING
#4 Preparing for Ethical Assessing the organization’s
Crisis and Recovery values

 Process of Ethical Disaster

Recovery
 The process of ethical disaster
recovery planning involves Developing an ethics program
 assessing the organization’s
values,
 developing an ethics program,
 performing an ethics audit, and Performing an ethics audit
 developing contingency plans
for potential ethical disasters.

Developing contingency plans

for potential ethical disasters
HOW DO CORPORATION
MANAGES RISK?
 Next, a video on
Enterprise Risk Management
BENEFITS OF ETHICS
AUDITING
#5 Sets goals against which to measure actual
performance

 Although much of the regulatory focus of corporate

ethics and compliance is driven by financial
measures, the integrity of an organization also has to
focus on nonfinancial areas of performance.
BENEFITS OF ETHICS
AUDITING
#5 Sets goals against which to measure actual
performance
 Nonfinancial performance measures are crucial to a
firm’s health
 To determine the wholeness and soundness of the many
aspects of a business that enhance ethics and profits
without increasing risk.
 Return on Integrity

 The word integrity implies a balanced organization

that not only makes ethical financial decisions but also
is ethical in the more subjective aspects of its
corporate culture.
BENEFITS OF ETHICS
AUDITING
#5 Sets goals against which to measure actual
performance

 Many organizations and regulatory frameworks offer a

means of capturing ethical performance
 Structural
 Behavioral

 The Sarbanes–Oxley Act has focused on

questionable accounting and the metrics that destroy
shareholder value.
BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 On the other hand, models Balanced Scorecard

exist to capture structural and
behavioral organizational
ethical performance. Triple Bottom Line

 Some of the performance tools

are the following Global Reporting Initiative

AccountAbility AA100 Framework

Open Compliance Ethics Group

BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 Six Sigma is a methodology to Balanced Scorecard

manage process variations
that cause defects, defined as
unacceptable deviation from Triple Bottom Line
the mean or target, and to
systematically work toward
Global Reporting Initiative
managing variation to
eliminate those defects.
AccountAbility AA100 Framework

Open Compliance Ethics Group

Next, a video on
Six Sigma
BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 Balanced Scorecard is a Balanced Scorecard

method for measuring a
company’s activities in terms
of its vision and strategies. Triple Bottom Line

Global Reporting Initiative

AccountAbility AA100 Framework

Open Compliance Ethics Group

Next, a video on
Balanced Scorecard
BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 The Triple Bottom Line Balanced Scorecard

captures an expanded
spectrum of values and criteria
for measuring organizational Triple Bottom Line
(and societal) success—
economic, environmental, and
Global Reporting Initiative
social.

AccountAbility AA100 Framework

Open Compliance Ethics Group

Next, a video on
Triple Bottom Line
BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma
 The Global Reporting Initiative
(GRI), which advances Balanced Scorecard
sustainability reporting, has
become a prominent framework
that companies have adopted to
report their social and Triple Bottom Line
sustainability progress.

 Businesses can use the GRI to Global Reporting Initiative

come up with a more
standardized method of
reporting nonfinancial results in
a way that users of the reports AccountAbility AA100 Framework
can understand.
Open Compliance Ethics Group
Next, a video on
GRI
BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma
 Companies benefit because the GRI
provides tools for improving their
implementation of the triple bottom Balanced Scorecard
line, the disclosure of their progress
in this area, the ability to compare
their sustainability efforts to those of
other companies, and the chance to Triple Bottom Line
enhance their reputation in the eyes
of stakeholders.

 Users benefit because this

Global Reporting Initiative
standardized sustainability reporting
provides them with a benchmark to
compare companies’ sustainability AccountAbility AA100 Framework
initiatives.

