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Ethics Management<br />Ethics Management Program<br />Bridget Quattrucci<br />CM 225-05 AU<br />October 20, 2009<br /> <br />CPA Unlimited LLC.<br />MEMORANDUM<br />To: Members of the Board<br />From: Bridget Quattrucci<br />Date: October 20, 2009<br />Subject: Ethics Management Program Proposal<br />Enclosed is the report “Ethics Management Program.” This report details the need for an ethics management program as requested by Sandy Graylor, Director of Human Resources.<br />There are three necessary components of an effective ethics management program (1) ethics training, (2) ethics hotlines, and (3) policies and procedures. These three components are discussed in detail within the report. The precedence for the ethics management program is also touched upon in this proposal.<br />I hope that the information provided by this report aids in the creation of an effective ethics management program. I may be reached at (555) 222-2222 and by e-mail at firstname.lastname@example.org<br />Enc.<br /> <br />Ethics Management Program<br />Accountants face many difficult decisions. Those decisions are crucial because their outcome can affect an entire company. Many accounting scandals like Enron, Arthur Anderson, and Merrill Lynch have brought to light the need for ethics management. Research has shown that ethical training can influence adults in the ethical reasoning and decision making process (Cavico, et. al. 2007). This company needs to be proactive in dealing with ethics management. The current ethics training program is just enough to comply with legal requirements; it is not adequate enough to cover all the regulations that accountants must abide by. Incorporating a proper ethics management program that includes at least an ethics training program, an ethics hotline, and proper procedures for ethical dilemma resolution is a necessity.<br />The corporate accounting scandals of the early 2000’s prompted the Sarbanes-Oxley Act of 2002 (SOA) and a call for more ethical behavior. Internal controls and financial statements are a major focus of SOA. Monitoring of professional ethics and independence from issuers is a requirement set forth in this act (Congress, 2002). It is very important that this provision be met to prevent legal action against the company. Another condition of the act is that “Issuers must disclose information on material changes in the financial condition or operations of the issuer on a rapid and current basis.” (Congress, 2002) This means that we must be diligent in our reporting practices even if that may reflect negatively on a client. This act contains 46 sections and 4 titles and can be very complex at points. One thing is made quite clear in Titles VIII, IX, and XI; there possible criminal charges as well as fines awaiting any company or person who violates these regulations (Congress, 2002). We must take action to ensure compliance with these regulations. <br />While it is impossible to control the ethical standards of every employee, companies can encourage ethical behavior on behalf of all its employees (Schulman, 2007). A major factor in encouraging ethical behavior on behalf of employees is ensuring that suitable tools are in place. Robert Finocchio of Santa Clara University says to “Make employee development part of strategy and make ethics training part of employee development.” (Schulman, 2006) In order to “develop” employees with ethics training, that training must be more comprehensive than a one hour tutorial. It only takes one employee who makes a bad decision to bring repercussions upon the company.<br />Arthur Anderson shredded Enron documents and destroyed the company in the process. The most recent charges filed by the Securities and Exchange Commission (SEC) were on August 4, 2009 against GE for fraudulent accounting in 2002 and 2003. Three of these charges pertained to improper application of accounting standards. GE agreed to pay $50 million to settle with the SEC because of unethical decisions that their employees made (Bergers, 2009). The cost of an appropriate ethics training program does not compare with fines like that. The American Institute of Certified Public Accountants (AICPA) offers a comprehensive program at a fair price. Their program covers the most up-to-date AICPA, SEC and GOA rules, even those covered under the Sarbanes-Oxley Act. It also explains the AICPA Code of Professional conduct, the principles of ethics, and why the code is important and how it is organized (CPA2Biz Inc, 2001). This program is a self-study program that requires participants to submit responses to test for understanding and feedback on the correctness of those responses (CPA2Biz Inc, 2001). To train the 45 AICPA members that we employ it would cost roughly $5,025. This cost pales in comparison to the $80 million that Merrill Lynch paid for being associated with the Enron scandal. Stephen M. Cutler, Enforcement Director at the time, said “Even if you don’t have direct responsibility for a company’s financial statements, you cannot turn a blind eye when you have reason to know that what you are doing will help make those statements false and misleading.” (Securities and Exchange Commission [SEC], 2003) Training employees on what is ethical cannot be the only device used to manage ethics in this company. <br />It is important to provide a way for employees to report suspicious behavior anonymously. Finocchio recommends encouraging all employees to be challenging and demanding of everyone in the company, including bosses, in the ethical domain (Schulman, 2006). Fraudulent activity can be caught much more quickly if employees are encouraged and willing to tip off the appropriate individuals. Anonymity is necessary