Ethics, controls, and the resource management community: this article discusses the basic principles of United States Government ethics and explores how they apply to resource and financial management organizations.

What are the basic ethical principles of the United States Government? There are a number of them, and they appear in a series of Executive Orders. (1) But the following quote from one of the orders captures the essence of ethics for federal government employees: "Public service is a public trust, requiring employees to place loyalty to the Constitution, the laws, and ethical principles above private gain."

This basic principle and the other government ethics principles have been translated into elaborate rules governing a variety of conduct. Rules specify behavior for government employees regarding issues such as conflicts of interest, travel, participation in nongovernmental conferences, gifts from both government and private groups, off-duty employment, and many others.

Ethical Problems Persist

In spite of these rules, some government employees continue to suffer ethical lapses. At the extreme these lapses include specific criminal actions, such as the ethical misconduct of a senior Air Force procurement official that resulted in a jail sentence. But ethical violations also include offenses that do not result in criminal convictions, such as Antideficiency Act violations that are of particular concern to the re source management community. Even the perception of impropriety can raise doubts regarding commitment to ethical principles.

Treating ethical behavior as a legal issue--"It's okay if I don't get caught"--can make the problem worse. The legalization of ethical behavior can cause people to operate on the margin of what is or is not legal. A culture of gamesmanship can result, where employees attempt to bend the rules to meet either their personal or their organizational needs. They may forget the basic point: Federal employees must follow both the spirit and the intent of government ethics principles.

Ethics problems are of course not only a problem in government. Recent accounting scandals at private corporations--including Enton, Sunbeam, Waste Management, and others--make clear that accounting systems, regulations, and auditors have not prevented major ethical and legal problems in the private sector. Arthur Levitt, the former chairman of the Securities and Exchange Commission, made this point in an interview after the Enron scandal broke:

"I think the Enron scandal is symptomatic of something much broader than Enron. I think it's symptomatic of a breakdown of the ethical values of business over a period of perhaps 20 years, a gradual erosion of business ethics that brought us to an Enron, but might very well bring us to a whole host of Enrons as we move down the road.

"There is much too much accounting hocus-pocus. I would not say that every American company practices this. It's a matter of degree. Many companies do practice accounting hocus-pocus. And accounting standards are insufficiently clear to make that argument hard and fast, so companies will argue the point as to whether their treatment is fair or not fair." (2)

This article focuses on government ethics rules, which should govern the behavior of all those working for the federal government and for all the employees of the Department of Defense (DoD). While these rules apply to all, they should be of particular concern to those in resource and financial management organizations. We are the stewards of government funds and have a higher obligation to meet both the letter and the spirit of ethical principles. Given our stewardship role, we must always keep in mind the Latin quote: "Quis custodiet ipsos custodes?" (Who will guard the guards?). (3)

Characteristics of an Ethical Organization

If ethical behavior and creating ethical organizations represent all-important factors for resource management professionals, how will they know when they have succeeded? Stated differently, what constitutes an ethical organization?

Ethical organizations have been defined in a multitude of ways, but all should exhibit three characteristics: a commitment to compliance and not evasion; transparency; and accountability. These characteristics are interrelated and interdependent. If all conditions prevail in an organization, adherence to the Code of Government Ethics is ensured.

Commitment to Compliance

A recent article in The New York Times, datelined Baghdad, Iraq, July 29, 2006, clearly indicates that not all federal employees are adhering to the first characteristic:

"The State Department agency in charge of $1.4 billion in reconstruction money in Iraq used an accounting shell game to hide ballooning cost overruns on its projects in Iraq and knowingly withheld information on schedule delays from Congress, a federal audit released late Friday has found. The agency hid construction overruns by listing them as overhead or administrative costs, according to the audit, written by the Special Inspector General for Iraq Reconstruction, an independent office that reports to Congress, the Pentagon and the State Department." (4)

Commitment to compliance and not evasion has become more complicated as DoD and its subordinate activities "cash-flow" the Global War on Terrorism. Many times resource and financial managers are faced with the dilemma of mission accomplishment versus legal compliance. How do we resolve these issues and remain an ethical organization?

Ethical organizations first acknowledge that there is a problem--they do not attempt to cover it up. Then they openly look for ways both to accomplish the mission and to comply with the law. We cannot become too creative and employ the equivalent of what Arthur Levitt termed the hocus-pocus accounting tricks that caused disasters in the private sector. But we should also not view issues as "either-or." We must take the time to think creatively about how to meet mission needs while remaining legally compliant.