Open Compliance Ethics Group

BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 AccountAbility is an Balanced Scorecard

international membership
organization committed to
enhancing the performance of Triple Bottom Line
organizations and to
developing the competencies
Global Reporting Initiative
of individuals in social and
ethical accountability and
sustainable development. AccountAbility AA100 Framework

Open Compliance Ethics Group

BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma
 The AA1000 process standards
link the definition and Balanced Scorecard
embedding of an organization’s
values to the development of
performance targets and to the
assessment and communication Triple Bottom Line
of organizational performance.

 AA1000 ties social and ethical Global Reporting Initiative

issues into the organization’s
strategic management and
operations.
AccountAbility AA100 Framework

Open Compliance Ethics Group

BENEFITS OF ETHICS AUDITING
#5 Sets goals against which to
measure actual performance Six Sigma

 Open Compliance Ethics Group

created a universal framework Balanced Scorecard
for compliance and ethics
management.
 Focus on non-financial Triple Bottom Line
compliance and qualitative
elements of internal controls.
Global Reporting Initiative
 Guidelines that companies
can utilize as they see fit.
 Offers tools and certification AccountAbility AA100 Framework
procedures.

Open Compliance Ethics Group

RISKS AND REQUIREMENTS IN
ETHICS AUDITING
 Although ethics audits provide many benefits for individual
companies and their stakeholders, they do have the potential to
create risks.
Risk of having to uncover a
serious ethical problem that
it would prefer not to
disclose until it can remedy
the situation.
Risk of imposing extra
burdens burdens (especially
with regard to record
keeping) and costs for firms
that undertake an ethics
audit
Risk of having to find that
Risk of fostering stakeholder
one or more of its
dissatisfaction while in the
stakeholders’ criticisms
process of conducting an
cannot be dismissed or
ethics audit
easily addressed.
Risk of it being ineffective
Risk of having no guarantee
because this type of auditing
that the process of auditing
is relatively new, and there
and reporting a firm’s ethics
are few common standards
programs will help it avoid
to judge disclosure and
challenges related to its
effectiveness or to make
programs
comparisons.
RISKS AND REQUIREMENTS
IN ETHICS AUDITING
 Being viewed by the public as needing an audit can
motivate companies to conduct one in order to signal
their intention to respond to concerns.
 Although ethics and social responsibility are defined and
perceived differently by various stakeholders, a core of
minimum standards for ethical performance is evolving.
 Specific, measurable, achievable, and meaningful
measurements in terms of business impact on communities,
employees, consumers, the environment, and economic
systems
 The FSGO’s seven steps for effective ethical compliance, the
Sarbanes–Oxley Act, and the Dodd-Frank Act provide
standards that organizations can use in ethics auditing.
THE AUDITING
PROCESS
THE AUDITING PROCESS
 Questions to be addressed during an audit:
 How broad the audit should be?
 What standards of performance should be applied?
 How often the audit should be conducted?
 Whether and how the audit’s results should be reported to
stakeholders
 What actions should be taken in response to audit
results?
THE AUDITING PROCESS
 An ethics audit should be unique to each company,
reflecting its size, industry, corporate culture, and
identified risks as well as the regulatory environment
in which it operates.

 The framework in this chapter encompasses a wide

range of business responsibilities and relationships.

 There is no generic approach that will satisfy every

firm’s circumstances.
THE AUDITING PROCESS
 The following steps provide a general #1 Secure management and
board commitment
framework
#2 Establish an ethics audit
committee

#3 Define the scope of the

audit

#4 Review organizational
mission, goals, and values

#5 Collect and analyze

relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The first step in conducting the audit is to #1 Secure management and
board commitment
secure the commitment of the firm’s top
management and, if it is a public
#2 Establish an ethics audit
corporation, its board of directors. committee

