Government Ethics (Chapter 3)

———- arises when an officer or employee of the employing organization takes advantage of his/her position to improperly obtain an unjust advantage over the interest of the employing organization

A conflict of interest

- the winning construction company pays commissions to directors for having been selected among competing contractors; Such will be classified as unauthorized and improper commissions

such act is unethical

Nonpayment of taxes Deliberate understatement of taxable income Failure to register one's business with BIR

tax evasion

violation of tax laws and regulations of the Bureau of Internal Revenue (BIR)

tax evasion

Understating the bad debts expense in order to show high net income because bonuses and incentives are based on reported profit

Accounting

Approving a major project on which they have a business interest or commission Using company vehicles for personal use

BOD/ Senior Management

Obtaining sensitive information including passwords about a person without his/her consent Using said information to make unauthorized bank transactions such as cash withdrawals and money transfers

Cybercrimes

- the application of ethical principles and standards in a business environment. - broad discipline that attempts to address improper attitudes and actions that could be detrimental to the company. - not confined to the prevention of fraud and other irregularities - seeks to achieve a corporate culture that drives people in the company to do things legally and ethically

Business ethics

——— must be established and applied in the workplace

business ethics

If a behavior or an act is expressly prohibited in the company's code of ethical conduct; then, it is —————. However, there are situations that are not always clear if they will be allowed or not:

outright unethical

- At its most basic level, ethics is concerned with how we act and interact with other people.Do we act with integrity? Are we straightforward and honest? These questions deal with ——— - marriages, friendships, and other relationships will be threatened by conflicts, disagreements, and distrust

personal ethics

many businesses give to charities and conduct————- voluntarily

philanthropic activities

Understanding what is "right" and "wrong" can come from different sources such as:

- religion or spiritual beliefs; - influence of family and friends; - ethnic background; - social upbringing; - media (e.g., internet, TV, radio); and - personal role models.

major contents of the code of ethical conduct:

1. Company profile 2. Objectives of the code of ethical conduct 3. Ethical principles adapted by the company 4. List of instances of unethical acts 5. Process for identifying the threats or risks of unethical acts 6. Process for determining whether the threats are significant 7. Resolving ethical conflicts 8. Reporting of ethical issues and concerns 9. Sanctions for violations of the code of ethical conduct 10. Approval of the code of ethical conduct

specific unethical behaviors and unethical actions - prohibited in the code of ethical conduct:

1. Divulging of confidential information and trade secrets 2. Personal use of company vehicles and equipment 3. Unauthorized commissions and consulting fees 4. Conflicts of interests and outside business of officers and employees 5. Reimbursement of personal expenses 6. Prohibition on bribers

The resolution of ethical conflicts starts with the identification of relevant facts. - area of financial reporting, an issue arises as to whether or not an accounting adjustment in the records should be done in order to meet a certain required financial ratio.

1. Identify the facts

the following steps may serve as guides in the resolution of ethical issues:

1. Identify the facts 2. Identify the ethical issue 3. Analyze the alternative Option A: If no adjustment or reclassification is made. Option B: If an adjustment or reclassification is made. 4. Make a decision

manner of communicating the ethical code is ordinarily done through the following modes:

1. employee orientation programs; 2. posting in the company website; 3. newsletters and publications 4. bulletins 5. official memoranda 6. employee manual

Employment opportunities provided by the company Philanthropic activities and charities Protection of the environment Lack of corporate support to the community Lack of job opportunities Destruction of the local environment

Community

———- shall also refrain from collecting consulting fees from the employing organization for services rendered - employees of the company & are already being remunerated in the form of compensation.

Company personnel

———— include monetary information on internal accounting reports, and bank accounts of the company among others

Confidential information

———- must be avoided for they can result to abuses

Conflicts of interests

board of directors approves the major projects of the company such as construction of production facilities and factory buildings

Conflicts of interests and outside business of officers and employees

Today's modern business ushered in a renewed concern toward ———— corporations were just concerned with the generation of profits for the benefit of investors.

Corporate Social Responsibility

is concerned with the responsibilities and obligations of businesses to people, communities, and the society around them.

Corporate social responsibility (CSR)

Repayment of loan principal and interest Healthy credit rating of the borrower-company Inability to collect loan principal and interest from the company Poor credit rating of the borrower-company

Creditors

Safe, durable, and quality products Appropriate product pricing Product warranty and after-sale support Substandard and unsafe products Exorbitant prices of products Customer dissatisfaction

Customers

——— may be committed by people at different levels within the company. ——— may also occur in the different departments of the company.

Unethical acts

- actions of the corporation, as a legal entity, as well as actions of corporate officers and employees that are contrary to prevailing laws and government regulations. - necessarily carry monetary fines and penalties to the company and erring individuals.

Illegal acts

paying wages below the prescribed minimum wage which is a violation of labor laws and regulations of the———

Department of Labor and Employment (DOLE)

Corporate officers and employees are prohibited from disclosing or divulging to anyone, family member or otherwise, confidential information pertaining to the company and trade secrets.

