Even where misconduct at work is stringently managed and whistleblowing encouraged, employers and HR managers should not underestimate the importance of conducting an ethical audit to help uncover any unscrupulous or illegal workplace practices that could impact the business.
The following guide focuses on the reasons for and the ways in which to conduct an ethics-related audit, together with useful tips for the better detection of unethical standards within your company or organisation.
What is an ethical audit?
An ethical audit is an inspection or examination of processes or systems to ensure compliance with ethics-related requirements. It is an investigation into how well, or poorly, a company or organisation conforms to the ethical standards of its industry or society in general.
It is designed to dig deep into the practices of a business and its dealings, to see how closely a company follows its’ own rules, as well as how far it complies with any external guidelines and nationally recognised standards regarding ethics.
Ethics and compliance are often inextricably linked, although ethics refers to behaviour, whereas compliance refers to adherence to legal regulations. In many cases, compliance problems stem from ethical lapses, although a company may be fully compliant yet still engage in unethical practices.
That is why many employers conduct ethical audits in tandem with financial or operational audits. That said, the ethical audit is very different to other types of audit that generally deal with quantitative data that can be easily measured.
In contrast, the ethical audit is more qualitative or subjective in nature, where it requires consideration of multiple different perspectives to gain an overall understanding of a company’s commitment to, and compliance with, ethics.
Why conduct an ethical audit?
Conducting an ethical audit can be crucial in the detection of any impropriety that would otherwise go unchecked. This can include uncovering unscrupulous or illegal activity within your business, such as the unfair treatment of workers. For example, the audit may reveal breaches of external regulations relating to excessive working hours or an unsafe working environment.
The ethical audit can also help to identify other behaviours that fail to accord with internal guidelines as to how management and members of staff should be conducting themselves. These behaviours may not necessarily amount to breach of any statutory or common law requirements, but are still deemed to be unacceptable workplace practices.
The ethical audit is not only to ensure that prohibited practices do not take place, but behaviours advocated in a company’s code of conduct, and within its written policies and procedures, actually exist in practice. The value statements of a business should not be at odds with how its people behave, where a dangerous precedent can be set by letting slide something that violates your ethics policy.
What is involved in an ethical audit?
The most common ethical audits will focus primarily on how a company or organisation treats its workers and redresses any grievances, including equal opportunities and employee discrimination.
However, this type of audit can also focus on areas such as customer/client relations and the impact of company operations on the environment, as well as how a company discloses its finances, access to company information, conflicts of interest, bidding and award practices, and the giving and receiving of gifts.
The primary purpose of the ethical audit is then to compare both internal and external guidelines with actual behaviours relevant to specific ethics-related categories. The audit may also identify any additional issues that need to be addressed through training, communications or subsequent audits.
There are various approaches to conducting an ethical audit, although some companies may adopt a formal code of ethics and will conduct periodic ethical audits to see how closely they follow their own rules.
This will typically involve a comprehensive review of records and other information, interviews with employees and managers, and even observations of workplace processes and practices. Prior to the audit being conducted, a decision will need to be made by the auditor, or auditing team, as to who will be interviewed and what information and observations will be required.
An internal auditing team will often be made up of a nominated auditor, an ethics and compliance officer, as well as a legal and HR manager. These individuals can play a pivotal role in responding to ethical and/or legal issues that the audit identifies, whether the response takes the form of disciplining an employee, disseminating educational material or integrating the topic into training.
The audit may be carried out internally as part of an ongoing auditing cycle or in response to changing risk profiles. An external auditor can also be appointed to conduct the audit, for example, to meet a specific contractual ethics-related requirement with a third party supplier or buyer.
How to use the findings from an ethical audit?
The ethical audit is a vital first step in building a culture of strong ethics and a reputation for fairness, both as an employer and as a business.
The findings from an ethical audit can help you to detect and quash any behavioural issues before they result in serious financial or reputational damage. The ethical audit will also often provide you with improvement opportunities within your company or organisation.
Through regular reports and findings from ethical audits, you can educate your workforce and initiate behavioural change long before any impropriety becomes a much bigger issue for all those involved.
Tips for better detection of unethical standards
The following tips for the better detection of unethical standards will help you to strengthen your ethical corporate culture:
- Develop a clear code of ethics based on the values of your company or organisation. This will represent your central document and should be translated into specific ethics-related guidance within your policies and procedures. In this way you will have something to audit against.
- Develop metrics against which you can measure ethical conduct. Ethical audits may not be as black-and-white as financial or operational audits, but they are easier to conduct when tangible ethics measures are in place, such as ethics-related performance goals.
- Carry out routine and regular ethical audits, where the ability to monitor continuing performance will help to ensure that acceptable ethical standards are being upheld.
- Carry out unannounced spot ethical audits where there is any suspected impropriety within the business. An announced audit defeats the opportunity of observing standard day-to-day behaviours.
- Create a reliable and cross-functional auditing team who can act responsibly and impartially. Alternatively, enlist an independent external auditor to ensure greater objectivity and transparency. Depending on the nature and magnitude of any ethical issues, it can often help to get an outside perspective whose report will reflect wholly unbiased findings.
Need assistance?
DavidsonMorris’ HR specialists have specific experience in ethical audits and supporting organisations to proactively manage and develop their culture and mitigate related risks. If you would like more information about ethical audits, contact us.
Ethics audit FAQs
What is the purpose of an ethics audit?
An ethics audit is designed to dig deep into the practices of a business, to see how closely a company follows its’ own rules, as well as how far it complies with any external guidelines and nationally recognised ethical standards.
How do you conduct an ethical audit?
There is no single approach when conducting an ethical audit, although it will generally involve a comparison between internal and external guidelines with actual behaviours within a company or organisation.
What is an ethics audit and why is it important to an organisation?
An ethical audit is an investigation into how well, or poorly, a company or organisation conforms to the ethical standards of its’ industry or society in general. By conducting an ethical audit this will help to detect any impropriety, and demonstrate responsibility as both an employer and a business.
Last updated: 1 July 2020
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
