Conflicts of interest (COIs) put professionals on a slippery slope that tarnishes the integrity and reputations of institutions and individuals, which can lead to tremendous distrust. For this reason, management accountants must pay close attention to identifying, reporting, and resolving or mitigating possible conflicts of interest. The resulting investigation and implications can be complex and must be detail-driven and rooted in fact. Transparency is essential, as conflicts of interest are weeds in the garden that can prevent flowers from achieving full bloom—and may cause them to wilt.
A COI occurs when there’s a personal concern, aim, or benefit that interferes with your professional duty or ethical decision making because it isn’t aligned with the best interests of coworkers, customers, other stakeholders, your employer, or organizations for which you volunteer. A COI can cause other parties to question your intentions and integrity.
COIs can be either actual or perceived. An actual COI involves a direct conflict between an employee’s current duties and responsibilities and their private interests. Perceived COIs include situations where it could appear to a reasonable person that an employee’s personal interests improperly or unduly influence the performance of their duties and responsibilities for their organization.
The IMA Statement of Ethical Professional Practice states that IMA® members must:
1. Mitigate actual COIs. Communicate with business associates to avoid apparent COIs. Advise all parties of any potential COIs.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
4. Contribute to a positive ethical culture and place integrity above personal interests.
COIs arise when situations benefit the employee to the potential detriment of the company. Let’s examine three common COIs.
1. Gifts. When giving or receiving gifts, the focus shouldn’t be only on their value but also on their appearance. Conversely, the focus shouldn’t be on the intention behind giving or receiving the gift. If a gift has even the appearance of garnering undue influence, it creates a COI. Take care to objectively evaluate the facts surrounding the gift (i.e., whom it’s from or given to, the value, the relationship of the giver and the receiver, etc.) and how the gift could be interpreted by others. Consider the monetary value of the gift, with the most common maximum threshold $75. The giver and receiver should ask, “Is this nominal in value?” If there’s a question about whether a gift is appropriate, seek out the opinion of a manager or compliance resource.
2. Serving on an outside board. Being on an outside board requires employees of public companies to evaluate potential COIs between themselves, their employer, and the organization whose board they’d be serving on, then present their findings to their company for approval before accepting the board seat. It also requires an annual review process as a safeguard to ensure that the board position is still without conflict with the company’s goals and requirements. If the employee becomes aware of a new COI before the next annual review, then they should immediately advise their manager. If an employee’s board seat no longer meets the company’s standard of review, then they must resign.
3. Moonlighting. These COIs involve working another job to pursue a passion or supplement income. Moonlighting employees should be careful that the new job isn’t competing or at odds with their existing job.
Many professionals volunteer their time to support charities, professional associations, and not-for-profit organizations such as IMA. Being mindful of the situations that might arise for volunteers can help individuals and organizations avoid COIs.
1. Volunteers are like employees. Sometimes volunteers have jobs that could lead to a COI. Vendors or owners of companies that seek to do business with the employee’s organization must be aware of potential COIs.
2. Family matters. Familial relationships have the potential to cause COIs within a volunteer organization. There could be a COI if an association board member’s son owns a web development company and is contracted to work on the volunteer organization’s website. It’s key in these situations to evaluate who receives the benefit from the association and why. If it’s an actual benefit that was given without proper due diligence and has monetary or other beneficial properties, then it could be perceived as a COI. Any such blending of family and business ties necessitates disclosure, proper due diligence, and a mitigation plan to ensure that there isn’t a problematic COI.
3. Working for course providers. If an IMA volunteer were to work for a certification or course provider, their employer’s business could conflict with IMA’s line of business of promoting the CMA® (Certified Management Accountant) certification. In that case, the volunteer working for such an entity would be obligated to disclose and mitigate this COI.
MITIGATING A COI
A COI can call into question employees’ or volunteers’ intentions and ability to remain unbiased in their thoughts, ideas, and decisions. A COI policy could include restrictions that ban nepotism, creating a process to manage potential and perceived COIs, specifying situations that require a recusal agreement, and training members on the methods needed to follow and disclose COIs. Failure to have a COI mitigation plan can lead the organization down a path toward distrust and tarnished reputation.
The information and opinions expressed in this article are solely the authors’ and don’t represent their employers.