Sometimes auditors will encounter instances where they are offered gifts or hospitality including working lunches and invitations to conferences and functions during the course of their work. This is a summary of the IIA's position on what to do in such circumstances.
In considering this topic, we have reviewed the appropriate section of the International Professional Practices Framework and various sources on the Internet. The most useful references are listed below.
The principles and rules of conduct within the Code of Ethics are quite clear that internal auditors should not be unduly influenced by others in forming their judgments.
This is underlined by the International Standards for the Professional Practice of Internal Auditing which state that 'internal auditors must have an impartial, unbiased attitude and avoid any conflicts of interest'.
The Standards also indicate that impairment in fact or appearance should be disclosed to appropriate parties. Typically the appropriate parties are the head of internal audit or the senior manager who has administrative responsibility for internal audit and possibly the audit committee, depending upon the nature of the impairment.
Businesses and organisations often establish specific policies and rules regarding gifts and hospitality. These set parameters for all employees and may provide additional guidance for employees working in high risk business functions such as purchasing/procurement or sales.
Internal auditors should comply with these operational requirements and the procedures that support them. These policies or rules should be helpful in forming a judgement over the appropriateness of certain aspects of gifts and hospitality.
Commonly they will also require the disclosure of offering of gifts and hospitality in a register whether accepted or declined. Some may also mandate an annual probity declaration which captures any potential conflicts in advance of the year ahead.
Where there are no organisation-wide policies or where the rules are not sufficiently clear or specific over their use by internal audit, the head of internal audit should set the policy for the internal auditors to follow and obtain appropriate approvals as required.
Even though gifts and hospitality may be small in value there is a risk that this may impair or be perceived to impair an internal auditor's professional judgment. These differ on a case-by-case basis, and it is recommended that the internal auditor assesses the situation themselves and seeks guidance where required.
In recent years, anti-bribery and corruption legislation has been introduced across a number of different countries including the UK, US, France and Germany, highlighting that the receiving of gifts or hospitality could amount to a bribe where intended to induce someone to behave in a certain manner. This is of particular concern for companies operating in markets where gifts and hospitality can be seen as fundamental to doing business.
Under the UK Anti Bribery Act (2010), a company can be prosecuted regardless of where the incident has occurred. Key considerations covered by this Act include the proportionality of the item (proportionate to the nature, scale and complexity of the business activities) and whether the offer was made in 'good faith'. However, it would not be considered legitimate if the intention behind the offer is to advantage the individual making the offer).
Working lunches are a typical example of hospitality offered to internal auditors, however can vary significantly in value or perceived value, examples including sandwiches in a meeting room or a five course meal at a Michelin-starred restaurant. One might be considered acceptable and whilst another not; the detail is important.
Similarly with minor hospitality; if you are staying away from home and the hospitality is one reasonable evening meal to try and make you feel at home, that may be acceptable. Other more expensive and lavish hospitality may not.
The timing of the gift or hospitality and the people involved are additional factors to consider. For example, lavish gifts or hospitality before an audit begins may create a far different impression than a 'meet-and-greet' event with modest refreshments before commencement of the audit and similarly where there is some form of get-together after the audit findings have been agreed.
The justification for an event beforehand may be to allow you to get to know the people in the organisation and what they do. This may help you to perform a more searching audit. Again, after the audit findings have been agreed, this may be seen as acceptable as long as gifts or hospitality are reasonable, not lavish.
Etiquette, gifts and hospitality rules differ between countries. In some countries refusal to accept offered hospitality would be deemed offensive and would ultimately make the audit objectives harder to achieve.
Therefore, if you are travelling, it is a good idea to make enquiries about local customs and to act as appropriate. In most cultures, some form of socialising provides a way of building strong professional relationships.
The appropriate form will vary with the context but you will find it a good way to obtain insights into the organisation and to promote the benefits of internal audit. Common sense should guide you. Sometimes there is a fine dividing line between accepting a kind and thoughtful offer and something that looks and feels inappropriate.
Try and find someone in your organisation to whom you can turn if you have any concerns. If you are in any doubt politely decline the offer. The reason for this caution is to prevent the appearance of or any actual undue influence and pressure upon your integrity and objectivity as an internal auditor.
Additionally, if you believe a colleague has inappropriately accepted a gift or item of hospitality, consider challenging them, raising it with a colleague, your line manager or another appropriate person or through your organisation's 'speak up' campaign.
In brief, transparency is key. Auditors should be transparent in their gifts and hospitality dealings, increasing the likelihood that there is a perception of honesty and integrity within the audit team.
When offered gifts or hospitality, key questions for internal auditors to ask themselves are:
What is the value of this gift or hospitality, and is it reasonable/ proportionate?
If my colleagues, friends or family knew, how would they perceive this and how would I feel about them knowing?
How would I feel if I read about this in the newspaper?
Does the gift or hospitality make me feel under pressure to change what I would otherwise do or what I would report?
Is there any significance relating to the timing of this gift or hospitality?
Key principles of the Code of Ethics to consider here are:
The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment.
Internal auditors should exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined.
Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments.
Internal auditors should consider the following rules of conduct in the course of their work:
Performing their work with honesty, diligence and responsibility.
Observing the law and making disclosures expected by the law and the profession.
Not knowingly being party to any illegal activity, or engaging in acts that are discreditable to the profession of internal auditing or to the organisation.
Respecting and contributing to the legitimate and ethical objectives of the organisation.
Not participating in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organisation.
Not accepting anything that may impair or be perceived to impair their professional judgment.
Disclosing all material facts known to them that, if not disclosed, may distort the reporting of activities under review.
Relevant International Standards for the Professional Practice of Internal Auditing:
1120 Individual Objectivity: Internal auditors should have an impartial, unbiased attitude and avoid conflicts of interest.
1130 Impairments to Independence and Objectivity: If independence or objectivity is impaired in fact or appearance, the details of the impairment should be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment.
The IIA's Code of Ethics and International Standards state that internal auditors must avoid any impairment to their professional judgment, real or perceived. The reason for this is that the integrity of internal auditors establishes trust and enables reliance on the opinions and judgments that are provided.
Internal auditors must therefore act and be seen to act in an independent and unbiased manner to maintain the confidence of senior management, the audit committee and other stakeholders. Gifts and hospitality can create the wrong impression and can undermine an internal auditor's integrity.
Although it is not wrong to accept small gifts and tokens of hospitality, the internal auditor should apply professional judgment and common sense; avoiding any circumstances that could be misinterpreted.