Tag Archives: code of conduct

Just In Case

stockvault-journey190946

 

I’m that person. Next to you on the plane. Pulling out that safety booklet and reading it, from beginning to end. I’m that person. Listening attentively while the flight attendants go through their entire routine, from how to buckle and unbuckle your seatbelt, to the reminder to not inflate your lifejacket until you are outside the plane. Every time, I’m that person. I look around for the nearest exit and sometimes do a mental calculation of my best route there. I check in the booklet to see where my lifejacket is supposed to be and I sometimes feel about to make sure that the booklet is correct. As often as I have flown, I take the time to go through the process and remind myself of what I know and to see if there is something I have missed in the past or a new instruction that may have been added.

Sometimes I wonder if it’s a bit much. However, recently when a plane in New York City made an emergency landing, video taken by a passenger showed that many people on that plan had no idea how to operate the lifejackets and way too many of them had inflated their lifejackets while still inside the plane. This may have been related to panic during a stressful situation but, from looking around me during the pre-flight safety instruction session, it seems the bigger issue is that most passengers just don’t pay attention. There are more interesting or pressing matters that command our attention and, specifically for those who fly often, we are likely lulled into an arrogance of the familiar. We have done this many times before, we must know exactly what’s up at this point. It may be only on that rare occasion of an emergency that we realize that it is ha been so long since we paid attention to the instructions that we now have a very vague idea of what to do.

Many businesses will have a company policy, code of conduct and operations manual and include training. When a new employee starts with a company there is often some kind of onboarding process that includes either training sessions or handing over a policies and procedures manual or a combination of the two. In addition to sharing with the employee how the employee should go about doing their job, the training and manuals should also include what should be done when things go awry. These instructions should be clear, and employees must know not only what to do but also who to go to for guidance when things are not right. Employees must also know who to inform and the various levels of leadership that this information should go through. If there is no protocol, an employee will not know who to take a problem to and those who are told may not know what to do with the information. You don’t want to be that company in the news admitting that people noticed an issue early on but that the information did not make its way to the right people to manage it.

In addition to the initial training, companies should remind employees often. This can be performed in-person, in an online session or through other messaging, like posters around the company. It is dangerous and foolish to believe that employees will remember their week of training or the contents of a manual years into employment, especially during the first week at a company an employee is not yet familiar with the day to day workings of that company. When a crisis hits, you don’t want to be the person being told, “You should have known what to do. We told you during your initial training, ten years ago.” You especially don’t want to be the person asking a coworker why they can’t remember that old training – honestly, what do you remember from ten years ago?

Thinking about your business, take steps to:

  • Include in your training, what a person should do when something is wrong, who they should report to and options for anonymous reporting, in case the matter is sensitive, and an employee might fear retaliation for reporting.
  • Make sure that your training is clear and easy to understand and follow up with employees to make sure that they have understood and retained the training.
  • Have a non-retaliation policy at your company, for people who report wrongdoing and errors. This policy must be something your business takes seriously.
  • Have a disaster recovery policy that you revisit and update regularly. Make sure your employees are familiar with the policy so they know what they are responsible for doing.
  • Have important policy information displayed around the office, to remind employees what is expected of them.
  • Perform regular training updates of your employees so that you are not relying on ten-year-old memories.

It takes me only a couple of minutes to get through the safety brochure and some airlines put time and energy into creating engaging and fun pre-flight safety videos that are actually fun to watch. I hope I am never in a flight emergency situation, but I go forward knowing that if that should happen, I shall at least remember to not inflate my lifejacket while still on the plane.

Advertisements
Tagged , , , , ,

True Tone at the Top

NYSSCPA

 

I am reading “Tragedy of Fraud – Insider Trading Edition“, a book recently released by James Ulvog. This is the story of Scott London‘s journey from KPMG partner to prison inmate. James Ulvog covered this story in depth, from the moment it broke up to when Scott London went to prison. I would not be surprised if Jim picks up the story again when London is released from prison. In the book, Jim has spoken about the possible consequences of London’s crime and a lot of these stretch well into the future, potentially affecting him both professionally and personally. It is always a big disappointment when members of the CPA profession completely disregard the ethical and professional standards that have been set by the various governing boards. It is, therefore, important when people like Jim of Attestation Update and Francine McKenna of re: The Auditors
call out the CPAs who are setting a terrible tone at the top of their profession.

