Morality/Ethics in a Workplace

and the Ethical Dilemma

for SCM, Finance & Internal Audit

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AGENDA

1) What is Ethics

2) Ethics in the Public Sector

3) Responsible Leadership

4) Effective Management of Ethics

5) LG: Municipal Systems Act

6) MFMA

7) Ethical Dilemma

8) Finance

9) Supply Chain Management

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AGENDA (contd…)

10) Internal Audit

11) Ethical Decision Test

12) Suggested Guidelines to Deal with an Ethical Dilemma

13) Measures to Manage Ethics and Ethical Dilemma

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What is Ethics?

• Origins in ancient Greece, word ethos, meaning ―character‖, ―custom‖ or ―inner character‖

• Standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.

• A set of rules or standards governing the moral conduct of employees in an institution.

• Ethical conduct refers to a strong desire to do the right thing.

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Ethics in the public sector

• The Constitution of South Africa (Chapter 10) - maintaining and promoting a high standard of professional ethics;

• Public service ethics refers to the ‗determination of what is ‗right‘ and ‗proper‘ and ‗just‘ in the decisions and actions that affect people‘.

• In a municipal context, ethics are the philosophical and morally decent standards that a municipality attempts to stand by.

• The Council and Executive Management should act in the best interest of the organisation.

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Ethics in the public sector (contd…)

• A municipal official should understand the ethical nature of his or her role in terms of the promotion of the public good as well as the manner in which he or she fulfills their role.

• In fulfilling their duties, public officials will encounter predictable ethical dilemmas which arise out of their role as public servants.

• They should not put self-interest first, should be true to their work and fulfill their duties, as the public has the right to expect.

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Responsible Leadership – Effective Leadership

• In terms of King 111:

―The Board should provide effective leadership based on an ethical foundation.‖

• Effective Leadership is based on an ethical foundation

• Ethical municipal leaders must:

Set the tone at the top and be ethics role models;

do business ethically;

must not compromise the natural environment;

take account of the municipality‘s impact on internal and external stakeholders;

Legitimise ethics discourse;

Encourage ethical conduct in others;

Hold others accountable for the ethics of their conduct

• If there is a weak ethical leader, employees may perceive the consequences of their actions to be more distant than when there is a strong ethical leader.

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Responsible Leadership – Effective Leadership (contd…)

• If there is a weak ethical leader, employees may perceive the consequences of their actions to be more distant than when there is a strong ethical leader.

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Effective Management of Ethics

• Council and Executive Management should ensure that the municipality effectively manage ethics in the organisation.

• Best practices proposed in this regard:

Council and executive management need to build and sustain an ethical organisational culture

Ethical risks to be incorporated within risk management processes

Council and executive management need to ensure that the code of conduct and ethics related policies are implemented

The municipality‘s ethics performance should be assessed, monitored, reported and disclosed.

Council and executive management establish an Ethics committee.

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Effective Management of Ethics (contd…)

Council and Executive Management:

• must be responsible for the strategic direction and control of the

municipality;

• should ensure that the organisation adheres to its code of conduct and

ethics;

• need to promote a stakeholder-inclusive approach to governance;

• should ensure that all actions of the municipality relates to good

governance; and

• should ensure that every councillor and staff member fulfil their

prescribed duties in line with the municipality‘s ethical standards.

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LG: Municipal Systems Act

• General conduct • Commitment to serving the public interest • Personal gain • Disclosure of benefits • Unauthorised disclosure of information • Undue influence • Rewards, gifts and favours • Council property • Payment of arrears • Participation in elections • Sexual harassment • Reporting duty of staff members Breaches of Code

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LG: Municipal Systems Act (contd…)

• Code of Conduct to be provided to staff members and communicated

to local community

• The municipal manager of a municipality must—

(a) provide a copy of the Code of Conduct to every member of the municipality; and

(b) provide every staff member with any amendment of the Code of Conduct.

(c) ensure that the purpose, contents and consequences of the Code of Conduct are explained to staff members who cannot read; and

(d) communicate sections of the Code of Conduct that affect the public to the local community.

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LG: Municipal Systems Act (contd…)

• Council and municipal employees must adhere to the legal standards of the code of conduct, as stated in Par 54, 69 & 70 of the Municipal Systems Act (MSA)

• Real or perceived conflicts should be disclosed to the Council or Executive Management and managed

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MFMA

• The MFMA was enacted to secure sound and sustainable financial

management in municipalities.

• Responsibilities of Municipal Officials

• Role of the CFO

• Goods and Services

• Supply Chain Management Regulations

• Internal Audit Unit

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Ethical Dilemma

• Values clash

• Debate between two moral principals, where two sides can argue

about what is wrong or what is right.

• No real answer to an ethical dilemma. It is simply a matter of what one

believes in.

• Ethical decision-making - complex and difficult ethical dilemma

situations e.g. economic growth versus environmental protection

• Ethical reasoning - using values-based reasoning to solve ethical

dilemmas

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Ethical Dilemma (contd…)

• Factors that could influence decision making:

Undue pressures

Low pay scales

Accepted culture

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Finance

• The MFMA, together with the Municipal Structures Act (1998), the Municipal Systems Act (2000), the Municipal Property Rates Act (2004) and the Municipal Fiscal Powers and Functions Act (2007), sets out frameworks and key requirements for municipal operations, planning, budgeting, governance and accountability.

