A version of this article will be published in the March 2021 edition of ACUIA, The Audit Report.
Implementing a comprehensive business ethics programs could help your credit union articulate its values and customer commitments and operate with increased efficiency, effectiveness, safety, and transparency.
Here, get answers to key questions about business ethics programs and learn how they’re most effective for credit unions.
Why is an ethics program valuable to a credit union?
Financial institutions are at the forefront of discussions around business ethics. As stewards of the public’s money, they’re often viewed critically—and errors in judgement quickly become newsworthy stories.
A business ethics program can help reduce mistakes and incongruencies within a credit union’s operations. It’s a referenceable tool that defines an organization’s values and approach including:
- Culture and identity
- Business expectations and acceptable behavior
- Processes for analyzing ethical dilemmas
Given the subjective nature of ethical dilemmas, an ethics program might not encompass all situations. It could be necessary to include a decision-making framework based on your organization’s core principles in the program.
A decision-making framework provides referable insight grounded in the credit union’s mission and values. This framework allows a credit union to implement a plan that is less reliant on individuals and comparative cases, while providing greater flexibility when management is addressing an issue with which they may not have experience.
Key steps a decision-making framework might include are:
- Identifying the ethical dilemma
- Gathering facts
- Considering alternatives
- Weighing possibilities against the credit union’s mission and values
- Communicating and implementing a plan to resolve
It’s equally important to set detailed program expectations that outline a credit union’s oversight roles, monitoring controls, and reporting system. An institution may also consider establishing disciplinary actions within an ethics program and policy.
What’s the difference between ethics and morals?
Before developing an effective ethics program, leadership must first understand the difference between ethics and morals. These two terms are sometimes used interchangeably but have different meanings.
Ethics refers to a set of standards for behavior defined by a group or population. They may be handed down and supervised by an institution’s board of directors. Morals refer to an individual’s personal feelings regarding right and wrong and may be shaped by upbringing, environment, and personal development.
A system of ethics can influence a person’s moral development, and vice versa. A collective group of people sharing similar morals may develop an ethical business structure under which they expect employees to operate.
Which components make an ethics program effective for credit unions?
An effective ethics program consists of three critical components:
- Tone at the top
- Formal policy
- Fraud, waste, and abuse (FWA) program
All three components play an essential role in designing, guiding, implementing, and executing a robust ethics program.
Tone at the Top
An organization’s ethics program won’t be successful without support from its leadership team. The tone at the top—from the board and senior management—makes it clear to the rest of the organization that established ethics should be consistently represented in every internal and external product, communication, and event.
Tone at the top is important, but a formal ethics policy is needed to define expectations and provide a mechanism to hold all members of an organization accountable to operating in an ethical manner.
Components of an ethics policy typically include:
- Purpose. The intent of the program and how it fits into the organization’s overall operations.
- Policy statement. The underpinnings of the program and key roles and responsibilities.
- Definitions. Definitions of key terms, such as ethics, fraud, waste, and abuse.
- Procedures. How the program will be administered on an ongoing basis.
Fraud, Waste, and Abuse Program
More broadly, an ethics program sets the stage for an FWA program, which summarizes and provides a framework for teaching an organization’s ethics policy. It also provides a framework for:
- Building awareness
- Providing education
- Identifying potential instances of unethical or illegal behavior
- Informing internal audit programs
A well designed and executed FWA program will help an organization detect unethical or illegal behavior and, more importantly, prevent that behavior by increasing awareness, enhancing understanding, and providing ongoing training.
Who’s responsible for executing a credit union ethics program?
While every member of an organization plays a role in making an ethics program successful, internal audit functions typically serve as the glue to the program. Internal audit is usually responsible for:
- Making sure a policy is in place
- Verifying the program is widely understood
- Managing ethics hotlines
- Determining how to respond to each report received through the hotline
- Reporting on ethics hotline activity
- Incorporating insights gained from hotline reports into internal audit plans
An ethics hotline, or whistleblower hotline, provides a way to receive ethics reports—whether from employees or individuals outside of the organization. Ethics hotlines are typically provided by a third party to allow complete anonymity for individuals submitting reports. Reports can be received by phone, email, or internet platforms.
Ethics hotlines are typically administered by the internal auditor, who triages reports to determine the proper course of action. These could include:
- No action if the report isn’t relevant to the entity
- Distribution to appropriate management if the report is a personnel issue to be handled by human resources
- Investigation by the internal auditor if the report is potentially fraud, waste, or abuse
Internal auditors also prepare volume and nature reports to inform audit committees of hotline activity and audit plans that draw upon insights gained from hotline reports. They play a key role in maintaining confidentiality for all individuals involved in ethics reports and providing objective report responses.
We’re Here to Help
Establishing a strong ethics program is always important, but it’s even more vital during periods of economic disruption. If your organization wants assistance establishing its business ethics program, contact your Moss Adams professional.