Professional Ethics and the Government Auditor ASMC Fort Meade Chapter Johnny Ramsey, Senior Manager...

Professional Ethics and the Government Auditor

ASMC Fort Meade Chapter

Johnny Ramsey, Senior Manager

KPMG LLP

November 17, 2015

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 134407

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Opening thoughts

“You will continue to read stories of crookedness and corruption - of policemen who lie and steal, doctors who reap where they do not sow, politicians on the take. Don't be misled. They are news because they are the exceptions.”

― Robert Fulghum, All I Really Need to Know I Learned in Kindergarten

http://www.goodreads.com/author/show/19630.Robert_Fulghum


http://www.goodreads.com/work/quotes/2399046


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The role and responsibility of the auditor

Auditors give assurance to varied stakeholders.

Auditors as professionals have to maintain the level of confidence the users of the auditor’s report have in them.

In acting in the interest of the public, auditors observe and comply with some high level principles.

Most professional associations have embodied the principles into code of ethics for their members .


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Integrity

Be straightforward and honest in performing professional services.


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Objectivity

Be fair and do not allow prejudice or bias, conflict of interest or influence of others to override objectivity.


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Professional Competence and Due Care

Perform professional services with due care, competence, and diligence.

Recognize the continuing duty to maintain professional knowledge and skill at a level required to ensure that an employer or client receives the advantage of competent professional service based on up-to-date developments in practice, legislation and techniques.


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Confidentiality

Respect the confidentiality of information acquired during the course of performing professional services and do not disclose or use any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.


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Examples of breaking confidentiality

Example 1: Gail is an employee of the Department of the Navy who learns that her agency will award a contract to Supplier Corporation. Before the contract is publicly announced, Gail calls her stockbroker and purchases stock in Supplier Corporation.

Example 2: Harry, a General Services Administration employee, discloses the terms of a proposal for a GSA construction contract to a friend whose company has submitted a competing proposal.

From Office of Government Ethics website


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Professional Behavior

Act in a manner consistent with the good reputation of the profession and refrain from any conduct that might bring discredit to the profession.


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Violation of integrity and conflict of interest

Jodi was an auditor for the Defense Contract Audit Agency (DCAA). While employed at DCAA, she was the primary DCAA auditor for cost proposals, labor rates and claims for the Missile Defense Agency (MDA), an agency responsible for developing, testing and fielding an integrated Ballistic Missile Defense System for the United States. During her employment, the Alaska Aerospace Corporation (AAC) operated the Kodiak Launch Complex in Kodiak, Alaska, which provided support for target vehicle launches used in missile defense testing.

Jodi left DCAA and was hired by AAC as Controller. Shortly after being hired by AAC, Jodi communicated with and appeared before the DCAA on behalf of AAC regarding the same MDA contract she had previously audited as an employee of DCAA, with the intent to influence the DCAA about the contract.


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Results

Jodi entered into a plea agreement pursuant to which she pleaded guilty to a one count Information charging her with violating 18 U.S.C. §§ 207(a)(1) and 216(a)(1). She was sentenced two-year probation, a $5,000 fine and a $25 special assessment.


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Technical Standards

Carry out professional services in accordance with the relevant technical and professional standards.

Recognize the duty to carry out with care and skill, the instructions of the employer or client insofar as they are compatible with the requirements of integrity, objectivity, and, where applicable, independence.


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Overarching guideline - Independence

In all matters relating to the audit work, the audit organization and the individual auditor, whether government or public, must be independent.

Independence comprises:

Independence of Mind

Independence in Appearance


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GAO Yellow book

GAO Conceptual Framework

Allows the auditor to assess unique circumstances

Adaptable

Consistent with AICPA and IFAC frameworks

Significant differences from ET-101-3 (PCAOB)

Entry point for independence assessment

Emphasis on services “in aggregate”

Documentation requirements


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GAO Yellow book - continued

Applying the Framework

Identify threats to independence

Evaluate the significance of the threats identified, both individually and in the aggregate

Apply safeguards as necessary to eliminate the threats or reduce them to an acceptable level

Evaluate whether the safeguard is effective

Documentation Requirement:

Para 3.24: When threats are not at an acceptable level and require application of safeguards, auditors should document the safeguards applied.


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Applying the Framework: Categories of Threats

1.Management participation threat – the threat that results from an auditor’s taking on the role of management or otherwise performing management functions on behalf of the entity undergoing audit

2.Self-review threat – after performing non audit services, not appropriately evaluating the results of previous judgments made

3.Bias threat – the threat that an auditor, as a result of political, ideological, social or other convictions, will take a position that is not objective

4.Familiarity threat – the threat that aspects of a relationship with management or personnel with an audited entity, such as a close or long relationship, will lead an auditor to take a position that is not objective

5.Undue influence threat – threat that external influences or pressures

6.Self interest threat – threat of a financial interest

7.Structural threat – the threat of the audit organization’s placement in the entity will impact its ability to perform its work independently and objectively.


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“Don't sell yourself short. You may never have proof of your importance, but you are more important than you think.” ― Robert Fulghum, All I Really Need to Know I Learned in Kindergarten



http://www.goodreads.com/work/quotes/2399046

For Further Information

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Johnny E. Ramsey, CPA, CGFM, CGMA, CISA Senior Manager, KPMG LLP202-533-3292 [email protected]

mailto:[email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 134407 The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.

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