The ACFE's Code of Professional Ethics
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GUEST BLOGGER
John Gill, J.D., CFE
Vice President - Education
On the CFE Exam there are a few questions about the ACFE Code of Professional Ethics. The good news is that most of these questions are very straightforward and shouldn’t give you any trouble. Things like “don’t violate the law” or “don’t engage in conflicts of interest” are pretty self-explanatory. But there are two areas that I have found sometimes cause people a little confusion.
Opinions on guilt or innocence
The last sentence of Article Five of the Code says, “No opinion shall be expressed regarding the guilt or innocence of any person or party.” I was the ACFE’s first general counsel, starting in 1995. I would often get calls from members asking about different things, but the question I got most often was about the meaning of that sentence.
When a CFE is hired to conduct a fraud examination, one of the goals is to determine, “Has a fraud been committed?” But the second question becomes, “Who committed it?’
If CFEs aren’t allowed to offer opinions on guilt, then how can we say someone committed fraud?
The answer is not as complicated as you might think.
ACFE members are not allowed to declare someone legally guilty (or innocent) of an offense. Whether or not someone is guilty of a crime is an issue for the criminal justice system. Only judges or juries can declare someone guilty or innocent. That is all the rule is saying. It cautions you in your report or in your discussions with clients to avoid using the phrase, “This person is guilty.” Guilt is a legal determination.
Can you say someone committed fraud? Yes, as long as you have a basis for that finding. I often use the example of Bernard Madoff. Assume I was hired in 2008 to determine if Madoff was running a Ponzi scheme. I go through the books and records and determine that Madoff was taking money from investors, but he was making no real investments. Any money received by the initial investors came from funds received from subsequent investors. These facts exactly match the definition of a Ponzi scheme.
It would be completely proper to say in my report: “Based on the facts I found and that I have described in my report, it appears that Mr. Madoff was engaged in a Ponzi scheme.” That is a reasonable statement based on the facts you found. But I cannot say this: “Bernard Madoff is guilty of running a Ponzi scheme.” In order to be guilty of an offense, the person must either plead guilty or be found guilty after a legal proceeding.
For the CFE Exam, just remember this simple statement: ACFE members cannot declare anyone guilty or innocent — those are legal determinations.
Confidential information
Article Six of the ACFE Code of Professional Ethics states, “An ACFE Member shall not reveal any confidential information obtained during a professional engagement without proper authorization.”
This rule is also easier to understand than most people think. On the test (and in practice), if you are going to turn over information to anyone outside the organization, then you must have proper authorization. All the facts and evidence you gather are confidential — meaning you must not disclose any of it to outsiders or people not involved with the investigation. If you are going to turn over any confidential information to others, then you must show you “proper authorization” to do so.
So, what is “proper authorization”?
Here are the three most common examples:
The client tells you to turn the information over to someone outside the organization.
You receive a valid legal order to turn the information over (such as a search warrant or subpoena).
There is a law that requires you to report the information to the government or regulators.
On the Exam, if you get a question about confidentiality of information, just stop and remember these two concepts:
The information obtained during a fraud examination is confidential. Therefore, it cannot be released without proper authorization.
In the scenario presented in the question, is there proper authorization? Did the person receive permission from his or her employer or client to release the information? Did they receive a legal order to turn over the information or was there a law requiring them to turn it over? If they did, then it’s not a violation of the Code of Ethics to turn over the information.
Acting ethically is important in every profession, but it’s particularly important for fraud examiners. The ACFE Code of Professional Ethics is important because it makes clear the high standards the ACFE expects its members to follow.