Speaker 1: Next to this, let us look at monitoring the ethical compliance, ok. Now, this is, this is the problem you cannot manage what you cannot measure. Whatever compliance we have is mostly related to financial reporting, right. Ethical compliance becomes a little difficult to assess. Can the organization be aware of what is happening on a day-to-day basis, how are employees responding, how are they interacting, what are their interrelationships with the suppliers, with other third parties. How do they make ethical compliance also a core element of its mainstream governance and accountability framework, how do you ensure ethical compliance, right. Now, it is true that CEOs, CFOs, they have to certify that there are adequate internal controls, etc. But are they sure? When they know that there is an ethical culture, then they can be more sure, more confident. Yes or no, there are audits, there are penalties, these act as deterrence. But the management needs its own personal sense of comfort that internal controls are in place. And it does so, it can have so, when they are quite assured that the ethical framework is in compliance, that people respond, act according to the, in accordance with the ethical culture, in accordance with the organizational values. So, the methods for compliance are the two, a couple of, I mean, they are really feedback based. Tools which we could measure and improve compliance would be the human performance feedback loop, survey tools and the whistle blowing framework. Let us take a look at them. The human performance feedback loop, performance review and development systems must be fully aligned with the requirements for ethical conduct. If the code of ethic dictates that employees treat all others with dignity and respect, then the review process must assess whether that is truly happening. Are you following? What are they saying? Just take a feedback, human performance. If the code of ethic dictates that employees should treat the others with dignity, then we need a review to see whether that is truly happening. This can be done with a 360 degree feedback, whether this is truly happening. What is a 360 degree feedback? This is a process where superior gives you feedback, your colleagues give you feedback and your juniors give you feedback. Where superior, your peers and your direct reports and even customers sometimes give you an evaluate and you will receive an analysis how you perceive yourself and how others perceive you. A 360 degree feedback. In that, so this ethical compliance could be a part of this feedback. Key performance indicators should also include a tracking of employees against ethical training requirements, ensure that this training is there, right, like the number of new hires and how many of them have completed the orientation, the ethical orientation also within the required time. Because sometimes we need people, we have hired people, we do not have time to send them for orientation, we immediately put them on the job and forget all about the orientation. This could happen, yes or no. So, this gives you a kind of control. The percentage of employees who have completed the annual refresher training on ethical conduct. So, go ahead, see that everyone gets it. Number of employees scoring achieved or exceeded on the annual reviews in ethical, ethics criteria and who have been given an award for noted ethical conduct. This is such a motivation where, where, where the employees know the organization is really serious about ethical conduct. So, one was the feedback loop. The next we can look at is the, is, is survey tools. This also, survey means you can maybe submit survey questions to the employees regarding what, regarding the ethics policies and ask for responses. These can be kept anonymous so that they do not mind giving their honest view. This particularly if views are got on management and leadership, too good. And this surveys using whatever the organization's code of ethics is and then you can ask the employees to rate how well the organization is following the contents and the employee can give based on standard choices. I can give, give this an example here. Say for example, if the organization has this that they should respect the dignity of each individual employee and recognize their merit. So, they will ask the employees whether they agree on this in order to see that. So, these are the statements that will be given to them. On this statement, the respondents, they will rate each statement on a scale 1 through 5. Do they strongly disagree or they agree? What are the statements like? This organization, we will say this respects the dignity of all, all the individuals. If I feel it does not, I will say 1. If I'm fully with it, I'll say 5. My dignity is respected. Yes, no. Yes, what do I feel? My manager respects my dignity, co-workers respect my dignity. Manager recognizes the merit of actions that I take on a scale of 1 to 5. I feel no, I'm being, I'm not being recognized. I may put a score of 2. Yes or no? Merit is rewarded in this organization, what is rating on 1 to 5. This helps to give a kind of understanding what is actually happening in the organization. These results of the survey, they can help, they for, they will help in developing ongoing compliance indicators. We can have discussions with the employees about their concerns. What are the courses of action that can be taken to improve ethical compliance? So, this turns the company into learning and developing organization. The involvement of employees gives senior management and the board of directors information about how well the organization's code of ethics is being understood and followed. Management accountants should ensure that the survey data can provide focused attention and action. Pertinent issues should get identified, followed. So, survey is again very simple, particularly when the responses are anonymous, they can add lot of value. You get lot of information, now how it is for the organization to use such information to maybe start a dialogue, see what can be done and ensure that the organization is developing the, the, the, the, the, the, the culture, the ethical culture is slowly getting imbibed. Then there is a whistleblower framework which is a confidential framework for employees to report possible violations of the organization's code of ethics. So, when the employee spots there is some violation and or he wants some advice on a challenging decision, but he is scared to speak out. He doesn't know what