Blog Article

Ethical standards in public financial management

Tuesday 08 November 2022

Ethics are moral standards around behaviour and conduct that apply across the public sector, from the tone at the top, through to application across institutions and at an individual level. The sector is also often looked as a leader and role model for wider society on ethical standards of behaviour, and it also faces specific risks, such as around national security, and protection, use of large quantities of residents’ data, and equitable allocation of public funds. Behaviours of public sector institutions also impact the reputation of individuals, institutions, and jurisdictions internationally. Public financial management (PFM) professionals are also at the forefront of ensuring behavioural standards in public life as custodians of public funds, managers and auditors of them.

Like all professional fields, public management and PFM has become more complex in the interconnected multimedia world. Evidence of standards of behaviour is more easily scrutinised by politicians, service users and local stakeholders, and also potentially by hostile actors. Some risks such as to data and communication security – including its veracity - have also substantially increased and future developments such as in data science, artificial intelligence and electronic finance will increase complexity further.

Research by the Chartered Institute of Public Finance and Accountancy (CIPFA)[1] found that the majority of public sector accountants will come under ethical pressure at some point. Employers and other PFM institutions, professional bodies and stakeholders therefore need to provide support to prevent and effectively manage such situations. Expectations of ethical behaviour have to be embedded in all aspects of work and activities undertaken by PFM professionals, in addition to being formalised in structures such as codes, frameworks, procedures and controls. Some PFM professionals also have specific ethical requirements to uphold, such as independence standards for auditors. As a pervasive aspect of PFM, ethics is increasingly a component of PFM competency frameworks and mandatory in professional qualification programmes. The sector has also seen other responses to help manage the risks, such as the growth of counter fraud solutions, and whistleblowing strategies.

Leaders in PFM have produced ethical codes to support PFM and its practitioners. The International Ethics Standards Board (IESBA) is the global independent standard setting board, under the auspices of the International Federation of Accountants, and it sets ethics standards for professional accountants worldwide and facilitates the convergence of international and national ethical standards. Its International Code of Ethics for Professional Accountants[2] is based on five principles: integrity, objectivity, professional competence and due care, confidentiality and professional behaviours. The International Organization of Supreme Audit Institutions also has a Code of Ethics[3], with principles of integrity, independence and objectivity, competence, professional behaviour and confidentiality and transparency. Professional bodies in PFM also have their own standards. For example, CIPFA has a Standard of Professional Practice on Ethics[4] that brings into effect the IESBA Code of Ethics.

Internal audit also has a key role as its coverage includes governance and risk management. The Institute of Internal Auditors (IIA) defines the mission of internal audit as to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight[5]. The UK public sector defines internal audit[6] as an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations that evaluates and improves the effectiveness of risk management, control and governance processes. The IIA’s Code of Ethics[7] is grounded on principles of integrity, objectivity, confidentiality and competency. Public Sector Internal Audit Standards for the United Kingdom (UK) [8] includes a Code which applies these IIA Standards to the UK public sector and includes requirements such as to demonstrate integrity, competence and due professional care, and­ to be objective and free from undue influence.

While high standards of behaviour must pervade public life to ensure the sustainability of jurisdictions and communities generally, PFM also has a specific role in some specific wider institutional strategies to ensure ethical behaviour, for instance around good governance and combating corruption. United Nations Sustainable Development Goal 16 specifically addresses promoting of peaceful and inclusive societies for sustainable development, providing access to justice for all and building effective, accountable and inclusive institutions at all levels, and includes targets to substantially reduce corruption and bribery in all their forms and develop effective, accountable and transparent institutions at all levels[9].

In conclusion, the public sector and PFM and its institutions has a lead role to play in ensuring standards in public life are upheld, as scrutiny of behaviour continues to increase in a more complex world, and to support professionals as they face these challenges.

[1] CIPFA Leading the Global Way in Professional Ethics: Making the Principles Real – Chartered Institute of Public Finance and Accountancy

[2] Final Pronouncement – The Restructured Code - International Ethics Standards Board (International Federation of Accountants)

[3] ISSAI 130 Code of Ethics  - International Organization of Supreme Audit Institutions (INTOSAI)

[4] CIPFA Standard of Professional Practice on Ethics - Chartered Institute of Public Finance and Accountancy

[5] Mission of Internal Audit – the Institute of Internal Auditors

[6] Public Sector Internal Audit Standards Guidance for the public sector - HM Treasury and Internal Audit Profession

[7] Introduction to the Code of Ethics - the Institute of Internal Auditors

[8] Public Sector Internal Audit Standards Guidance for the public sector - HM Treasury and Internal Audit Profession

[9] The 17 goals - United Nations: Department of Economic and Social Affairs, Sustainable Development

About the Author

Victoria BrainbridgeVictoria Bainbridge is a consultant and trainer with a specialism in public financial management. Most recently technical advisor and business development manager on international public financial management projects, alongside assignments in local commerce and academia in Germany. Qualified UK accountant (Chartered Institute of Public Finance and Accountancy) and has Certified Internal Auditor qualification. Other expertise includes audit, governance and control, financial systems and processes, and project management and implementation.

About the Author

Related Articles

Accounting for Natural Resources in the Public Sector

How far can public sector jurisdictions account for the natural resources that contribute so much to...

Read More >

Register now for our free PFM Training Webinar

We are delighted to announce that experienced consultant and trainer, Victoria Bainbridge, is joinin...

Read More >

Spotlight on Ethics training: “Ethics - A workshop for Accountants”

I spoke with IASeminars instructor, Caryn Maitland, to learn what makes course 4124 “Ethics – a Wo...

Read More >

Accrual accounting as a foundation for developing Public Financial Management

Public financial management (PFM) has increasingly adopted accrual accounting in recent decades, whi...

Read More >

The importance of gender budgeting in PFM

Public financial management (PFM) covers a wide range of public expenditure on services and goods. R...

Read More >

Developments in Green Public Financial Management (Green PFM)

IMF staff have defined ‘green PFM’ “as the integration of an environment and/or climate-friendly ...

Read More >

Stay Updated with IASeminars

Join 20,000+ other professionals on our global mailing list.