Commercial accounting scandals, profits over-stated, council staff bribes, outsourcing failures, investment losses, hospital overspends, incinerator contacts, rotten boroughs, failed business cases, NHS cooking the books, charity scandals…
There have been too many headlines about financial and governance failings across all sectors. I suspect that along the way the professional accountants involved in these faced some fairly major ethical dilemmas.
Has it always been thus? Is it getting worse? Has austerity, greater regulatory intervention, new delivery models and commercialism increased the risk of things going wrong? How are CIPFA members expected to uphold fundamental principles, not only Nolan principles and codes of conduct in public life, but also their professional obligations?
Last year, an NHS hospital finance director wrote anonymously to the Public Accounts Committee to blow the whistle on the pressure being applied within the sector to improve the reported position. It became front-page news in The Independent in February 2016, which reported that finance directors were being lent on to “cook the books”. Something similar happened with Tesco when it overstated profits by £263m in 2014. Earlier this year it accepted a £129m fine from the Serious Fraud Office to avoid a criminal prosecution.
As accountants we continually make judgements and produce costings, models and forecasts. These require a range of assumptions and interpretations about wide-ranging factors. We are guided by financial reporting regulations, accounting conventions and our ethics.
But often we find ourselves under time constraints, pressure from the executive, board, community, commercial partners or regulators to come up with a solution or answer. It has to be attractive and right.
Remember the joke about the engineer and accountant? Both are asked at interview to measure the length of piece of string. The engineer states with absolute precision that the string is 27.75cm long. The accountant on the other hand answers, “How long do you want it to be?” An unethical accountant can wreak havoc with a spreadsheet.
We know we have to be alert to the risk of ‘optimism bias’. The Treasury’s seminal Managing Public Money states this on the use of models: “Each model is limited by the quality of its input data and founding assumptions. So the results of any model need to be treated with a degree of scepticism.”
But do we talk enough about ethics? It’s no doubt a subjective matter and one that is often sensitive and, at times, incendiary
CIPFA’s motto, “fiscum serva fideliter” translates as “faithfully keep the public purse”. As a member of the International Federation of Accountants (IFAC), CIPFA is obliged to adopt the IFAC Code of Ethics for Professional Accountants. The 2016 edition runs to nearly 200-pages and deals with general application of the code and sections for accountants in practice and those in business. The code even opens with the line, the “distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.” Hard-hitting stuff.
I became a CIPFA member in 1993 and still have my dog-eared copy of Guidance on Ethics for Institute Members. Over the years, CIPFA has adopted the IFAC code and supported it with a Statement of Professional Practice (SOPP). The fundamental principles of the code are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
It is important to be clear about what these fundamental principles mean in order to be able to identify potential threats such as self-interest, self-review, advocacy, familiarity and intimidation. Only by understanding our professional principles can these threats be eliminated or reduced to an acceptable level.
Rick Tazzini will be speaking at the breakfast workshop – The Only Way is Ethics – at the CIPFA annual conference in Manchester on 13 July.
