Political Dilemma:
The yearend accounts for a local authority have been prepared, and they will soon be adopted by the council, ready for audit. You are the head of social services finance, and you have become aware that some work has been performed by a consultant which has resulted in a proposal to close an elderly persons’ care home. The council members want to suppress this information from becoming public knowledge because there is a forthcoming by-election in the electoral division where the care home is located. The consultant has agreed not to submit the invoice for their fees, which are significant, until after the by-election. Normal accounting treatment would require the consultant’s fees to be included as an expense in the accounts. Additionally, the estimated costs of the potential closure may need to be included as a provision in the accounts. The members will not make their decision known until after the by-election, which will be after the audit has been completed and the opinion signed.
Considerations:
Identify relevant facts: Consider the Local Government Code, generally accepted accounting standards, and applicable law and regulations. Also, establish the extent of the potential misstatement of the accounts. What is the likelihood that the council members have already decided to act on the consultant’s advice, in which case the provision for the costs of closing the care home is also required? Could past accounts have been misleading as well? Identify affected parties: Affected parties include you, the council, council members, the consultant, the occupants of the care home, and the electorate. Who should be involved in the resolution: As the intention to conceal the consultation exercise is that of the council members, you should involve the leader of the council in the resolution process. You should also consider involving other senior managers, the internal audit department, and the external auditor.
Possible course of action:
The consultant’s fees are significant, and so they should be included in the local authority’s year end accounts. You should establish, through discussions with senior management, whether the accounts should also reflect the proposal to close the care home.
Explain to your colleagues the accounting principles that require the liability in respect of the consultant’s charges and the potential provision in respect of the closure of the care home to be accounted for.
You should make clear your professional and ethical responsibilities, and discuss the issues with the leader of the council.
You could notify the central finance team, who may decide to bring the matter to the attention of those responsible for internal compliance (e.g. the internal auditors). They should also immediately notify the external auditors. If it appears necessary to whistle blow to third parties, you should consider carefully to whom you should report, bearing in mind the fundamental principles of confidentiality and professional behaviour. You could consult your professional body for advice, and consider seeking independent legal advice. You should determine what access you have to organisations that can offer guidance and support to employees who find they have a whistle blowing responsibility.
You should document, in detail, the steps that you take in resolving your dilemma, in case your ethical judgement is challenged in the future.