H. Chris Der Vartanian, CPA
September 30, 2015
“Whenever you do a thing, act as if the
whole world were watching.”
Thomas Jefferson
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Respect for fellow employees
Time theft
Corporate culture
Ignorance of corporate policies
Stealing telephone time & costs
Stealing office supplies
Playing computer games during work hours
Ethical Conduct means conduct in accordance
with the accepted rules or standards; the
rules of the organization and the law.
It is basically knowing right from wrong.
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Rhode Island Code of Ethics
RI General Laws §§ 36-14-4 through 36-14-7
All State Employees are subject to the Code of
Ethics and, as an employee, you should consult the
Ethics Code and perhaps the Ethics Commission if
you are involved in a situation that is or could
escalate into an ethical issue.
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Institute of Internal Auditors (IIA)
◦ Professional Codes of Ethics. Included in the IIA
Professional Practices Framework
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AICPA
◦ Code of Professional Conduct
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Rhode Island Board of Accountancy
◦ Article II of Regulation 2008-2 adopted the Code of
Conduct of the AICPA as RI’s Code of Professional
Conduct.
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Because non-ethical behavior can do severe
damage to the ―bottom-line‖ of the
organization.
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Positive image in the community.
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Reputation Risk
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The key to fostering strong business ethics
in an organization is to create an ethics
policy that clearly spells out what is
acceptable and unacceptable behavior.
Ethics policies must be reinforced through
training on a regular basis.
What does ―Ethical‖ Really Mean?
―Morality, like art, means drawing a line
somewhere‖
Oscar Wilde 1854 - 1900
Are corporate ethics programs anything new?
No…ethics has always been a part of a well
functioning corporate culture.
Due to recent headlines regarding misdeeds of
some corporate executives, and related impacts to
shareholders of public corporations, the Federal
Government and other professional organizations
continue to set guidelines.
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ZZZZ Best - Barry Minkow
Tyco-Dennis Kozlowski
Enron-Kenneth Lay
Arthur Andersen
WorldCom-Bernard Ebbers
Krispy Kreme
Bernard Madoff
Crazy Eddie Electronics – Eddie Antar
Large Company w/o effective ethics program
Large Company with effective ethics program
____________________________________________________________________________________________________
23%
PRESSURE TO COMPROMISE STANDARDS
3%
____________________________________________________________________________________________________
62%
OBSERVED MISCONDUCT
33%
_____________________________________________________________________________________________________________
32%
REPORTED MISCONDUCT
87%
____________________________________________________________________________________________________
59%
EXPERIENCED RETALIATION
4%
Not controlling bad behavior leads to:
• Fraud and Financial Risks; and
• Reputational Risks
• Translation - $$$$
Former Rhode Island Governor Pleads Guilty in
Corruption Case
BOSTON, Dec. 11— In a surprise ending to one of Rhode Island's biggest
corruption cases, former Gov. Edward D. DiPrete pleaded guilty today to
18 charges of corruption, admitting that he accepted bribes and
extorted money from contractors while in office.
Despite a long history of corruption, Rhode Island has never seen a
governor go to prison.
Mr. DiPrete, 64, said he made the plea in exchange for leniency for his
son, a co-defendant in the case, which was to have gone to trial next
month.
News Release
U.S. Department of Justice
Peter F. Neronha
United States Attorney
District of Rhode Island
May 16, 2011
THREE TIED TO NORTH PROVIDENCE MUNICIPAL KICKBACK SCHEME SENTENCED TO
FEDERAL PRISON
Fourth defendant to be sentenced on Tuesday; Fifth defendant to be sentenced in July
Two former North Providence, R.I., town councilmen who
pleaded guilty in March to federal bribery and extortion charges and a North
Providence businessman who pleaded guilty to acting as the middle-man in
kickback schemes with the councilmen were sentenced Monday by U.S. District Court Chief Judge Mary
PROVIDENCE, R.I. –
M. Lisi.
United States Attorney Peter F. Neronha and Richard DesLauriers, Special Agent in Charge of the FBI’s Boston
Field Office, announced the sentencing of former councilmen Joseph S. Burchfield
and Raymond L. Douglas III, and North Providence businessman Edward Imondi.