Divulging of confidential information and trade secrets

Commensurate salaries and job security Career advancement Safe working environment Loss of employment Job dissatisfaction and demoralized workforce Insufficient personal income

Employees

- The issue is whether an accounting adjustment or reclassification is ethical or not on the part of the accounting manager. - Under accepted accounting principles, any recording such as an adjustment or reclassification in the books of accounts of the company must be supported by an actual transaction or an accounting event.

Identify the ethical issue

General policies against bribery should be included in the company's code of ethical conduct.

FALSE - Specific

Correct amount of taxes paid Compliance of the company with other relevant laws and regulations Insufficient tax collections 'Increase in violations of laws and regulations

Government

Falsifying employee competence and qualifications

Human Resource

Corporate officers buy and sell company shares by taking advantage of information that is not yet disclosed to the public (e.g., officers know that the company will acquire a major competitor; hence, stock price may increase) Violation of Securities Regulation Code that governs trading of shares

Insider trading

Due to internal auditors' close relationships with managers ("familiarity threat"), they did not report audit findings to the audit committee

Internal Audit

two options for Analyze the alternative courses of action

Option A - If no adjustment or reclassification is made. Option B - If an adjustment or reclassification is made.

accounting manager should choose

Make a decision

Making a false representation or improper claim about the features of a product

Marketing

Concealing and converting money obtained from illegal source in order to show that it was generated legally

Money-laundering

Making and/or selling a product that is patented by another company (without having paid a franchise fee)

Patent infringement

- addressing conflicts in everyday situations. - everybody knows that stealing is wrong. But what if you were stealing food to feed a starving child? - We know that lying is wrong. But what if we were lying in order to protect the life of another person? - individual will address them taking into consideration his/ her personal belief system, religious or family upbringing, and other factors.

Personal ethics

Company vehicles and equipment must only be used for official purposes.

Personal use of company vehicles and equipment

Procurement manager buys materials needed by employing organization from his/her own trading firm at a high purchase cost

Procurement

Temporary patching of a defective product (rather than complete product replacement) and hiding the product defect, posing a threat to the safety of customers

Production

Bribery is the giving or offering of any item of value to influence the actions of a government official or personnel. - All payments made to a government agency should be evidenced by government official receipts.

Prohibition on bribery

- Company officers are often reimbursed for business expenses that they have incurred in the performance of their official duties. - there are cases when these officers submit official receipts for personal expenses to be included in their reimbursements.

Reimbursement of personal expenses

Divulging confidential information on the ingredients of the company's product

Research and Development

Revenues and profit Dividends Growth in terms of stock price Decline in revenue, profits, and cash flows Decline in the stock price Corporate bankruptcy

Shareholders

The policies regarding the divulging of these information shall be made explicit in the code of ethical conduct

TRUE

To address this unethical act, many companies require all personnel to declare and report all business interests on an annual declaration form

TRUE

not customary for suppliers to provide commissions to company officers on account of their approval of certain contracts. Such would be tantamount to receiving kickbacks and unauthorized payments.

TRUE

———- include product ingredients and secret processes

Trade secrets

Before implementing the company's code of conduct, it must be communicated first to all people in the organization as well as to vendors, customers, and other interested stakeholders

True

There are acts that are not prohibited by laws and government regulations. These acts are not illegal per se.

True

not all acts that are legal are automatically ethical

True

Payments of commissions are to be accepted only by company officers and employees when duly authorized

Unauthorized commissions and consulting fees

Payment on the goods delivered Frequent orders and sufficient profit margin Delayed payments for goods received Kickback and bribery

Vendors

Not implementing anti-pollution devices • Letting factory and other wastes flow into bodies of water

Violation of environmental laws

Paying employee wages below the minimum wage rate Failure to pay for employees' social security premiums

Violation of labor and social security laws

- purchase manager who has a personal trading business that has a transaction with the employing company - purchase manager will use his/her position as well as influence so that the materials needed by the employing company will be obtained from his/her personal trading business

a conflict of interest

——— must be communicated from top management down to the rank-and-file personnel - be ensured at all times and by everybody, regardless of position.

code of ethical conduct

——— arises if a member of the board is a shareholder of the construction company which won in the bidding process, unless if he/she inhibits in the selection and approval process

conflict of interest

is no longer a mere avenue for enhancing corporate image but for attaining competitive edge in today's highly-competitive business environment.

corporate social responsibility

———— must be tailor-fitted to the company's nature of business, industry, size, products and services, and other factors.

ethical code

"———" is derived from the Greek word "ethos", which pertains to values, norms, and beliefs that determine how people behave in everyday life

ethics

——— are belief systems and actions that guide people on how to live their lives as they relate to other people around them - It deals with truthfulness justice, moral duties, and obligations. - It includes what is "good" to others and avoid what is not good. - what is "right" and "wrong"

ethics

many companies use ———— devices to keep track and monitor the location of company vehicles.

global positioning system (GPS)

they are mandated by the ———— to pay the right amount of taxes

government

Many of the ———— collapses during the turbulent 2000s in the United States highlighted the lack of ethics on the part of corporate executives

high-profile corporate

businesses must pay the appropriate salary or wage rates to their employees

labor laws

- many companies implement a ———- - ensure that only vendors with good track record in the delivery of quality materials are accepted - the shareholders and officers of the vendors will be known and will be compared with the employees' annual declaration of business interests to spot a potential conflict of interest.

vendor accreditation process