It is equally important, if not more so, to recognize those who have provided a positive contribution to the CPA profession. We are trusted professionals for a reason; it’s not just empty rhetoric. A little over a week ago, I had the indescribable privilege of meeting Bernadine Coles Gines, CPA. I am pretty sure this is not a name you have heard before, but she is a woman worth learning more about. I met her at a New York State Society of CPAs (NYSSCPA) ceremony honoring the 60th anniversary of Bernadine Coles Gines’ CPA license. This is a big deal because Gines was the first black woman to receive the CPA license in New York State. It becomes even more of a big deal when you learn more about the challenges she faced, both while working towards becoming a CPA and beyond.

Bernadine Coles Gines moved to New York City from Virginia, where she is originally from, to get her master’s degree at New York University. She moved because, at the time, Virginia’s segregation laws kept her out of graduate school in that state. Once Gines had graduated and passed her CPA exams, she looked for work. She found that she could not find work with a black CPA firm in New York City because they would not hire women. She also found that she could not find work with white CPA firms because they would not hire black people. While interviewing at a white firm, one partner told her that, even though he could not hire her, perhaps Gines could help his wife, who was looking for a maid. She was finally hired by a two-partner Jewish firm, but only after she had convinced them that she was not a communist. Of course, getting work was in no way the end of her challenges but at no time did Gines give up or compromise. She persevered and continued to work toward achieving her goals, despite (or perhaps more resolved, because of) the challenges in her way.

I read a little about Bernadine Coles Gines before I met her, but when I met her, I was even more impressed. She spoke of her principles and her determination and her story is living proof of both. To come to face to face with a person who epitomizes unwavering grit and the drive to stand by what she believes in is truly motivating. To learn about people like Bernadine Gines reminds us about the types of people who have made CPA the trusted professionals that they are and they also show why we harshly judge those who give us a bad name. They are a reminder to us and to those we serve of those of us who are professional, ethical and will stand strong, despite the pressures put upon us.

You should go out and learn more about Bernadine Gines and others like her. As though her achievements were not enough, she shared during her interview, that her sister, Ruth Coles Harris, was the first Black woman to be certified as a CPA in Virginia, in 1963. Ruth Coles Harris faced challenges of her own when she decided she wanted to be a CPA. I wonder what those family reunions are like – I would hate to be the black sheep in that family (if they even have one). I am truly fortunate that I had this incredible opportunity to meet Bernadine Coles Gines and that I was reminded how important it is to uphold ethics and principles and that I should not compromise, especially when things are very challenging.

Tagged , , , , , , , ,

Easy Going Down

Image

I am big on Ethics and I am glad when they are spelled out in a straightforward way. So, I am excited to see that the AICPA’s revised Code of Professional Conduct has made the subject of ethics easy to access and clearer. This is where the standards that CPAs are held up to are put into words and the easier those words are for everyone to understand, the better it is for all of us. It’s not just “trust me, I know what I’m doing”, it’s “look here and see what I am supposed to be doing. There is a code that I abide by and here it is in plain English.”

Tagged , , , ,

Don’t Put Baby In the Dusty Corner!

Image

You know who could use a really good PR person? Arizona. Nowadays, every time I read about Arizona, it’s not complimentary. Whether it is a piece about the “right-to-refuse-service” bill, immigration issues or the sheriff of Maricopa County, the articles tend to speak of controversy and a lot of angry people. You would think it was a terrible place to live in or visit, unless you are going to watch the Arizona Wildcats play basketball.