A fourth defendant, former town councilman John A. Zambarano, who
pleaded guilty for his role in the bribery schemes , is scheduled to be sentenced on
Tuesday. A fifth defendant, Attorney Robert S. Ciresi, convicted at trial by a federal jury on April 26 for acting as
a middle-man in the bribery scheme, is scheduled to be sentenced on July 28, 2011.
John Zambarano, Raymond Douglas III, Joseph Burchfield
Judge Finds Whiting Guilty
PROVIDENCE — A Rhode Island judge has found North Providence
Police Chief Col. John Whiting, of North Attleboro, guilty.
The Providence Journal is reporting that Whiting was
found
guilty of stealing $714 from a stripper after a car chase
in Pawtucket last summer.
Providence City Worker Caught Stealing Traffic
Signs and Street Signs
The college town of Providence, RI has charged a city worker, Gary Sepe, with
stealing traffic signs and selling them for scraps. Gary Sepe was
caught in the act when he was identifying street signs, road signs, and other
traffic signs to stick his five fingers on.
Gary Sepe, the 45 year old city worker was charged with a misdemeanor count of
fraudulent conversion of property last week. As another consequence, the city
worker was also suspended from work without pay by the Department of Public
Works.
Gary’s brother, Alan Sepe, is Providence’s acting director of
public property- quite embarrassing. The city councilman Michael Correia
saw Gary Sepe was at a scrap yard removing traffic road signs from the Public
Works Department truck and going into the business.
Gary Sepe received a whopping
stop signs and parking signs.
$15
for selling 16 traffic signs including
But Wait,
There’s More
RI Fraud investigators caught slacking on job
PROVIDENCE, R.I. (WPRI) - After receiving a tip from a viewer,
Target 12 went undercover tracking four state workers who
are supposed to be looking out for your tax dollars.
They're Fraud Investigators, the very people paid to
investigate unemployment and disability fraud. But our
undercover unit caught them spending time on personal
errands and relaxing at home - all while on the clock
Now, Target 12 has learned the state police have already
opened an investigation into possible criminal charges based
on our findings.
Central Falls Mayor to
plead guilty to corruption
Four-term Democrat resigned
CENTRAL FALLS, R.I. (WPRI) - Central Falls Mayor Charles D.
Moreau resigned on Wednesday and agreed to plead guilty to
corruption charges, officials announced.
Moreau's attorney, former House Speaker William Murphy,
delivered Moreau's letter of resignation - effective at noon - to
the secretary of state on Wednesday. Rhode Island U.S. Attorney
Peter Neronha, R.I. Attorney General Peter Kilmartin and R.I. State
Police Col. Steven O'Donnell announced the charges against him
two hours after his resignation.
House Speaker William Murphy sees no reason to strengthen ethics
law
EXAMINER.COM -- July 1, 2009….In 2004, the Ethics Commission found probable cause
that Irons voted on legislation which would benefit both CVS and Blue Cross, after gaining
financially from both companies. The State Supreme Court ruled that Iron's vote in the
legislature could not be used against him due to the speech-in-debate clause in the Rhode
Island Constitution.
What is surprising is when officials like House Speaker William Murphy show a public
disdain for high ethical standards:
“I don’t care what state you are talking about, you are always going to have one or two
people who are going to do the wrong thing. That’s human life. But the bottom line is: I can
tell you that my members who are in the House of Representatives are here for the
right reason, and I am just a little cautious to make a regulation for one person.”
• The Speaker's argument is essentially this: Most of us aren't crooks,
so why should we make a law for just one person? Let's look at it
this way: Most people aren't burglars, rapists, murderers, or
shoplifters, yet we have laws against those acts. Why should the
General Assembly be held to a different standard? Why wouldn't
you want to be held to a higher standard in order to be above
repute?
