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Standing up for what is right in public finance

17-01-2019

By Don Peebles, Head of CIPFA Policy and Technical

Ethics has been a matter of debate for philosophers for millennia, from Socrates to Kant, and can be a murky area at the best of times. However it is important. Fundamentally it is concerned with doing what is right. And in public finance, this is an essential subject, now more than ever.

In recent remarks, the United Nations Secretary-General António Guterres spoke on the impact of corruption worldwide, pointing to the significant drain it continues to pose to prosperity. Figures from the World Economic Forum estimate corruption costs the global economy more than £2 trillion every year - or 5% of global GDP.

The latest Transparency International Corruption Perceptions Index 2017 was also gloomy, highlighting that the majority of countries are making little or no progress in ending corruption. Using a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean, more than two thirds of countries scored below 50, while the average global score was only 43.

Around the world trust in government and public bodies remains in decline, with the most recent Gallup World Poll indicating it sits below pre-financial crisis levels. On average in OECD countries, 42% of citizens reported having confidence in their national government in 2016, as compared to 45% before 2007.

This comes as the real economy has failed to regain ground lost during the financial crisis 10 years ago. Just a few months ago, the OECD cut its 2018 forecast for global economic outlook by 0.1%, and its 2019 forecast by 0.3%. This lack of growth in real terms continues to put pressure on governments worldwide, who increasingly are being relied on to do more with less.

Britain in the same report had its growth forecast shaved by a point to 1.3% in 2018, and 1.2% in 2019, with the OECD saying a squeeze on living standards was affecting consumer spending, while Brexit uncertainty was leading to soft investment.

Many people seem to now be turning away from traditional institutions or ways of thinking. This would seem unsurprising, with income inequality in OECD countries at its highest level for the past half century. The average income of the richest 10% of the population is now about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.

The political reaction has been unsettling, with a rise of populist politicians in both developing and developed countries. Many of these leaders have advocated protectionism, both economically and socially, and the rejection of multilateralism in favour of nationalism. The OECD and Transparency International have expressed concern about these trends.

So you may question what this has to do with ethics in public finances? Well for accountants in the public sector, these global trends have local effects. When we talked to CIPFA members from around the world at our Annual Conference in July, a number spoke of the pressure they had felt to use ‘creative’ accounting techniques, or to turn a blind eye to fraudulent behaviour.

With our recent survey finding almost 60% of public sector finance professionals have come under pressure to act unethically at least once in their career, it should be clear when we talk about ethics in public finance, we are not talking about hypotheticals.

As the only body specifically for public finance professionals worldwide, CIPFA is focused on countering fraud and corruption, whether through the training provided by CIPFA’s Counter Fraud Centre, or our advocacy for accrual accounting and IPSAS principles around the world, from Malta to Zimbabwe. But all of us who work with or for CIPFA, as members, associates, or students, also have a role to play on an individual level, by behaving ethically and standing up for what is right.

On 1 November 2018 we formally adopted a new Statement of Professional Practice (SOPP) for our members to align with the International Ethics Standards Board of Accountants (IESBA) Code of Ethics. The Code is based on five principles, which are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. While the fundamentals of the Code have not changed, there are several major revisions, including stronger independence provisions, new guidance on professional judgement and scepticism, as well as rewrites for greater clarity.

I hope all our members take the time to read the new SOPP, the case studies, and ‘Ethics and you’, our introduction to these new ethical standards. When we look to some of the global trends, the local actions each and every one of us must take will be vital to restore, preserve and uphold trust in our public institutions, and combat fraud and corruption.

This article first appeared in the December edition of Public Finance.

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Conduct and Ethics - this page include stories of ethical matters and, CIPFA's Standard of Professional Practice on Ethics.