Ethical Issues in Whistle Blowing by Internal Auditors - Essay Example

Ethical Issues in Whistle Blowing by Internal Auditors Critical Analysis of the Film “The Insider.” American Accounting Association has devised a decision model on ethics which consists of the following ingredients. Find out the issues or facts The article discuses the film based on real life incident. In Brown and Williamson Company, Jeffrey Wigand was the senior vice-president of research wing. He attempted to blow the whistle how the top management of his company lied before Congress that they never knew that nicotine was an addictive and how they manoeuvred the levels of nicotine in the cigarettes to make it more addictive. identify the ethical issue Cigarette smoking is injurious to health and is linked to the lung cancer, heart attack and other life threatening medical issues. Despite of this health hazard, Cigarette manufacturers never concern to reduce the content of tar and nicotine in the cigarettes which is creating a number of ethical issues. Define major rules ,principles and values Brown and Williamson has lied before the Congress and indulged in unethical practices of mixing high level of nicotine in the cigarettes they manufactured to make it more addictive. This clearly demonstrates that they can go to any extent to see their bottom line is surging. Is it ethical to sell a product even knowing that it would create serious health issues to the consumer in the long run? Recommend viable alternatives Cigarette manufacturers should make continuous research to make both the levels of tar and nicotine as zero in their cigarettes. Though, filter cigarettes are there but critics argue that even filter cigarettes have not reduced the tar and nicotine impact on the smokers. New filter designs have been found to be awesome as they are causing more issues than solving the issue. (Davidson 1996:123) Evaluate the alternatives and values Micronite filter with stimulated charcoal was claimed that it would be a miracle of efficiency in eliminating the tars from cigarettes. However, research proved that charcoal was responsible for cancer causing among smokers. Even cellulose acetate employed in majority cigarettes was claimed to deposit minute pieces in the lungs of smokers. Assess the outcomes Recently, new concept of organic cigarettes has been introduced in the market. These cigarettes is said to have no chemical additives and contain only organic ingredients. However , whether organic or chemical contented , cigarettes are harmful to health and many governments have taken to raise awareness among consumers about the health issues that tobacco can cause by banning smoking in public places , by displaying slogans in the cigar pockets that “smoking is injurious to health “ . Recommend your decision (Calhoun, Wolitzer & Oliverio: 135). To me, world should be free from tobacco. There should be complete ban on products made from tobacco. However, as we see in the Wigand case, tobacco industry is vehemently working for their existence by opposing tobacco control measures by employing front group, to influence the governments across the world to introduce voluntary codes or weaker legislations, to employ the lobbyist to influence the government policies on tobacco across the globe. Ethical Issues in Whistle Blowing by Internal Auditors Whistle blowing is the process of going public with leaking of information to the public which is considered to be confidential information of the company but the whistle blowing is deemed to be in the best interest of the public. No doubt , a whistle blower is witnessing with very difficult moral issues , the decision as regards to public safety for instance , a fall-out from a nuclear reactor and in such scenarios , there appear to be convincing consequentialist purposes why it is justifiable for an employee to leak out confidentiality . However , whistle blower has to do the same without the top management identifying the source of leak else he is likely to be shown exit doors of the company and in some cases there exists personal dangers like obvious harmful outcomes to families and spouses . For instance, Sarah Tisdall , a clerk in Foreign Office had leaked a memo to the Guardian about possession of Cruise Missiles by UK was actually sentenced to a half year imprisonment. Thus, it is possible to look whistle blowing process on a deontological approach. A deontologist may not necessarily be obligated to decide against whistle blowing. A deontologist employee may have differing moral principles and he may have loyalty to management but he may denounce such loyalty when he is having an obligation to come out against wrong. No doubt, an employee should have loyalty but there is some limit to such loyalty. If being loyal engrosses assenting to unethical activities on the part of the top management, then one is obligated to come out boldly which takes precedence. Whistle blowing depend upon how a deontologist prioritise the moral concepts which is applicable in a scenario where whistle blowing or going public is a serious matter. Neither consequentialist nor deontologist has a clear unequivocal answer to the question of whistle blowing. A consequentialist will give more weight to what outcomes