• It's encouraging to see the Governor and Senate President come
out in support of a Constitutional Amendment which would rewrite
the speech-in-debate clause. Unfortunately, it won't mean much if
the Speaker of the House prevents an amendment to hold himself
and his colleagues to a higher ethical standard.
Rhode Island Representative pleads
guilty to tax fraud
Providence, RI: September 28, 2012
Rhode Island Representative john McCauley pleaded guilty to
conspiracy and tax fraud in the U.S. District Court for the District of
Rhode Island. He appeared before Chief Judge May Lisi. McCauley and his
business partner, William L'Europa, both admitted to filing false tax returns
for their insurance adjusting business. Through various methods, they
underreported $1.8 million in income and kept over
$500,000 that they owed to the federal government.
McCauley, who has served on the RI House of Representatives since 1990,
stated, "I made a mistake. I am remorseful." He and L'Europa could
face up to eight years in prison, as well as fines and back taxes. They will be
sentenced in December.
Had Enough??
Gordon Fox Pleads Guilty in
Rhode Island Corruption Case
MARCH 3, 2015
Mr. Fox, 53, took $52,500 in bribes to help a bar and restaurant get
a liquor license and illegally diverted $108,000 in campaign funds
to pay for personal expenses. He made the admissions in Federal District
Court in Providence as part of a plea agreement that calls for a threeyear prison sentence — though a judge will ultimately decide the penalty
— and will almost certainly cost him his law license.
Outside the courthouse, when asked by reporters whether he felt
remorse, Mr. Fox said, ―Absolutely, absolutely, without
question.‖
Only in
Rhode Island you say???
Bridgeport, Connecticut State Rep. Christina Ayala arrested on
19 voting fraud charges
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State Rep. Christina ―Tita‖ Ayala, D-Bridgeport, was arrested Friday on 19
voting fraud charges.
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Ayala, 31, is accused of voting in local and state elections in districts she
did not live, the Chief State’s Attorney’s Office said in a press release.
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The arrest warrant affidavit also alleges Ayala provided fabricated
evidence to state Election Enforcement Commission investigators that
showed she lived at an address in a district where she voted while actually
living outside the district, according to the release.
Ayala, who represents the 128th District, was elected in 2012, replacing
her cousin, Andres Ayala, who was elected to the state Senate. She chose
to run for reelection earlier this year, despite the voting fraud
investigation, but lost a four-way primary in August.
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New York State Senator Vincent Leibell (R) on December 6, 2010, Leibell pled guilty to felony bribery, tax evasion, and obstruction of
justice charges related to $43,000 in cash kickbacks he took from 2003 to 2006.
Leibell had resigned just prior to being arrested, which allows him to keep a $71,000 pension.(2012)
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State Assemblyman William Boyland, Jr. (D) convicted of bribery
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State Assemblyman Eric Stevenson (D) found guilty of bribery, conspiracy and other related charges.
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State Assemblyman Nelson Castro (D) convicted of perjury (2013)
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State Senator Shirley Huntley (D) convicted of mail fraud.[55] She was sentenced to one year and a day in prison.(2013)
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Majority Leader of the New York State Senate Pedro Espada Jr. (D) On May 14, 2012 a federal jury found Espada guilty of embezzling
money from federally funded healthcare clinics, after 11 days of deliberation.
State Senator Nicholas Spano (R), in 2012 Spano was indicted for federal income tax evasion. Spano pleaded guilty to the single felony.