 Pressure for an ethics audit may come #3 Define the scope of the
from the board of directors in response audit
to stakeholder concerns or legally
mandated corporate governance reforms #4 Review organizational
related to the Sarbanes–Oxley Act, mission, goals, and values
which suggests that boards of directors
should provide oversight for all auditing #5 Collect and analyze
relevant information
activities.
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 Court decisions related to the FSGO
hold board members responsible for the
ethical and legal compliance programs of
the firms they oversee.
 Pressure for an audit may come from top
managers looking for ways to track and
improve ethical performance, and to give
their firm an advantage over competitors
that are facing questions about their
ethical conduct.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent
#7 Report the finding
THE AUDITING PROCESS
 CEOs and CFOs may face prosecution if
they knowingly certify misleading
financial statements.
 Some companies have established an
ethics officer in conjunction with an
ethics program, and the ethics officer
may campaign for an ethics audit as a
way to measure the effectiveness of
the firm’s ethics program.
 Regardless of where the impetus for
an audit comes from, its success
hinges on the support of top
management.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent
#7 Report the finding
MODEL CORPORATE
SOCIAL RESPONSIBILITY
STRUCTURE
 Next, a video on
Why Starbucks CEO Pushes Social
Responsibility
THE AUDITING PROCESS
 The next step is to establish a committee #1 Secure management and
board commitment
or team to oversee the audit process.
#2 Establish an ethics audit
 Ideally, the board of directors’ financial committee
audit committee should oversee the
ethics audit. #3 Define the scope of the
audit

 In most firms, managers or ethics #4 Review organizational

officers conduct social and ethics mission, goals, and values
auditing.
#5 Collect and analyze
relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 This team should include members who #1 Secure management and
board commitment
are knowledgeable about the nature and
role of ethics audits and come from
#2 Establish an ethics audit
various departments within the firm. committee

 Outside consultants may be hired to #3 Define the scope of the

coordinate the audit and report the audit
results directly to the board of directors.
 An external auditor should not have #4 Review organizational
mission, goals, and values
other consulting or conflict-of-interest
relationships with top managers or #5 Collect and analyze
board members. relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The ethics audit committee should #1 Secure management and
board commitment
establish the scope of the audit and
monitor its progress to ensure that it #2 Establish an ethics audit
stays on track. committee

 The scope depends on the type of #3 Define the scope of the

business, the risks faced by the firm,
and available opportunities to manage
ethics.
 This step includes defining the key
subject matter or risk areas that are
important to the ethics audit as well as
the bases on which they should be
assessed.
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The audit process should include a review #1 Secure management and
of the current mission statement and board commitment
strategic objectives. The company’s overall
mission may incorporate ethics objectives, #2 Establish an ethics audit
but these may also be found in separate committee
documents, including those that focus on
social responsibility. #3 Define the scope of the
audit
 This step should examine all formal
documents that make explicit commitments
#4 Review organizational
with regard to ethical, legal, or social mission, goals, and values
responsibility, as well as less formal
documents, including marketing materials,
workplace policies, and ethics policies and #5 Collect and analyze
standards for suppliers or vendors. relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 It is important to examine all of the firm’s #1 Secure management and
board commitment
policies and practices for the specific
areas covered by the audit. #2 Establish an ethics audit
committee
 Should look at how managers are
rewarded for meeting their goals and #3 Define the scope of the
the systems available for employees audit
to give and receive feedback.
#4 Review organizational
 An effective ethics audit should review mission, goals, and values
all systems and assess their strengths
and weaknesses. #5 Collect and analyze
relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 Concurrent with this step in the auditing
process, the firm should define its ethical
priorities.
 Because there may be no legal
requirements for ethical priorities, it is
up to management’s strategic planning
processes to determine appropriate
standards, principles, duties, and
required action to deal with ethics
issues.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The next step is to identify the tools or #1 Secure management and
board commitment
methods for measuring the firm’s
progress in improving employees’ ethical #2 Establish an ethics audit
decisions and conduct. The firm should committee
collect relevant information for each
#3 Define the scope of the
designated subject-matter area. audit

