Question

The IMA Statement of Ethical Professional Practice identifies four ethical standards, three of which are competence, confidentiality, and integrity (see "Ethics Center" on IMA website). Relying on those three ethical standards, evaluate the conduct of Avon's internal audit staff during the company's initial investigation of the questionable payments made by APC.

Answer 1

Answer is as under :

The conduct of Avon's internal audit staff during the company's initial investigation of the questionable payments made by APC and the interpration of the same with the three ethical standards is as under :

1) The first ethical standard the IMA identifies is competence. The IMA defines this as maintaining professional leadership and expertise, performing duties in accordance with relevant laws, and providing accurate decision support information. There were some instances where Avon failed to meet the competence standard. Part of the competence standard states that the internal auditor must provide decision support information and recommendations. During the investigation the case does state that remedial measures were discussed and recommended, but they were never implemented. It should have been on the internal auditors to give detailed recommendations. The case also mentions that they failed to devote adequate funding, staffing and resources to Avon China. This is a huge lack of competence and shows poor professional leadership.

2)The second ethical standard the IMA lists is Confidentiality. The IMA defines this as keeping information confidential except when disclosure is required, informing all relevant parties appropriate use of confidential information, and not using confidential information in an unethical or illegal way. The internal auditors at multiple times discovered that their was questionable payments occurring. These payments continued and the internal auditors new that they were continuing. The were instructed to keep this information and not inform the required parties. The CEO at the time Andrea Jung did not end up hearing about this until a year later.

3) The third ethical standard mentioned is integrity. The IMA defines integrity as mitigating conflicts of interests, communicating with business associates to avoid conflicts of interest, refraining from conduct that would be unethical or discredit the profession, and contribute a positive ethical culture. One problem found in this case involving the integrity of the internal auditors was their response to the legal staff. The internal auditors should have known that the legal staff was trying to cover up the questionable payments that were occurring. This can easily fall under supporting an activity that could discredit their profession. They blindly followed the legal department’s conclusion that the FCPA is not under the scope of internal audit.