He admitted that he underreported his income — $42,419 in federal income taxes and $10,605 in state taxes — from 2000 to 2008. He
was sentenced to 12 to 18 months in federal prison. (2012)
New York
State Comptroller
Alan Hevesi (D), was convicted on charges surrounding a "pay to play" scheme
regarding the New York State Pension Fund, and was sentenced to 1–4 years. (2011)
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State Senator Carl Kruger (D) resigned his seat and pled guilty to charges of corruption and bribery. (2011)
State Senator Kevin Parker (D), Parker was convicted of a misdemeanor charge, criminal mischief, and on March 21, 2011 was sentenced
to three years probation and a $1,000 fine for attacking a New York Post photographer and damaging the photographer's camera and car
door.(2011)
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State Representative Jose Miranda (D) convicted of fraud. (2013)
Supreme Court Justice
Pennsylvania
, Joan Orie Melvin (R) was convicted in February
2013, on six of seven corruption charges including theft of services, criminal conspiracy, and
misappropriation of state property. (2013)
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State Senator and Democratic Minority Floor Leader of the Pennsylvania Senate Bob Mellow (D) pleaded
guilty to using Senate staffers for campaigns. (2012)
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State Representative and Democratic Minority Whip of the Pennsylvania House of Representatives Bill
DeWeese (D) sentenced to 30 to 60 months in state prison for theft. (2012)
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State Senator and Republican Majority Whip of the Pennsylvania Senate, Jane Orie (R) was convicted in
March 2012, of 14 counts of forgery, conflict of interest and theft of services, which included five
felonies. (2012)
State Representative John M. Perzel (R), pleaded guilty to eight criminal charges, including two counts
of conflict of interest, two counts of theft, and four counts of conspiracy, concerning a scheme to
spend millions of taxpayer dollars on computer technology from Aristotle, Inc. for the benefit of
Republican political campaigns. (2011) Perzel’s Chief of Staff Brian Preski (R) was sentenced to 2½
years.
State Representative Brett Feese (R) sentenced to 4 to 12 years in state prison, an additional 2 years of
probation, a $25,000 fine, and $1 million in restitution for his role in the Computergate state
government corruption scandal.
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State Representative Carlos Henriquez (D) was convicted of two
counts assault and battery charges and sentenced to 2.5 years, with
six months to be served in the Billerica County House of Correction
and the remaining two years to be spent on probation.(2014)
State Representative Stephen Stat Smith (D) pled guilty to two
misdemeanor counts of deprivation of rights under color of law for
his role in a voter fraud scheme. (2012)
Speaker of the House Salvatore DiMasi (D) was found guilty of
using his position to secure multimillion-dollar state contracts for
Cognos, a business intelligence software company, in exchange for
kickbacks. (2011)
State Senator Anthony Gallucio (D) was given one year in prison after
failing a sobriety test and violating his probation from a previous hit
and run accident. (2010)
THEY ALL GOT CAUGHT!!
Making the wrong ethical decision will ruin
your reputation, your credibility and your
family name. Not to mention the irreparable
harm to your family, friends and your
organization.
State and local governments should expend
resources relative to ethics training because:
1.
2.
They have proven to be susceptible to fraud;
and
Their employees do not enjoy the highest
grades with respect to reputation. Why??
Because of the way many of its employees
conduct themselves and what we read about
and see in the media.
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Continuing education credits
Reminds employees of their ethical
responsibilities under state law. Trying to
create better habits.
Human psyche – We forget!!
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Aristotle
384 BC – 322 BC
Moral excellence comes about as a result
of habit. We become just by doing just
acts, temperate by doing temperate acts,
brave by doing brave acts.
The need to control, regulate, and legislate
ethical conduct at the individual, corporate,
and government levels has ancient roots. For
example, one of the earliest law codes
developed, the Code of Hammurabi, made
Bribery a crime in Babylon during the
eighteenth century B.C.
Most societies share certain features in their
ethical codes, such as forbidding murder, bodily
injury, ad attacks on personal honor and
reputation.
In modern societies, the systems of law and
public justice are closely related to ethics in that
they determine and enforce definite rights and
duties. They also attempt to repress and punish
deviations from these standards.
Before you make a decision that deep-down
you know doesn’t feel right and might
cross that ethical line in the sand…
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Think about the possible outcomes;
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Run the situation by a friend or colleague; or
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run it by the ethics or compliance office.
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Know your organization’s code of ethics;
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Live your organization’s code of ethics;
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Use the organization’s reporting channels when
you notice a violation;
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Don’t let a peer ―take you down‖;
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Trust your instincts.
