Ethics Update—Third Quarter 2016

NACVA Association News

Kent PummellEconomic Recovery’s Effect on Ethics—It’s Not What You May Think
By Kent D. Pummel, CPA, ABV, CVA
NACVA’s Ethics Oversight Board

In times of economic uncertainty, one may wonder how this roller coaster ride impacts professional ethics.  My initial thoughts were that as the economy trends downward, there would be an increase in unethical behavior.  However, in a study by the Ethics Resource Center (ERC), the U.S. economic recession did not translate into an increase in unethical behavior.  According to the ERC’s National Business Ethics Survey, overall misconduct in U.S. workplaces was down and the strength of ethical culture increased.  The percentage of employees who perceived pressure to commit an ethics violation declined.
 
The pattern of ethics appearing to improve during tough economic times has happened before.  From 2000 to 2003, which included the failure of Enron and Arthur Andersen and the burst of the dot-com bubble, ethics metrics improved similarly.  According to the ERC, “a possible explanation is that during hard times, when a company’s well-being or even existence may be on the line and regulators are watching, management talks more about the importance of high standards to see the organization through the crisis.”
 
The ERC did sound a warning, however, stating, “the lesson for organizations is that when more settled, prosperous times return, misconduct is likely to creep upward again.”  As the U.S. economy continues to slowly move out of the recession, we need to be aware that more incidents of unethical behavior are likely.
 
As CPAs and business valuation professionals, it is often our responsibility to interpret and explain rules and regulations to our clients, and encourage them to follow those rules, while at the same time helping them put their best financial foot forward.  We need to maintain our own ethical standards, and not let our clients’ demands cloud our judgment in cases of “gray areas.”
 
We should also be vigilant in protecting our clients from fraud perpetrated within their organizations.  Some examples of misappropriation of assets by employees include: stealing cash, creating fictitious vendors, abusing travel and entertainment reimbursements to include personal items, or creating ghost employees or overstating hours worked.  We can assist our clients to establish strong internal controls to help prevent or detect these kinds of fraud.
 
Kent D. Pummel, CPA, ABV, CVA
Clark Schaefer Hackett & Co
14 East Main Street, Suite 500
Springfield, OH 45502

(937) 399-2000
kdpummel@cshco.com
http://www.cshco.com/Services/Business_Valuations/