• According to Corruption Watch –

Good financial management practices are essential to a municipality‘s sustainability.

If a municipality‘s financial management is disorganised, its resources can be misdirected and abused, which in turn results in poor service delivery and an increase in the risk of corruption.

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Finance (contd…)

• Municipal financial management involves managing a range of interrelated components:

planning and budgeting,

revenue,

cash and expenditure management,

procurement,

asset management,

reporting and oversight.

• The MFMA establishes standards and requirements for:

managing revenue, expenditure, assets and liabilities in municipalities;

budgeting and financial planning processes;

borrowing;

handling financial problems; and

ensuring transparency and accountability in a municipality‘s finances.

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Finance (contd…)

• The MFMA also deals with a wide range of relevant issues including municipal bank accounts, investments, municipal debt, responsibilities of municipal officials and accounting officers, financial reporting and auditing, and dealing with financial misconduct within a municipality.

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Research Results

• In the strong ethical leadership condition:

employees trust the CFO as someone who treats people fairly,

the CFO is vocal about the importance of making ethical decisions, demonstrates ethical values with actions, and

when confronted with difficult accounting decisions, asks: Is this ―the right thing to do?

• In the weak ethical leadership condition: when confronted with making difficult accounting decisions, asks: Is this

―getting us the financial results we want?

• Accountants make trade-offs between financial statement accuracy and the need to comply with internal controls

• Accountants are willing to sacrifice compliance with internal controls and focus on financial statement accuracy when the control environment is strong and fosters trust

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Supply Chain Management

• Core component of the public financial management discipline

• Seeks to ensure the proper flow of goods and services between the supplier and the public sector institutions

• Accounting Officer: Establishes the SCM unit, which will be under the

supervision of the CFO • SCM officials, who are the custodians of the SCM process, implement

the policy and carry out the SCM operational activities.

• nature of their position places them in a position of trust and in the forefront of dealing with ethical dilemmas

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Internal Audit

• Role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.

• IIA Code of Ethics • Internal auditors have an important role to play in promoting an ethical

culture in an organisation.

• Too often assurance is only given from a tick box approach.

• Internal audit should look deeper than just being satisfied that the organisation goes through the right motions.

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Internal Audit (contd…)

• Internal auditors are frequently faced with ethical dilemmas which can challenge their standards

• They may face situations which require them to speak out and this is not always easy, particularly when pressure is being exerted by senior management to ―go with the flow‖ and not to ―make waves‖

• Internal auditors can play a key role in strengthening business ethics and corporate integrity

• One of the cornerstones of corporate governance

• internal auditors are expected to work with audit committees, boards and senior management to help set the right ―tone at the top‖ and to help ensure that ethical behaviour flows down through the ranks to lower level employees

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Ethical decision test

Ethics SA Quick Test

• Is it legal?

• Does my organisation‘s Code of Ethics/Conduct and other policies allow it?

• Does my professional standards allow it?

• What would my ethical role model do?

• How would it look on the front page of tomorrow‘s newspaper?

• How does it make me feel?

• Would I be comfortable sharing my decision with my closest family?

• Does it pass the Golden Rule test?

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Suggested Guidelines to deal with an Ethical Dilemma

• identify the problem;

• gather all possible information in an objective manner;

• seek legal advice if required;

• applying the code of ethics of the municipality;

• establishing the nature and dimension of the ethical dilemma;

brainstorm to establish all possibilities for action;

• identify all consequences for all alternatives of action and for all the

persons involved;

• evaluate the chosen course of action to see if there are new ethical

problems or dilemmas implied;

• implement the selected action and follow up.

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Suggested Guidelines to deal with an Ethical Dilemma (contd…)

• National Treasury – Explanatory Manual on the Code of Conduct for the

Public Service: A practical guide to Ethical Dilemmas in the Workplace

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Measures to manage Ethics and Ethical Dilemmas

• Proactive: Building trust & reputation

• Defensive: Preventing fraud, corruption, theft and conflicts of interest

• Build an ethical culture:

Assess ethics risks and opportunities

Develop ethical standards (code and policies)

Integrate ethical standards (ethics code)

Monitor, report and disclose

• Ethical training and education - ethical dilemmas are a consequence of

not knowing laws, ethical codes or other ethical procedures

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Measures to manage Ethics and Ethical Dilemmas

• Ethics management system – an organized system that can be used by

managers to improve the ethical background in their organizations and help employees understand what are ethical dilemmas and how to manage ethical decision making.

• Ethical committees, procedures and policies, ethical audits, ethics officer

• Reward system on ethical conduct and performance

• Monitor the ethical tone of the organization – conduct employee surveys, holding discussions with Human Resources to review upward feedback from staff, implementing a way to review employee complaints such as a confidential whistleblower hotline

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Thank you and any Questions?

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