#4 Review organizational
mission, goals, and values

#5 Collect and analyze

relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 A thorough audit will include a review of
all relevant reports, including external
documents sent to government agencies
and other parties. The information
collected will help determine baseline
levels of compliance as well as the
internal and external expectations of the
company. This step identifies where the
company has met its commitments.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent
#7 Report the finding
THE AUDITING PROCESS
 Some techniques for collecting evidence
might involve examining both internal
and external documents, observing the
data-collection process (such as by
consulting with stakeholders), and
confirming information in the
organization’s accounting records.
Auditors may also employ ratio analysis
of relevant indicators to identify any
inconsistencies or unexpected patterns.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent
#7 Report the finding
THE AUDITING PROCESS
 Because stakeholder integration is so
crucial to the ethics audit, a company’s
stakeholders need to be defined and
interviewed during the data-collection
stage
 Understanding employee issues is
vital to a successful audit.
 Customers are a primary stakeholder
group because their patronage and
loyalty determines the company’s
financial success. Providing
meaningful feedback is critical for
creating and maintaining customer
satisfaction.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent
#7 Report the finding
THE AUDITING PROCESS
 Some investors seek to include in their #1 Secure management and
investment portfolios the stocks of companies board commitment
that conduct ethics and social audits. They are
becoming more aware of the financial benefits #2 Establish an ethics audit
that can stem from socially responsible committee
management systems.
#3 Define the scope of the
 Organizations can obtain feedback from audit
stakeholders through standardized surveys,
interviews, and focus groups. Companies can
also encourage stakeholder exchanges by #4 Review organizational
mission, goals, and values
inviting specific groups together for discussions.
 The primary objective is to generate a variety
#5 Collect and analyze
of opinions about how the company is relevant information
perceived and whether it is fulfilling
stakeholders’ expectations.
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 Once these data have been collected, the firm #1 Secure management and
should then compare its internal perceptions to those board commitment
discovered during the stakeholder assessment
stage, and then summarize findings and draw
preliminary conclusions. #2 Establish an ethics audit
 May involve descriptive assessments of the committee
findings (the costs and benefits of the company’s
ethics program, the strengths and weaknesses of #3 Define the scope of the
the firm’s policies and practices, feedback from
stakeholders, and issues that should be audit
addressed in future audits).
 It may be appropriate to weigh the findings #4 Review organizational
against standards identified earlier, both mission, goals, and values
quantitatively and qualitatively.
 Data analysis should also include an examination #5 Collect and analyze
of how other organizations in the industry are
performing in the designated subject-matter relevant information
areas.
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The next step is to have an independent
party (social/ethics audit consultant, a
financial accounting firm that offers
social auditing services, or a nonprofit
special-interest group with auditing
experience) verify the results of the data
analysis.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values

#5 Collect and analyze

relevant information

#6 Verify the results through

an outside agent

#7 Report the finding

THE AUDITING PROCESS
 Verification is an independent assessment #1 Secure management and
board commitment
of the quality, accuracy, and completeness
of a company’s social report.
#2 Establish an ethics audit
 Independent verification offers a committee
measure of assurance that the company
has reported its audit fairly and honestly, #3 Define the scope of the
as well as providing an assessment of its audit
social and environmental reporting
systems. #4 Review organizational
mission, goals, and values
 Verification by an independent party
gives stakeholders confidence in a
company’s ethics or social audit and #5 Collect and analyze
relevant information
lends the audit report credibility and
objectivity.
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 An increasing number of companies are
opting for independent verification of ethics
audits.
 The process of verifying the results of an
audit should involve standard
procedures that control the reliability and
validity of the information.
 Auditors can apply substantive tests to
detect material misstatements in the
audit data and analysis.
 A financial auditor may be asked to
provide a letter to the company’s board
of directors and senior managers that
highlights any inconsistencies in the
reporting process.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 The final step is to issue the ethics audit #1 Secure management and
board commitment
report.
 Reporting the audit findings to the #2 Establish an ethics audit
relevant internal parties and, if approved, committee
to external stakeholders in a formal
report. #3 Define the scope of the
audit
 The report should spell out the purpose
and scope of the audit, the methods used #4 Review organizational
in the audit process (evidence gathering mission, goals, and values
and evaluation), the role of the (preferably
independent) auditor, any auditing #5 Collect and analyze
guidelines followed by the auditor, and any relevant information
reporting guidelines followed by the
company. #6 Verify the results through
an outside agent