Fortunately for me, my mother in law lives in Tucson, Arizona, and despite the less than flattering news about Arizona, I go out to visit her on occasion. I love it every time I go there. Granted, part of it is that I am solar powered and the sunny warmth of Arizona recharges me. However, there is so much more to that. I honestly could spend every day hanging out in my mother in law’s backyard, chatting – you can’t help but adore a woman who loves art, sport and having fun – but wait, there’s more! I get up in the morning and start my day with an incredibly scenic run and I often end it with a lovely walk in some new and beautiful place. It’s not just the scenery; I meet interesting and interested people, I meet kind and polite people, I just come across some great characters while I am in Arizona. I go there and I think, wow, someone needs to really work on the word on Arizona that gets out.

It got me thinking about my days in audit and when I go on due diligence assignments. When I worked in audit, before assignments, we would often talk about what kind of office our client would decide to put us in. Would the office have a window and would it even be clean? Would they drag their feet, complaining about how difficult we were, in response to our requests? Would they treat us as though we were wasting their time and doing unnecessary, and expensive, work? Often I wondered why clients treated us as though we were Typhoid Marys, bringing a horrible plague to the company.

When a CPA comes in to a firm, whether they are performing an audit or a forensic investigation, they are coming in as a trusted professional to give outsiders a level of assurance about the financial state of the company. If you have a business and tell your mother how well your business is doing, I am sure that she will believe you and perhaps even brag about you to her friends. A random stranger on the street may not be so willing to take you at your word. In the hierarchy of opinions, the least trusted opinion regarding the state of a business’s financials is the opinion of the business owners and the most trusted is that of an independent third party. This is because you, as the business owner, have a vested interest in showing yourself in the best possible light, they are more likely to trust a third party over you, and the word of an independent third party carries a lot of weight. Independence means that the third party has no financial interest in the company, either as an owner or as a customer. The interest of this third party is only in the facts.

CPAs conducting an audit or forensic investigation are held up to the very high standards of the profession. Knowledge of these standards factors greatly into the level of confidence that users have in the results produced by CPAs. The CPA Code of Conduct requires objectivity, independence and integrity from CPAs and it is for these reasons that CPAs are trusted professionals.

CPAs are obligated to serve the public interest, honor the public trust, and demonstrate commitment to professionalism. The goal of CPAs is not to destroy your business or to embarrass you by finding misstatement or fraud. They are objectively carrying out their assignment, which may be to give assurance that your financial statements are fairly stated or to investigate suspected fraud within a business. This means that even if CPAs find misconduct, errors or misrepresentation, they can point it out to the company’s management and even work with management to take adequate steps to resolve matters.

So, when independent CPAs come into your firm to conduct an audit or forensic investigation, don’t see them as the enemy. Even if you give them the airless, cramped office that qualifies as a closet in a Texas apartment, at least get the cleaning service to dust it a little.

Tagged , , , , , , , , , , , , ,

It’s Not Worth It

Image

A forensic scientist made it into the news for all the reasons a forensic expert never wants to make it into the news. Annie Dookhan, a former chemist for the state of Massachusetts, who provided evidence and expert testimony, was caught forging a colleague’s initials. Once confronted, she admitted that she had forged the signatures of other co-workers and had also been falsifying lab test results for years. As her case unfolded, it turned out that she had broken all kinds of rules and left red flags of her unprofessional behavior all over the place and yet she was able to continue, unchecked, for several years.

To make her resume look more impressive, Dookhan padded her resume with a Master’s degree, in science, that she did not possess. An attorney, speaking about forensic science, described it as a “wild, wild west” and, looking at the case of Annie Dookhan, you could easily believe that. However, this does not need to be the case. When working with a forensic CPA, Certified in Financial Forensics (CFF), you can easily verify any qualifications claimed. CPA licenses can be verified via the relevant state boards and the CFF credential can be verified through the AICPA, who issues the credential. These certifications convey a level of knowledge, experience and expertise so you should check to make sure you have engaged someone who really is whom they claim to be.