retaliation will be there. So, this is a confidential framework, he can do so. There's a whistleblowing framework, his identity will be kept, will be kept secret, will not be known. So, it creates a culture where the employees freely raise issues and concerns without a fear of retaliation. It's one of the key attributes of creating an integrity-based organization. Statistics show large number of occupational fraud cases are detected because of the hotline or other reporting method. This whistleblowing framework that is one reason for lot of frauds to come out of the corporate. So, this is an outlet employees can raise issues confidentially. The collection analysis and summarization of ethics issues can provide insight into the operation of its code of ethics and the degree to which employees are falling. So, when there are lot of all this data when it is collected right and you are looking analyzing it, we get an understanding about the operation of the code of ethics and how much the employees are falling. But remember, remember for this the employee should feel encouraged, they should be sure their identity will not be revealed, that there are that they there will be no action taken against them and they should be supported in every possible way. The whistleblowing framework should provide a clear guidance and top-down support to be effective. Very, very effective framework, the whistleblower framework. Tracking and monitoring issues raised through a whistleblowing framework creates opportunities to enhance internal controls. Again, once these things come to light, we can see what can be done and what internal controls could be taken, what have we overlooked, why did such things happen. So, they need to ensure that such processes are in place that they operate on a fully confidential basis and that they are capable of generating statistical or even based reporting through which insight into ethical practice can be created. When they say there is an etiquette level of internal control, of course, CEOs and CFOs are placing their own integrity on the line, right. So, they should encourage a whistleblower framework so that they understand when these frauds etc. happen and they are coming on, that the CEOs and CFOs obviously will have much better of a greater sense of security, greater sense of comfort for the sign of these compliance statements. Again, from the same statement, student statement in management accounting, creating a thorough integrated system for developing, implementing, sustaining and monitoring ethical performance within the organization will allow executives to make such declarations with confidence that a code of ethics is the foundation of the organization's culture. It is fully integrated into the thinking process of every employee and business partner, right. Ok students, we come to the final quiz. Hope you are ready. We will cover, we will test your understanding of all that we have covered in this module. Come on, let us begin. Which of the following statements is true? a. Corruption exists only in small underdeveloped countries. b. Corruption in a country excites foreign investors. c. An unethical act must necessarily be an illegal act. d. Anti-corruption strategy is made effective through strong political and bureaucratic will, which is true. Corruption exists everywhere in all countries. Corruption in a country excites, of course, foreign investors. They cause for co-op. Is it necessary? Unethical is illegal? Never. Anti-corruption strategy is made effective through strong political and bureaucratic will. The correct answer is d. Next, for ethics training to be effective, it should contain all of the following elements except a. It should be a part of orientation as well as ongoing training. It should relate to real world situations faced by employees. It should provide a consistent message and it should include a test to evaluate learning. For ethics training to be effective, there should be orientation ongoing, real world situation, real life situations would help. Consistently the message should be think, you do not evaluate that learning, it is not possible. So, the correct answer is d. Which of the following is a true statement regarding organizational ethics? As long as officer and employee behavior meet the requirements of law, the organization can be considered to have a functioning system of ethical behavior. What do you say? Think about it. b. A strong sense of ethics on the part of employees who are in the best position to appropriate cash and other assets is the most vital part of a functioning system of ethical behavior. c. If an organization has a strong code of ethical conduct in place, the role of employee training can be downplayed. d. Paying attention to whistleblowers plays a significant role in maintaining an effective ethical atmosphere. This is a matter of legal, not ethics. Yes or no? Only for cash and other appropriates? Not really. Ethics can be so many bigger things, right? Strong ethical, the role of employee training? No, it cannot. So, the correct answer is whistleblowers is really important, a significant role in maintaining effective ethical. When you have whistleblowers, they are respected, they are treated, they are heard, they are listened to, then definitely a better, more effective ethical culture, ethical atmosphere can be created. Okay, students, let us match the following. You have on this side, Sarbanes-Oxley Section 406, US Foreign Corrupt Practices Act, IMA Statement of Professional Ethical Practice, and IMA Statement again, Value and Ethics from Inception to Practice. Okay, now what do I have to match with this? What does it say on the other side? Prohibits payments to foreign officials to obtain or renew business. B, Code of Conduct for Management Accounting Professionals. C, Guidelines for Accounting Professionals to Ensure Maintenance of Effective Internal Controls and Implementation of a Companywide Ethics and Compliance Program. And D, the Code of Ethics for Senior Financial Officers. Pretty simple, right students? Come on, match. I am proceeding with the answers. That is right. Right, Sarbanes-Oxley Section 406, Code of Ethics for Senior Financial Officers, USFCPA, prohibits payments to foreign officials to obtain or renew business. IMA Statement of Professional Ethical Practice. Ah, you have jumped. IMA Statement, Value from Inception to Practice, Guidelines for Accounting Professionals to Ensure Effective Internal Controls and Implementation of Ethics and Compliance Program. And