In this episode of THE SAMPLE, Leita Hart-Fanta, CPA discusses the GAO ethical principles, and why they are so important.
Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.
In this episode, we answer the question, “What are the GAO Yellow Book ethical principles?” The Yellow Book is government auditing standards, and it’s telling auditors how they should behave and how they should make decisions when there’s an ethical dilemma and they lay out five principles.
1. Public interest
I love the first one, which is the public interest. That drives the rest of them actually, because what it says is that we are to always keep the beneficiaries of the programs in mind. Now it doesn’t actually say that literally, but that’s the way I think about it because when I’m auditing, let’s say a housing development, I could pander to the developer of the housing development. I could pander to the manager of the housing development, but instead, what I’m being asked to do is look through all that bureaucracy and look through the person who’s actually writing my check and paying me to do the audit and who I’m meeting with face-to-face. I
I’m not thinking about pleasing them, but about pleasing or helping this boy who lives in the housing development.
I’m remembering who I’m ultimately working for is the public, is the beneficiary of these programs. Now, of course, it won’t always be children. It could be disabled people, the homeless, the elderly, or it could be your everyday run-of-the-mill school kid. Well, I’m back to the children. Why do I love this so much?
Why do I love this principle? Because no other standard, no other audit standard that I know of says anything about this and inspires me to do a good job. Some people won’t do a job just to make, or just because it’s going to increase shareholder value or make somebody who’s already wealthy, wealthier. This is inspirational to me because it’s looking to those who need help, giving a voice to those who have no voice. That principle, that ethical principle kind of overrides all the other principles that we’re gonna talk through here quickly.
Integrity is necessary in order to stand up to that person who’s writing your check and say, “You know what? I know you don’t want me to say anything about this, but because I’m thinking of the children, I’m going to say something.” So it’s standing firm. That’s why I have an oak tree in the background here. Standing firm in face of pressure from the client, from government, various levels of government, other likely users – pressures to inappropriately achieve personal organizational gain and resolving those conflicts.
Acting with integrity means you place priority on your responsibilities to the public interest.
Let me show you an article about a whistleblower that demonstrates integrity. You may have seen this article, by NPR that says Theranos whistleblower celebrated Elizabeth Holmes. She was indicted of fraud. Okay. Here’s the whistleblower. I’m just going to read you a little bit about him. It started in 2011 when the whistleblower Schultz was a college student. He was visiting his father, former secretary of state George Schultz, and he introduced him to Elizabeth Holmes and her idea was to make blood testing faster and easier and less painful with just a finger prick.
He said, “She instantly sucked me into a vision,” and he ended up working for her. Then he discovered something alarming, that it was kind-of an open secret within the company that the technology that she was touting actually didn’t exist. And he blew the whistle by taking it to a newspaper. Here’s the part about integrity. It was not the path of least resistance. He said it would’ve been easier to quit quietly and move on with his life.
And that’s actually what his parents advised him to do when he was a 22 year old kid, fresh out of college. But he insisted on the integrity path. And that involved confronting his own grandfather, who actually sat on the Theranos board. And it says he [the grandfather] didn’t believe him and I think you’re wrong. And it took some time for the elder Schultz to believe his grandson. The relationship was never the same, and he never apologized, but he did say he [the grandson] did the right thing. Boy, that’s some pressure right there. It’s a great example.
The third principle is objectivity. Objectivity is very intertwined with the concept of independence. Essentially, we are being hired or we’re being asked to audit because we’re the ones that can tell the truth about a situation. And so we want everyone to know that our opinions, findings, conclusions, judgements, and recommendations are impartial. Otherwise, we’re pretty worthless. For instance, if you asked Elizabeth Holmes, “Hey, how’s that new technology going?” She’d say “Great! Give me more money.” That’s what program managers could do too in the government. Everything’s fine here, look somewhere else. But we are being hired to look and see if things actually are going well. And for that, we need to be unbiased. We need to be independent. We need to be objective. We need to be believable. So that’s what objectivity is about.
4. Proper use of government information, resources, and positions
And then proper use of government information, resources, and positions is principle number four. I had a girlfriend who worked for a retirement system and she and I were really close. I was dating this guy who she didn’t like, and he worked for the state. She had access to his retirement data and his salary data, and she shared that with me before I could stop her. She’s like, “You know how much money he makes a year? Blah, blah, blah, blah… You don’t want to be with a guy like that.” [Laughing] I was like, “Really? Don’t tell me that kind of stuff. What are you doing?”
She was using access to data that she had because she was an auditor, and she gave me information that I should not have had access to. Right? That wasn’t cool. I did not end up with him, not because of that reason, and she’s no longer there, which is all good. So be careful with the information you have. Again, we have to keep that credibility intact.
5. Professional behavior
That gets us to our fifth principle, which is professional behavior. Why do I have Mardi Gras beads here? Because when I think of this one, I think of this guy I knew who was a single guy. He had a bunch of rowdy friends. He was an auditor with the city and they got arrested at the Mardi Gras parade. The problem was — of course getting arrested is no fun at all, not cool at all — he was auditing the police department at that very moment.
So there he was, the auditor, locked in jail. Ha ha. He could have turned that into something and said, “Oh, this is just an audit test.” But no, everybody knew that he was just not acting in a professional manner and had caused trouble for the police department. He had to be pulled off that audit. So always maintain that credibility; do not bring discredit to the auditor’s work. You don’t want anybody to doubt your results.
Those are the five principles, the public interest, integrity, objectivity, proper use of government information resource and position, and professional behavior. They’re all designed to make sure that we do right by the children.
For more on GAO ethical principles
Would you like to learn a little bit more about this GAO ethical principles and earn some CPE at the same time?
Check out the Yellow Book interpreted, which is a 10-hour course. Or we have bundles of videos and self-study texts designed for financial auditors and performance auditors. I can also come see you in person.
That wraps it up!
That wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me firstname.lastname@example.org and I’ll do my best to fill in the blanks. Thanks for playing.
For More Info:
Red Book vs. Yellow Book – August 2022
2018 Yellow Book Standards for Financial Audits – Video Course
Yellow Book Standards for Performance Auditors Bundle