Dookhan’s work seemed too good to be true and it turned out that it was. The average monthly testing output of her peers was 50 to 150 samples. Annie Dookhan tested 500 samples a month and she did this without claiming any overtime. A supervisor complained that he never saw her in front of a microscope and another coworker claimed that she would weigh samples without resetting the scales to zero. Despite these and other complaints, nothing was done for years. She continued to deliver several times more test results than any of her colleagues, without any reasonable explanation for her high numbers. In 2010, a coworker found seven separate instances in which Dookhan identified a drug sample as a certain narcotic when it was something else. The coworker explained this away as honest mistakes. When she was finally caught, Dookhan admitted that she routinely tested only five out of every 25 samples. She had been identifying drug samples merely by sight and not carrying out any tests, a practice known as “dry labbing”.

Granted, several coworkers found ways to rationalize the many red flags raised by Dookhan’s behavior. However, there were several fellow workers and supervisors who raised the alarm about Dookhan, voicing their concerns and observations to their superiors. Nothing was done about this for years and then when, in 2010, Dookhan’s work was audited, the audit was hardly anything that would be considered an audit. None of Dookhan’s samples were retested; the auditors merely reviewed her paperwork. This is a classic example of a poor tone at the top. The management at Hinton State Laboratory Institute, where Dookhan worked, received reports of an employee who appeared to be skirting proper procedures and who was definitely, mysteriously outperforming her colleagues by unbelievable margins, yet they seemed reluctant to do anything about this. From Dookhan’s own admissions, she, at times, intentionally changed negative sample results into positive ones. She was also accused of recording inflated weights of samples so that the accused was facing stiffer penalties. She often manipulated test results in favor of the prosecution. This may have made the lab, and Dookhan in particular, a preferred expert for the prosecution. Perhaps the lab liked the business they were getting because of their reputation and management was unwilling to jeopardize things. If management was not interested in enforcing rules and standards, it should not be a surprise that they were so shamelessly flouted for so long. The fallout has been far-reaching. Dookhan tested over 60,000 samples and every one of the results from these tests is now open to being disputed. Some people have already been released from prison, as cases may now have to be retried. The work of everyone in the lab is also under investigation as it is now clear that there was poor oversight and supervision at the lab and it is also possible that Dookhan may have contaminated the work of others. Dookhan was sentenced to three to five years in prison.

Anyone seeking the services of a forensic accountant must never seek an Annie Dookhan. On the face of things, it may appear fantastic to have someone who produces unreal results, is always on your side and invariably tells you what you want to hear. However, you should be encouraged if you work with a forensic accountant who is not afraid to give you the facts, even when the facts are not in your favor. In the long run, what will stand up in court and keep everyone out of trouble is work done without cutting any corners, manipulating the truth or violating the law in any way.

Tagged , , , , , , , , , , ,

Who’s Toning the Top?

Image

This week, Scott London, a KPMG ex-partner was busted. It was the getting busted that resulted in him going from partner to ex-partner. It turns out that, for several years, Scott London had been passing on non-public information about at least two of his clients, Herbalife and Skechers, to a golfing buddy, Bryan Shaw. Shaw then used this information to make over a million dollars on the stock market. London was caught during an FBI sting that included a photo of him receiving a bag of money from Shaw in a parking lot. A parking lot. Straight out of the movies. It is a very interesting case that is still unfolding. We are learning a lot about how and what happened and perhaps we shall also learn why it happened. Why did this KPMG partner (at the time) decide to share confidential client information with his friend and take expensive gifts and cash, a fraction of his annual salary, for this information? Discovering the motivations will be interesting but right now, this case has me thinking about another issue.

This case brings up, to me, the issue of “the tone at the top”. This is the example that a company’s management sets that may affect how ethically employees may behave. As a CPA, forensic accountant and a former auditor, I know that ethics are a big part of our education and continuing education. The stress on ethics is part of why CPAs have been found to be the most trusted business professionals, according to surveys. In addition to the required ethics continuing education that credentialed forensic accountants, and CPAs, have to complete, laws and firm policies go a long way to trying to ensure that an accounting professional is objective and, in many cases, independent from his or her client. For example, audit firms practice partner rotation with their public company clients. This means that every five years public firms will have a new partner managing their audit. Also, forensic accountants, before accepting an assignment, will run a check to ensure that there is no conflict of interest. Even the appearance of a lack of independence can result in people not trusting their accountant, whether that accountant is performing an audit or forensic services.