will the whistle blowing will bring rather than a matter of a priori principles. In general, a consequentialist will reject the whistle blowing if it is for taking revenge on employer or disseminating information for personal gain or to further the interests of competitors who offered a bribe. (Chryssides & Kaler 1993: 305). Dissemination of some information may be beneficial to certain stakeholders of a company but ultimately may prejudice the company’s financial performance like product risks to consumers, issues pertaining to safety and health and the quality and price of the products and services. According to Chambers, there is no personal commitment to blow the whistle but there may be a personal duty pertaining to broader connotations of morality, if not professional ethics. Chambers is also of the view that though the professionals are to stand by a code of ethics and have to esteem client secrecy and he also admits that there exists a wider ethical duty to society which may postulate for whistleblowing (Lewis 2001: 53). Corruption in organisation is acutely common and much more expensive than ordinary crime. For every questionable practice, there arises an opportunity for whistle –blowing and hence potential for whistle-blowing is extensive in nature (Finney and Lesieur, 1982, p.256). Internal auditing criterion framed by “The Institute of Internal Auditors “supports reporting through stipulated conduits especially to the audit committee on some transactions like serious frauds or misappropriations. However, an internal auditor may not necessarily report other activities like which an auditor may believe wrongful like safety rules infringement through press or media. An internal auditor has the moral responsibility to point out any frauds or misappropriations to higher authorities. In case, if the management is not so receptive, he should not try to resign but see that he should persuade management to improve matters. He has the moral responsibility to function professionally and seek to maintain confidentiality of his client. (Lewis 2001: 52). According to a study made by Miceli, Near, & Schwenk in 1991, about four-fifth of all operational measure of scandals have been detected by the internal auditors. Further, internal auditors are likely to have stronger protections by virtue of their position and shore up from their professional bodies in the process of whistle blowing than compared to employees of an organisation. An internal auditor is an employee whose function is to audit the company records on the authority given by the top management; though he is not independent of the management of the company, he should be unrelated to individuals and objects he audits. An internal auditor should use the whistle blowing process only as a last resort if the company’s life and health seems to be at risk and the all the forums of official channels of the company have been tried out and there is no cooperation from the top management. Paul van Buitenen was the internal auditor for European Commission who played a notable part in the fall of European Commission. In December 1998, he was suspended from his service for disseminating information to European Parliament on averred mismanagement and fraud in the EC. Finally, for whistle blowing he was said to have received only a formal warning. (Lewis 2001: 56). In Bank of Credit and Commerce International (BCCI), one Vivian Ambrose who was employed in the UK regional inspection department and he actually made up his mind to blow the whistle just before its collapse. He had written to Tony Benn, MP alleging mass scale of nepotism and corruption and obvious incompetence by executives. Benn then forwarded that letter to two government departments to take further action and unfortunately, it never reached or it was lost during transit. This is best illustration where early whistle blowing will really save jobs rather than cost jobs. (Lewis 2001:48). WorldCom is the multinational telecom company which is having its headquarters in U.S.A. It filed chapter 11 bankruptcy in 2002. Cynthia Cooper was the Chief Internal Auditor who played a significant part in exposing accounting scandals at WorldCom. The Times magazine nominated her as one of the “Persons of the year 2002 “for her role in whistle blowing the accounting scandal in WorldCom. The honour and publicity conferred on Cooper assisted to bring the significance of the role of internal auditing to the attention of public. Cooper’s stubbornness when confronted with WorldCom top management resistance to her auditing reviews kindled her to labor through day and night to expose and analyse accounting transactions where a revenue expenditure of operating expenses running into billion dollars were actually capitalised as against accepted accounting standards. Cooper’s activities can be classified as stubborn internal auditing ethics whereas media have reported it as ‘whistle-blowing.’ (O’Regan 2004: p.78). An internal auditor is the part of the management and is having moral responsibility to report any illegal or improper issues faced or witnessed during an audit to internal audit management. Some critics argue that an internal auditor should not try to function as independent whistleblowers and should report to their higher authority if there is any misappropriation or any accounting scandal. Thus, any improper or illegal issues should be examined thoroughly and be reported through regular internal audit process. In USA, for instance, under Sarbanes –Oxley Act, any employee of a company can blow the whistle. He can report such matters autonomously and in private of any illegal or improper issues involving auditing, accounting issues. These matters can be reported through hot line facility both for evaluation and resolution of the issue. However, a member of an internal auditing team has more responsibility for evaluating the overall performance and may encounter regularly either minor or major issues involving auditing, accounting and internal control issues. Thus, an internal audit employee is having responsibility to investigate report and document any issues pertaining to one’s internal audit work and such issues will be addressed through company’s usual internal auditing reporting processes. In case, if the internal audit department employee feels that his immediate superior is not giving adequate significance to certain issues, then, he has to report and demonstrate the issue through internal audit channels and up to the level of audit committee. A scenario may arise where an internal auditor may witness where reported wrongdoing has been neglected by the audit process. In such a scenario, an internal auditor has the first and foremost duty to get resolution on the issue through the internal audit department right up to top audit executive of the company or the audit committee itself. If the audit management decides to ignore or neglect the issue, then the internal auditor has the moral responsibility and duty to report the issue through company’s hotline function or even through the Stock Exchange Commission. (Moeller 2004:210). In UK, audit committees have become prime organ of governance. The main function of audit committee is to improve the relationship with both external and internal auditors who normally have a ‘dotted line ‘to the audit committee’s chairman. The audit committee has to closely watch on the auditors engaged in the non-audit work – a sensitive matter due to increasing concern that any excess of such works could bias their independence. One another duties of audit committee is to make sure that whistle function process functions smoothly. In 2002, Canadian government recognised the internal audit system in Canada has not been properly implemented. It was the internal auditors of Canadian Defence department which uncovered a Canadian dollar 100 million deal scam in which there was no delivery of service but contract payment was made. The entire credit for uncovering the fraud goes to the internal auditors who worked in the Public Works department which identified the backing scandal. This scam has actually educated the Canadian administration on the significance of first-rate internal auditing process. When two internal audit reports had been put into the waste bin by the then Canadian government, this has been exposed by the Canadian Auditor General office. The Media got the smell of the issue when one among the inside auditors turned as a whistle blower. Then, Canadian government asked the auditor general to probe into the scam in 2002. Auditor General of Canada in her report commented that Public Works Department of Canada circumvented the majority of the rules in the book in awarding contract to an advertising agency. She revealed that Canadian government paid contract sums for reports that did not present at all. Due to this, the then Canadian government fell and revelation by internal auditor and the report of the Canadian Auditor General played a key part in pulling down the ruling party which was toppled due to this revelation. Thus, an internal auditor can even bring down a government through the whistle blowing process. (Shah 2008: 316). To sum up, an internal auditor is the part of the management and is having moral responsibility to report any illegal or improper issues faced or witnessed during an audit to internal audit management. An internal auditor has the first and foremost duty to get resolution on the issue through the internal audit department right up to top audit executive of the company or the audit committee itself. If the audit management decides to ignore or neglect the issue, then the internal auditor has the moral responsibility and duty to report the issue through company’s hotline function or even through the Stock Exchange Commission. (Moeller 2004:210). List of References Calhoun Charles H, Wolitzer Philip and Oliverio. (1998). Ethics and the CPA. New York: John Wiley and Sons. Chryssides George D & Kaler John H. (1993). An Introduction to Business Ethics. New York: Cengage Learning. Davidson Kirk D. (1996).Selling Sin. New York: Greenwood Publishing Group. Lewis David. (2001). Whistleblowing at Work. New York: Continuum International Publishing Group. Moeller Robert R. (2004) Brink’s Modern Internal Auditing. New York: Wiley Publishing. O’Regan David. (2004). Auditor’s Dictionary. New York: John Wiley and Sons. Shah Anwar. (2008). Performance Accountability and Combating Corruption. New York: The World Bank Publication. Read More