―The reputation of a thousand years may be
determined by the conduct of one hour.‖
Ancient Japanese Proverb
Study of Ethics and Values by the Society of
Human Resource Managers
shared stories of companies whose senior
managers lied to employees, stockholders,
customers. Others that condoned illegal
activities, hostile work environments,
blatantly discriminatory hiring practices
ultimately lead to scandals, careers
shattered and corporate reputations ruined.
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Communicate clearly expectations and values.
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Best way to do that is to “lead by example” and emulate good behavior
each day.
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Recognize employees who provide examples of behavior that the
organization very much admires.
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Human Resources – constantly watching who in the organization is a
leader.
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Communications to managers that it is very important for managers to
“walk the talk.”
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Managers receive the same training that all other employees receive.
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Integrity is “hard to teach but easy to demonstrate.”
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GOOD ETHICS IS GOOD BUSINESS.
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Give employees road maps, some tools, some experiences, and some
advice for colleagues that will help guide them through daily
complexities.
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Get people to do the right thing even when no one is looking – “would I
do this if I knew that I wouldn’t get caught.”
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“Do you want to be the person who would taint the reputation of all
colleagues that you admire and trust?”
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Are hiring practices and the tone you set strong enough and robust
enough to produce employees that display good ethical conduct?
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Are ethical considerations part of the fabric of your business each and
every day?
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Ethics must be ingrained in culture – not just something written on a
wall.
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Always promote a positive and inclusive work environment.
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HR sets the tone for a culture that a company wants to develop.
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Performance is measured over the long run, sometimes decades, and the
message starts at the top.
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Don’t treat it as the “initiative of the month”„consistency in the
message is key.
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Tell your message repeatedly to maintain awareness.
• Consistency requires repetition through company newsletter, videos, CEO
messages to employees, emails, and other delivery methods.
• Ethics hotline should be independent (consider outsourcing) to ensure that
no repercussions against employees.
• Devise an HR evaluation template that not only examines a persons
ability to put a number on the board but also the method by which he/she
accomplishes it (i.e.; behavior, respect for fellow employees, track record,
“not only what was accomplished – but how it was accomplished”).
• Not just PR hype to improve the corporate image.
• It takes work to develop policies and programs and
takes constant vigilance to ensure that policies are being
followed and enforced.
Are You Serious? If so:
1. Make sure that you have buy-in from top
management. TONE FROM THE TOP!
2. Communicate a consistent message.
3. Repeat the message constantly through a
variety of delivery systems.
4. Provide annual training for all employees
and board members.
5. Include an ethics component in
performance reviews.
―Ethics is knowing the difference between
what you have a right to do and what is the
right thing to do.‖
Potter Stewart
Former Supreme Court Justice
January 23, 1915 – December 7, 1985
What the law permits or requires is not necessarily what
is ethically right. For instance, laws allow disloyalty
toward friends, the breaking of promises that do not
have the statute of legal contracts, and a variety of
deceptions.
Laws sometimes require gross immoralities, as did the
Fugitive Slave Act of 1850, which required citizens to
return runaway slaves to their masters, and the U.S.
Supreme Court’s Dred Scott Decision, which in 1857
declared that slaves were not citizens but property (60
U.S. 393, 19 How. 393, 15L. Ed. 691)
Tax Avoidance as an Ethical
Issue
Is there a difference between Tax
Avoidance and Tax Evasion?
 Responsibility to Society to pay fair share.
 Responsibility or your obligation to your client to
minimize tax liability.
Tax avoidance, while legitimate, can be seen
as aggressive when it involves the use of
financial instruments and arrangements not
intended as or anticipated by, governments
as a vehicle for tax advantage.
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In other words, LOOPHOLES.
If you don’t find these loopholes and present
them to your client, someone else may…
Possible loss of client
If the government feels that these loopholes
are not within the spirit of the law and, as a
result, they are loosing tax dollars, the laws
will be changed and the loopholes closed.
Ethics in Sports
 Jeter
the Cheater?