finally, the Statement of Professional Ethical Practice, the Code of Conduct for Management Accounting Professionals. This is what we discussed in the first module of Section F. Next, a whistleblowing framework as recommended by IMA Statement on Management Accounting values and ethics from inception to practice will provide all of the following benefits except, opportunities to enhance and improve internal controls, B, a confidential means of employees to report possible violations, C, a method for defining the organization's behavioral values, and D, a means for collection, analysis and summarization of ethical issues. So, Pramod, it will provide an opportunity to improve internal controls. It does give a confidential platform to report violations. The whistleblowing framework is not a means for defining the behavioral values, right. The whistleblowing framework is not a means for defining the behavioral values, right. It does, it is a means for collection, analysis and summarization of ethical issues. Which of the following statements is false? A, corruption is anti-competitive, B, ethical issues can arise even when actions are not controlled directly by the organization, C, training on ethical values should be ongoing, D, 360-degree feedback is a feedback process where your superior gives a feedback for the whole year, E, corruption is anti-competitive is true, C, ethical issues can arise even when actions are not controlled directly by the organization, D, yes, you are supplier, you are your third party, E, you are outsourced, the agency to whom you have outsourced, right, C, training on ethical values should be ongoing is correct. So, this, what is 360-degree feedback, students? 360-degree feedback is a feedback process where your superior gives feedback for the whole year, no, 360-degree feedback means you get feedback from your superior, you get it from your peers and you get it from your juniors. Which of the following provisions are covered in the US Foreign Corrupt Practices Act? One, illegal payments to foreign officials to assist in obtaining business, transparency of accounting records reflecting our transactions, payments to agents for the purpose of influencing foreign officials and four, maintenance of an adequate system of internal controls. Is it one only, one and three, two, three and four, one, two, three and four? All of them, right, students, the correct answer is D. All of them are provisions of the US Foreign Corrupt Practices Act, illegal payments, transparency of accounting records, they have a bribery provision and an accounting provision, do not forget, payments to agents also for influencing foreign officials and internal controls. The USFCPA forbids an American company doing business overseas to pay bribes, B, requires foreign companies doing business in the United States to comply with surveillance obscenity, C, requires foreign companies that want to sell stock in the US exchanges to register with the Securities and Exchange Commission, forbids companies that do business in the United States from paying bribes. US Foreign Corrupt Practices Act forbids an American company doing business overseas to pay bribes, right, it does not ask one to comply with SOX, it does not require foreign companies which want to sell stock in US exchanges to register with the SEC, it does not forbid companies that do business in the United States from paying bribes, it is the other. Which of the following is prohibited by the FCPA? A, the payment for US exports in currency other than US dollars, B, the offer of payment to foreign officials in business, C, the purchase by foreigners of strategic assets from the US, D, the payment of US funds to any regime not recognized by US Department of State. It is not easy, right students, which of the following? Right, payment to, B is correct, the payment to foreign officials to obtain business. Section 406 of the Sarbanes-Oxley Act requires A, senior financial officers to have and follow a Code of Ethics, B, organizations to use specific wording in their Code of Ethics, C, senior financial officers to sign off on the annual tax return and D, changes to the Code of Ethics to be reported on a Form 8-K. It requires senior financial officers to have and follow a Code of Ethics, that seems to be correct, right students. Do they want a specific wording? No, because different organizations could have, could have different culture. Senior financial officers, no, they do not have to sign off an annual tax return. Changes to the Code of Ethics, changes, actually changes in waiver of Code of Ethics for senior professionals. So, let us say this is the best option, A will take, A. Corporate management is responsible for creating an ethical culture by doing all of the following except, corporate management is responsible for creating an ethical culture by doing all of the except, except A, identifying and documenting organizational values, B, defining principles of behavior, implementing a whistleblowing mechanism, creating a Code of Ethics or conduct. Corporate management is responsible for creating an ethical culture. They must identify and document organizational values, what are the principles of behavior and they must create a Code of Conduct. Implementing a whistleblower, their whistleblowing mechanism cannot ensure an ethical culture, correct. Corporate management is responsible for creating an ethical culture by doing all of the following except implementing. This, this is like, it gives us a feedback, it gives us a monitoring. Which of the following is an example of a metric that an annual review may include to measure compliance with corporate ethical expectations? A, ability to work accurately, B, has signed off on received and read the corporate Code of Ethics, C, ability to reach a decision when faced with a problem, D, ability to model behavior consistent with the corporate values statement. A metric which could measure compliance should be this, should be able to model the behavior with the corporate values statement, consistent with corporate values statements. Who of the following may be called a whistleblower? Who is a whistleblower? Is it a senior financial officer to whom Sarbanes-Oxley 406 applies, B, an employee who has worked for the employer for 5 years or more, a worker, C, a worker who acts as a union representative or D, a worker who divulges confidential information about their employer. Right, the correct answer is D, person who divulges confidential information about their employer.