so that employees feel safe from repercussions for this function to be effective though. It is best for this task to be performed by an outside consultant such as a company specializing in ethics reporting solutions (McNamara, 1997). An ethics hotline is an excellent way to provide employees with a place to turn to. Ethical Advocate has exactly what we need. Employees will be able to report suspicious behavior via their website or their 27/7/365 call center. Feedback from these reports is then sent to us to be analyzed and dealt with appropriately. This is another service that can save the company a great deal of money by affording us the opportunity to catch and correct fraudulent and unethical activities at an affordable cost (Ethical Advocate, n.d.). It will cost approximately $3,600 per year to use Ethical Advocate’s services. While the ethics hotline complements the ethics training, it does not complete the ethics management program. <br />Even with ethics training and an ethics hotline our ethics management program will not be complete; policies need to be written that will guide the resolution of ethical dilemmas when they present themselves. Accountants will face situations that do not have a clear right or wrong answer. These ethical dilemmas may have conflicting values among interested parties, equally justifiable alternatives, and considerable consequences to stakeholders (McNamara, 1997). It is best to have policies in place to guide the decisions made to resolve these situations. Developing proper and effective policies now can save the company time and money in the future.<br /> Developing these policies will have to be done very carefully. The first step in this process should be to form an ethics committee comprised with members of the board, top management, and some staff members (McNamara, 1997). Once the committee is selected the method used to analyze ethical dilemmas will need to be chosen. This will require careful consideration of the many alternatives available. After the analytical method is chosen the procedures for addressing the committee and resolving issues should be written carefully so as to ensure their success. This process should be completed by top managers working closely with staff members to make certain that they are effective. These policies along with the ethics training and the ethics hotline will provide an effective ethics management program for this company.<br />Senior management will play a key role in the success of our ethics management program. Employees will look to our leaders to see if they exhibit the behaviors that we expect from them. The program will be nothing more than words on paper without the support of all members of upper management. Bill Goodman, Chief Human Resources Officer at Aveda, says, “But the best trainer is the behavior of our leaders.” (McNamara, 1997) This program will succeed with the cooperation of employees and management alike. <br />Ethics management programs that include ethics training, an ethics hotline, and effective ethical dilemma resolution are crucial in today’s business environment. Ethics training will provide a solid foundation to help and encourage employees to make ethical decisions. An ethics hotline will promote employees to report suspicious behavior and aid in early detection of fraudulent activities. Finally, policies that detail the procedures to be used in ethical dilemma resolution will be critical in preventing fraud from happening. These tools for ethics management become invaluable when considering the incalculable amount of fines that can be avoided by using them. <br />References<br />Bergers, D. (2009). GE agrees to pay $50 million to settle SEC charges. SEC. Retrieved on October 6, 2009 from http://www.sec.gov/news/press/2009/2009-178.htm<br />Cavico, F., Galla, D., Mujtaba, B. (2007). Compliance with Sarbanes-Oxley requires formal ethics training: are you doing it. Journal of Business & Economic Research, 5, 9. Retrieved on October 6, 2009 from http://www.cluteinstitute-onlinejournals.com/PDFs/402.pdf<br />Congress. (2002). Sarbanes-Oxley act of 2002. Retrieved on October 20, 2009 from http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h3763enr.txt.pdf<br />CPA2Biz Inc. (2001). CPE requirements and credits. CPA2Biz Inc. Retrieved on October 6, 2009 from http://www.cpa2biz.com/content/media/producer_content/generic_template_content/cperequirements.jsp<br />CPA2Biz Inc. (2001). Professional ethics: AICPA’s comprehensive course. CPA2Biz Inc. Retrieved on October 6, 2009 from http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/Ethics/PRDOVR~PC-732302/PC-732302.jsp?cs_catalog=CPA2Biz#<br />Ethical Advocate. (n.d.). Ethical Advocate home. Ethical Advocate. Retrieved on October 6, 2009 from http://www.ethicaladvocate.com/index.aspx<br />McNamara, C. (1997). Complete guide to ethics management: an ethics toolkit for managers. Authenticity Consulting, LLC. Retrieved on September 12, 2009 from http://www.managementhelp.org/ethics/ethxgde.htm#anchor52197<br />Schulman, M. (2006). Incorporating ethics into the organization’s strategic plan. Markkula Center for Applied Ethics. Retrieved on September 26, 2009 from http://www.scu.edu/ethics/practicing/focusareas/business/strategic-plan.html<br />Schulman, M. (2007). Principles for building an ethical organization. Markkula Center for Applied Ethics. Retrieved on September 26, 2009 from http://www.scu.edu/ethics/practicing/focusareas/business/gopalakrishnan.html<br />Securities and Exchange Commission. (2003). SEC charges Merrill Lynch, four Merrill Lynch executives with aiding and abetting Enron accounting fraud. Securities and Exchange Commission. Retrieved on October 6, 2007 from http://www.sec.gov/news/press/2003-32.htm<br />