Transparency

The approach of "openly looking for ways" to achieve compliance highlights the second characteristic of an ethical organization--transparency. Transparency is the ultimate control that ensures that we do the right thing. It has been said that if all our organization's activities were constantly on television, there would be no more ethical problems.

Transparency allows others to observe what and how we are thinking and acting. Pursuing transparency serves two essential purposes. First, it prods us constantly to ask the question: Would we like to see our decision dissected on the front page of The Washington Post?

Second, transparency allows our subordinates to see the decision-making process. Our role as leaders in dealing with our subordinates is much like our role as parents. It really does not matter what we say; both our subordinates and our children see what we do. If we want to have an ethical organization, leaders must be the role models, and we must allow our subordinates to observe how we resolve the tough issues.

Transparency also has another benefit: It increases the probability of compliance by subordinate organizations. Too often we make decisions behind closed doors and publish the results as guidance to subordinate commands and activities. Subordinate activities often resist the guidance because they have been excluded from the process and do not understand the intent of the guidance. Transparency is a means to ensure inclusion and understanding of intent. In the tactical world, commanders go to great lengths to ensure that everyone in the chain of command understands the "commander's intent." In the administrative world we sometimes ignore this principle and instead simply direct people to comply. Ethical organizations are open and encourage discussion before decisions are made.

Accountability

The third characteristic of an ethical organization is accountability.

Accountability means someone is responsible and accountable for the results. It also means that some action is taken when something goes well or something goes wrong. Ethical organizations openly "pin the flower" on someone and hold him or her accountable. It involves both responsibility and accountability.

The ultimate test of an ethical organization is what action it takes when someone does something wrong that results in a good outcome. Do we give the person a letter of reprimand? Do we give him or her an award? Do we do nothing? If the good outcome results in additional resources for our command, there is the question of what do we do with the resources? Do we keep them? Give them back? Something else? The answers are not easy, but they demonstrate our commitment to ethical principles.

The Role of Controls

Knowing the basic characteristics of an ethical organization is not enough. How do we ensure that the organization acts as it is supposed to? Knowing and doing are two very different acts. Compliance requires more than faith. We cannot just assume that people and organizations will do the right thing and act ethically. The pressure to cash-flow wars and the potential for personal gain will cause some people to act unethically. We must always keep in mind that question: "Quis custodiet ipsos custodes?"

To ensure an ethical organization, we must institute internal controls; without them we have a system based on faith and hope. A detailed discussion of internal controls goes beyond the scope of this article. However, at their heart, internal controls are rather simple. They involve three basic functions:

* Setting standards of satisfactory performance

* Checking results to how they compare with standards

* Taking corrective action where actual results do not meet standards

* The principles of ethical organizations and associated controls must, of course, be crafted to meet the needs of a particular organization. Standards must be established and engrained into the organizational culture. Mechanisms must be established to monitor compliance and action taken when the standards are not met.

Who Cares?

Clearly, establishing and maintaining an ethical organization requires a lot of work. Principles must be crafted and adhered to; internal controls must be established. The question can be asked: Who cares? Given the current environment, why should my organization try to be ethical? Everyone else is breaking and bending the rules; it's the way the game is played.

The answer is credibility and trust. Our success as resource and financial managers is defined in these terms. If we do not have credibility and trust, our commanders will not believe us and our subordinate units and activities will not trust us. As we continue to cash-flow the Global War on Terrorism, we continue to make promises. The validity of those promises is based solely on our credibility. Ethical organizations build trust, and trust is essential in these difficult times.

In sum, ethical organizations should have a commitment to compliance and not evasion, transparency, and accountability. And these factors must be ensured by internal controls. The benefit for the effort is trust and credibility, without which no organization can succeed.

Endnotes

(1) The rules are contained in Executive Order (E.O.) 11222, E.O. 12674, as modified by E.O. 12731, 3 C.F.R., 1990 Comp. p. 306-311; 5 C.F.R. [section] 2635.101

(2) From a PBS FRONTLINE interview with Arthur Levitt, former SEC chairman, March 2, 2002

(3) Juvenal, On Women, p. 127

(4) The New York Times, July 30, 2006