#7 Report the finding

THE AUDITING PROCESS
 Although the ethics audit may be similar
to a financial audit, their forms are quite
different.
 In a financial audit, the Statement of
Auditing Standards dictates the content
and placement of every word of a
financial audit report.
 The report issued can be an
unqualified opinion, a qualified
opinion, an adverse opinion, or a
disclaimer of opinion.
#1 Secure management and
board commitment
#2 Establish an ethics audit
committee
#3 Define the scope of the
audit
#4 Review organizational
mission, goals, and values
#5 Collect and analyze
relevant information
#6 Verify the results through
an outside agent

#7 Report the finding

 THE STRATEGIC
IMPORTANCE OF
ETHICS AUDITING
THE STRATEGIC
IMPORTANCE OF ETHICS
AUDITING
 Although the concept of auditing implies an official
examination of ethical performance, many organizations
audit their performance informally.
 Any attempt to verify outcomes and to compare them
with standards can be considered an auditing activity.
 Organizations such as the Better Business Bureau
(BBB) provide awards and assessment tools to help any
organization evaluate their ethical performance.
Companies with fewer resources may wish to use the
judging criteria from the BBB’s Torch Award Criteria for
Ethical Companies as benchmarks for their informal self-
audits.
 Next, a video on
BBB – Ethics – Better Business
Bureau
THE STRATEGIC
IMPORTANCE OF ETHICS
AUDITING
 The ethics audit should be conducted regularly rather
than in response to problems or questions about a
firm’s priorities and conduct.

 An audit may be comprehensive and encompass all of

the ethics and social responsibility areas of a
business, or it can focus on one or two specific areas.
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Problems with Ethics Audit They can be expensive
and time consuming
 Ethics audits can present
several problems.

Selecting the auditors

may be difficult if
objective, qualified
personnel are not
available

Employees sometimes
fear comprehensive
evaluations, and in
such cases, ethics
audits can be disruptive
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

Efficient Resource
Management

Better Strategic Planning

Pinpointing Areas of
Improvement-

Cultivate Positive
Organizational Ethical Behavior
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

 Provides an assessment of a
Efficient Resource
company’s ethical Management
performance as compared to
its core values, ethics policy,
Better Strategic Planning
internal operating practices,
management systems, and the
expectations of key Pinpointing Areas of
Improvement-
stakeholders
Cultivate Positive
Organizational Ethical Behavior
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

 The assessment can be used

Efficient Resource
to reallocate resources and Management
activities as well as focus on
new opportunities.
Better Strategic Planning

Pinpointing Areas of
Improvement-

Cultivate Positive
Organizational Ethical Behavior
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

 The process can also help

Efficient Resource
companies fulfill their mission Management
statements in ways that boost
profits and reduce risks.
Better Strategic Planning

Pinpointing Areas of
Improvement-

Cultivate Positive
Organizational Ethical Behavior
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

 Can pinpoint areas where

Efficient Resource
improving operating practices Management
can improve both bottom-line
profits and stakeholder
Better Strategic Planning
relationships

Pinpointing Areas of
Improvement-

Cultivate Positive
Organizational Ethical Behavior
THE STRATEGIC IMPORTANCE
OF ETHICS AUDITING
Benefits of Conducting Ethics
Deeper Analysis of Company
Audit Performance

 Can demonstrate the positive

Efficient Resource
impact of ethical conduct and Management
social responsibility initiatives
on the firm’s bottom line,
Better Strategic Planning
convincing managers—and
other primary stakeholders—of
the value of more ethical and Pinpointing Areas of
Improvement-
socially responsible business
practices
Cultivate Positive
Organizational Ethical Behavior