Internal auditors must be trusted and the organisations and people they service need to have total confidence in the advice and opinions they express. This may seem to be a ‘given’, but Derek Anderson – head of internal audit, Northern Ireland Department of Justice – asked delegates at this year’s ACCA annual internal audit conference in London - Internal Audit and the Ethical Compass – to look more closely at their moral compass. 

There might sometimes appear to be grey areas in the definition of right and wrong, he suggested.  Might ‘right’ depend on the situation? What if you don’t know if something is right or wrong? Everyone is capable of rationalising situations and may occasionally need to re-visit or correct their moral compass.

The consequences of getting it wrong have been demonstrated very clearly in recent times, Derek said, alluding to the United Airlines’ fiasco which had damaged the company’s reputation ‘in seconds’. Quoting the words of Billy Graham, he added: ‘When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.’

Fortunately for internal auditors, Derek pointed out, the ACCA’s Code of Ethics offers a clear set of instructions on what is right and wrong, detailing expectations, rules and – in the worst-case scenario – penalties and outcomes for transgressions.

The code covers integrity, which Derek said implied ‘not merely honesty but firm truthfulness’, which is easily spoken about but challenging to live up to. In professional lives, he suggested, many, if not most people, have known when advice or recommendations might not go down well and therefore sugared unpalatable truths. ‘Nevertheless, there are real dangers in not being truly honest.’

Remaining objective and transparent about potential conflicts of interest is also vital. ‘In our job, we must be whiter than white,’ Derek said. ‘As I tell my auditors, there are people waiting in the long grass for the first time we step out of line. So, we can’t ever give them that opportunity. We must be seen to be above reproach at all times.’

Confidentiality, ensuring that whatever happens in an organisation stays in the organisation, is also key. This may be a challenge in cases where someone is auditing many different organisations. However, the only reason to consider sharing information is if one organisation could benefit from another’s good practice. ‘In this case they can be put in touch with one another, but that’s the only time you can step outside the confidentiality rule,’ Derek said.

Highlighting the importance of professional behaviour, courtesy and consideration and moral integrity, he stressed: ‘It is not just internal auditors who are expected to display these behaviours at all times, but senior management team must also walk the talk.’

Blowing the whistle

So, what about the responsibility of internal auditors to blow the whistle on any wrongdoing? Derek acknowledged that it is an extraordinarily hard move to make. ‘We all know what we should do - we should report what we see,’ he said. ‘But do we do it or do we just satisfy ourselves by trying to put a stop to it or looking the other way? 

‘Reporting wrongdoing or becoming a whistle-blower is difficult and there is no shortage of people who became whistle-blowers and had bad things happen to them. But what does our code of ethics say we should do? It says that we should report wrongdoing. That’s quite a challenge.

‘In a poem, Seamus Heaney says: “Whatever you say, say nothing”. Is that true of us? We all know somebody who took a decision that didn’t go down well. Are we going to make that mistake? It’s easy to say that you should be courageous, but not easy to do.’

Moving from poetry to music, Derek reminded delegates of a Kenny Rogers song about playing poker, which included what he viewed as good advice. ‘He said… “you need to know when to hold them, know when to fold them, know when to walk away and know when to run”. That’s good advice when it comes to the work we do, the findings we’re reporting, the recommendations that we're making and the reaction we get from management. It’s about gauging the balance. You have to be able to stand your ground when it’s the right thing to do. Equally you have to know when it’s time to go away.’

Looking from the other side, Derek pointed out that internal auditors were often urging change when people were quite happy doing things the way they always had. ‘So it’s not a surprise that the second our backs are turned they put things back again or just tell us to go away,’ he said. ‘We have to make a compelling case and then we might have to come back to make sure they’ve implemented our recommendations. Otherwise we’re wasting our time.’ 

There are many famous examples of people who had paid a high price for maintaining moral integrity. Derek cited Marta Andreasen, the former chief accountant of the European Commission, Nigel Woodford, former chief executive of Olympus in Japan, and Basil Brookes, former finance director at Maxwell Communication Corporation, who all raised concerns about flaws in their organisations’ accounting systems.

‘If you ever have to work for someone like Maxwell then the advice I have for you is run away as quickly as possible for your own sanity,’ he said. ‘What does our code of ethics tell us we should do in those sorts of situations? The advice is that we should resign and turn whistle-blower. Well, that’s easy to say, isn’t it!’

Derek concluded with a personal story from early in his career when a new senior manager joined his organisation and proved unwilling to hear about the issues he was dealing with in the organisation. Despite his best attempts, the relationship deteriorated to a point where he feared for his independence and ability to do his job with integrity.

Resigning was the right thing to do but he had a wife, family and mortgage, the problem came in the middle of the recession when jobs were thin on the ground. Eventually an opportunity came up and he took it. ‘I cried with sheer relief at getting out of that situation,’ he said. ‘My point? It’s a whole lot easier to resign when you have a job.’

Jill Wyatt, business journalist