The blurred line between
cheating and gamesmanship.
Don’t the New England Patriots constantly
challenge the rules?
Is this a little like the tax avoidance versus
tax evasion issue?
In a playoff game against the Baltimore Ravens, Patriots
running back Shane Vereen was ineligible yet lined up
as a slot receiver on three separate plays.
That left the Ravens' defense confused about whom to
cover, and the Patriots used it as impetus for a
touchdown drive. Vereen ran a route backward because
he could not cross the line of scrimmage, but it forced
the Ravens to still account for him.
Patriots, used an unusual formation…they
were working within the rules to confuse or
try to confuse.
◦ They found a loophole!
◦ Is it illegal?
◦ Is that ethically wrong?
This season, it will lead to a 5-yard penalty.
The NFL passed a rule that makes it illegal for an
offensive player wearing an eligible number -between 1 and 49, or 80 to 89 -- to report as
ineligible and line up outside the tackle box. Now,
if a player is declared ineligible yet lines up outside
the tackle box, the offense will be penalized for
illegal substitution.
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ESPN’s NFL Nation and ESPN The Magazine
recently conducted a poll of more than 100
current NFL players. The Subject: allegations
that Tom Brady and the Patriots knowingly
deflated footballs during last season’s FC
Championship Game. The findings:
◦ A majority of NFL players surveyed – 58% - don’t
believe the Patriots are cheaters. However, while
72% believe that the Patriots deflated the footballs
in that game, just 16% are upset that New England
allegedly did so.
The Patriots balls were all set at beginning of game to 12.5psi while
the Colts balls were set to 13.1psi. Eleven
Patriots balls were retested first inside the
stadium, while only 4 Colts balls were tested.
Using the gauge that provided the higher
readings on both balls, the Patriots balls
differences were as follows: 4 balls at .2 to .7,
4 balls at .5 to 1.1, 3 at 1.6 to 1.6. All balls were
below the 12.5 minimum.
Colts balls were tested last and differences were:
.15, .9, .8, and .85. All but one ball was under
the 12.5psi minimum.
Timing issues???

Colts raised their concerns with Senior League Officials the day
before the game. NFL forwarded those concerns to Walt
Anderson, the referee assigned to the game. League chose not
to convey the concern to the Patriots.

Pre-game: Balls were missing when the officials were going out
to the field.

If they were interested in a fair playoff game could the league
have taken any preventative measures to ensure that balls were
in their possession the entire time?

The league was not interested in a fair game…if they were, they
would have put appropriate steps in place to ensure such. They
were more interested in ―bagging‖ the Patriots.
What steps could they have performed to prevent this.
does this relate to Ethics?
How
Wells report also relied on three autographs that Tom Brady signed
for Equipment Manager, McNally and gifts for Jastremski. Brady says
that he does not recall signing them but stated that he also doesn’t
recall a time when he does not sign when asked.
If receiving an autograph from Tom Brady is evidence that one is
being rewarded for nefarious behavior, then hundreds upon
thousands of people must be part of a scheme or wrongdoing.
Is this appropriate evidence? Was the report over-reaching?
Wells reports states that McNally took 1 minute 40 seconds in
the bathroom. Based on that fact, the report concluded that
it was an amount of time sufficient to deflate 13 footballs
using a needle.
What else is 1 minute 40 seconds sufficient time to do in a
bathroom that is not mentioned in the report??
Conclusion:
―Based on the evidence, it was in our view that it is more
probable than not that Tom Brady (the quarterback for the
Patriots) was at least generally aware of the inappropriate
activities of McNally and Jastremski involving the release of air
from Patriots game balls.‖
As an auditor, would YOU make this statement based on the
evidence obtained?
“Whenever you do a thing, act as if the
whole world were watching.”
Thomas Jefferson
Contact:
H. Chris Der Vartanian
SVP – Chief Risk Officer
Navigant Credit Union
Smithfield, RI 02917
cdervartanian@navigantcu.org
401-233-4306