| Written by Mark Funkhouser,
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Auditing is about morality. This is the central thesis of Gerald E. Caiden’s powerful, passionately written article, “Enron, Accountancy, and Professional Ethics” in the Fall 2002 issue of Public Integrity. Caiden presents a number of ideas about auditing that I hope will gain far broader currency among government auditors, public administrators, and academicians. I will address three of these ideas here – auditing is about morality, auditing should attack fraud by organizations, and the development of performance auditing both complicates and accentuates these issues. The quotes below are from Caiden’s article.
Auditing is about morality. “Accounting is not just about technicalities; it is about morality…. Seeing that the other officeholders, especially those with superior powers and responsibilities, follow the law and use public resources responsibly does not merely require technical competence, it requires considerable moral courage too.” When I have said that auditing is about moral judgment, colleagues have often hotly disputed it. Many would have us think that auditing is science. And I can see why. First, science is about fact, it’s about the math and there is no question about whether or not you’re right. Morality, on the other hand, is seen as fairly tricky stuff. Second, discussions about morality seem to invite characterization of the auditor as priggish – as a “holier than thou” nitpicker. Trivializing ethics makes us timid, for which of us is completely without sin? The moral issues for auditors aren’t actually all that tricky, and they’re not about nitpicking. The salient issue is truth. The auditor is supposed to point out material misrepresentations of fact by the government.
Auditing should attack fraud by organizations. Auditors talk a lot about fraud, but generally they mean fraud by individuals. It is important to recognize that there are two faces of fraud. Black’s Law Dictionary defines fraud as “An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by the concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.” Many examples exist of fraud by organizations. King Leopold’s Ghost, by Adam Hochschild, chronicles the destruction, by mass murder and enslavement, of the people of the Congo region of Africa at the dawn of the twentieth century by the Belgian government and various trading companies in pursuit of wealth and power. Robert Caro’s The Power Broker shows in vivid detail how Robert Moses used the various public authorities he created and controlled to wield power and often create havoc with the lives of thousands of ordinary people. And then there are the cases of Enron and Worldcom, in which thousands of investors lost millions of dollars and thousand of employees lost both their pensions and their jobs. In each case, the central mechanism that allowed these abuses to occur was organizational fraud, that is, perversion of the truth by an organization.
Performance auditing accentuates and complicates these issues. “…the moral obligations of auditors have intensified with the changing role of public audit itself from the legal accounting of public finances, their regularity, to something much less definable and tangible, that is, to the whole new worlds of performance auditing, operational auditing, value-for-money auditing, comprehensive auditing, not just how public monies are handled but how they are used.” Performance auditing complicates the issue by broadening the arenas for which the auditor has responsibility beyond simply the representations in the financial statements to representations in a broad range of other arenas including program results, budgets, and other government documents. Not only are there more arenas in which the auditor has a responsibility to challenge the statements of the government but the nature of those arenas makes the confrontation with those with superior powers and responsibilities much more direct.
“Democracy transforms the role of audit from the rulers’ steward to the public’s guardian.” How should you respond? Recognize the gravity of your mission. If the work were not important it wouldn’t be inspiring. Surround yourself with competent people with strong personalities. Practice transparency with regard to your audit organization. Don’t shrink from power. Grab all the power that is legitimately yours and use it as effectively as you can.
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Funkhouser on Auditing