There are many rules and regulations to try to maintain the integrity of the accounting profession but as partners are at the top of the totem pole, it is very important to know who is watching those at the top? What is being done to make sure that those at the top are not abusing their positions of power by compromising their ethics. The evidently casual way that Scott London shared confidential information with his golf buddy implies that he either did not believe that there would be significant consequences if he were caught or that he would not get caught at all. Although he took his actions outside of the control systems created by the audit firms which include the disclosure of investments to prevent a conflict of interests, there were the investigations by other agencies, the FBI in this case, that flagged Shaw’s suspicious trades. That is a comfort. Hopefully, as this case and story unfold we will have the full power of the law descend upon London for his insider trading. In addition to the charges being leveled against London by the FBI and the SEC, KPMG has stated that it will be bringing legal actions against London. It should be more than lip service. KPMG and other CPA firms must realize that how they deal with their most powerful and senior practitioners goes a long way to ensuring that they remain trusted and held in high esteem.

Granted, every profession will have bad apples – unscrupulous people who have little regard for the profession. When it comes to being a CPA, a license where members agree to practice according to very high standards, it is imperative that those who are caught violating the code of conduct and the law are dealt with strictly. Partners of the Big Four accounting firm are more in the spotlight than other accountants and it should be clear that a position of power does not exempt one from discipline – in fact, the position of power should mean that you are more disciplined.

Finally, according to the United States Golf Association, London has a handicap of 10 and Shaw’s handicap is 12. Generally, a lapse in honesty tends to extend beyond just one event. A person who is gaming one system is likely gaming others. It is probably a good idea to check on that handicap, though I doubt either of those two men will be playing golf any time soon (at least I hope they are too busy paying for their behavior to do so).

Tagged , , , , , , , , , , ,

Who’s Who?

Image

Last Sunday, I was watching The Good Wife. There was a scene where the lawyers figured out what their client had not been telling them and this piece of information was what was needed to win their client’s case. Of course, there was a reason why the client had been keeping this information from her lawyers; for all kinds of reasons revolving around her family’s moral beliefs, she did not want her family to know. So the lawyers asked, “So you want us to lie?” Her response was basically – Yes. As long as the truth does not come out, you tell them what you need to in order to win the case.

At that point, I turned to my husband in excitement and exclaimed, “I could never do that!” He looked at me, looking a little confused and I continued, “Well, the attorney advocates for their client but, as a forensic accountant, I advocate for the truth.”

This means that the lawyer’s primary interest and focus of support is their client whereas the expert, in this case the forensic accountant, is primarily focused on the truth. This does not mean that the lawyer can lie; the lawyers did not lie on that episode of The Good Wife. The American Bar Association’s Rules of Professional Conduct state that a lawyer “shall not knowingly make a false statement of material fact.” (Can’t you just tell that was written by lawyers?) The lawyer is not supposed to lie but they are not supposed to lie “knowingly”. There is no requirement that the lawyer know the truth but there is an ethical rule that the lawyer represent their client “zealously.” As a result, the lawyer could choose to believe their client’s version of a story and work to produce evidence in support of that story (advocating for the client!) There is also the issue of client-attorney privilege which means a lawyer does not have to disclose what their client tells them in confidence.

This is not the case with the forensic accountant. First, there is an expectation that a testifying expert will give an opinion based on fact. Also, the CPA financial forensics expert is bound by the AICPA’s professional standards and conduct considerations. The CPA is to be impartial, honest and free of conflict. This is because the CPA may only advocate their position. So, both as an expert witness and as a CPA, the forensic accountant is bound by a duty to the truth, not the client.

The forensic accountant takes facts, analyses them and gives impartial opinions, based on these facts, whether or not it is what the client wants to hear. The client should take this into consideration when hiring an expert. Whether the forensic accountant is hired as a consulting expert or as a testifying expert determines whether or not the forensic accountant’s opinions are discoverable. But that is a tale for another episode of The Good Wife.

Tagged , , , , ,
Advertisements