Conflict of Interest in Business

S

shohreh

#1
Dear All,

Hope you all are doing fine.

there is an issue which bothers me related to the subject and would like to clarify with QMS evidence.
we have internal audit activity running in our firm via a 3rd party. their report always includes the observation, risk/implication, recommendation and management response. but at the same time, the same company is doing consultation business in term of documenting the policies, process and procedures in certain areas which also they audit.

from my point of view; both business contradict and it will be conflict of interest. Therefore, I would like your advice to support my theory with evidence in relation with QMS and ISMS or any management systems.

Thank you and best regards
 
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G

Gmzita

#2
Good Luck with this.

I had a friend in a similar situation - Hired consultant who literally wrote the QA Program and then would accept commissions from other companies to come back in and audit that same program. He actually would write-up several negeative non-conformances against his own work and advise the QA Mgr that he was responsible to resolve them. During one audit - my friend actually left the audit because it got so bad.

In the end, he could not get management to see that there was a major conflict and opted to retire instead of continuing to deal with it.

My only piece of advise after witnessing his situation is to proceed with caution! Depending upon how entrenched the consultant is - you may be the one on the outside looking in.
 

Steve Prevette

Deming Disciple
Staff member
Super Moderator
#4
My employer requires self disclosure of any potential conflict of interest. For example, I teach courses as an adjunct for a local technical college. I have a form on file with my employer documenting I am paid to teach by that college. That would also require me to recuse myself from any decisions made with respect to supporting or using services from that college.
 

somashekar

Staff member
Super Moderator
#5
from my point of view; both business contradict and it will be conflict of interest.
Is your point of view about your company or the third party ... ???
If about your company then it is nothing to do with conflict. It is about poor selection.
If about the third party, then as long as you are encouraging him with both hats, he is making double money from you and he will be more interested in your contracts than think of conflict of interest.
The third party will love conflicts for continued contracts.
 

Wes Bucey

Quite Involved in Discussions
#6
Dear All,

Hope you all are doing fine.

there is an issue which bothers me related to the subject and would like to clarify with QMS evidence.
we have internal audit activity running in our firm via a 3rd party. their report always includes the observation, risk/implication, recommendation and management response. but at the same time, the same company is doing consultation business in term of documenting the policies, process and procedures in certain areas which also they audit.

from my point of view; both business contradict and it will be conflict of interest. Therefore, I would like your advice to support my theory with evidence in relation with QMS and ISMS or any management systems.

Thank you and best regards
First, "internal audit" by its very nature is not a conflict of interest - the goal is to assure the organization systems are working as intended, NOT to act as a policeman, judge, and jury to punish folks who err by accident, ignorance, or even intent.

The result of an internal audit is a report to management that one of the following situations exists:

  1. everything is going according to the organization's written plan and there are no apparent reasons to change
  2. employees are not following the written plan and this is causing discrepancies or nonconformances in finished products or services - some action needs to be taken
  3. employees are not following the written plan, but their adaptations have resulted in improvements and investigation is required to determine if the written plan should be changed
  4. everything is going according to plan, but auditors have noticed some opportunities for improvements which might be explored

Item 4, of course, is a form of consulting and is one of the major bugaboos in third party auditing by registrars, but is perfectly acceptable and desired when doing in-house auditing.

Let me offer a bit of data which might put this in perspective:
Depending on the size of the consulting firm, it is entirely possible they have erected a type of Chinese Wall between consultants and auditors to deflect conflict of interest criticism. If they have, it is definitely one of the primary issues they discuss with the top management of a client company. Armed with such knowledge, the client can then make an informed decision about hiring the auditor/consultant.

I suspect OP is not high enough on the totem pole to have firsthand knowledge of the existence, if any, of such a Chinese Wall. Deming's theory about a System of Profound Knowledge (SoPK) posits such knowledge should be widely disseminated throughout the company. A good consulting firm should have made such dissemination part of the conditions of employment, precisely to avoid suspicions of conflict of interest.

Years ago, I started a thread about "Ethics." It did not specifically address "conflict of interest," but it did talk about how a low level employee should protect himself FIRST when he suspects wrongdoing in his organization. In any regard, I think OP would benefit from reading through this thread Ethics - Moral law vs. Criminal law especially this comment in Post 1
  1. Confirm your suspicion that you witnessed wrongdoing on purpose versus from ignorance. A guy who realizes he transposed his digits the first time he wrote an inspection dimension and erases the error is not a criminal - just a fool. A manager who creates a forged SPC chart to meet a 1.33 Cpk requirement is both a fool and a criminal.
  2. If the wrongdoing is from ignorance, your primary responsibility is to inform someone in authority within the organization so they can investigate and take some sort of corrective or preventive action.
  3. If the wrongdoing is from criminal intent, you ought to determine if it is limited to one individual or is systemic.
  4. If individual, see item (2), unless it is the very top officer; if systemic, or the top officer, see a qualified employment lawyer first, before gathering documents or secret recordings. The primary purpose of the lawyer is to protect you and your family, then to expose the criminal activity to proper authorities, perhaps even to cooperate or collaborate with authorities. Under no circumstances should you attempt to do any cooperation or collaboration with authorities without advice and agreement from your attorney every step of the way.
 

Jim Wynne

Staff member
Admin
#7
First, "internal audit" by its very nature is not a conflict of interest - the goal is to assure the organization systems are working as intended, NOT to act as a policeman, judge, and jury to punish folks who err by accident, ignorance, or even intent.

The result of an internal audit is a report to management that one of the following situations exists:

  1. everything is going according to the organization's written plan and there are no apparent reasons to change
  2. employees are not following the written plan and this is causing discrepancies or nonconformances in finished products or services - some action needs to be taken
  3. employees are not following the written plan, but their adaptations have resulted in improvements and investigation is required to determine if the written plan should be changed
  4. everything is going according to plan, but auditors have noticed some opportunities for improvements which might be explored
Item 4, of course, is a form of consulting and is one of the major bugaboos in third party auditing by registrars, but is perfectly acceptable and desired when doing in-house auditing.
Opportunities for improvement (OFIs) are a normal and expected output of third-party audits. What's generally considered "consulting" and out-of-bounds is advice in implementing them.

Let me offer a bit of data which might put this in perspective:
Depending on the size of the consulting firm, it is entirely possible they have erected a type of Chinese Wall between consultants and auditors to deflect conflict of interest criticism. If they have, it is definitely one of the primary issues they discuss with the top management of a client company. Armed with such knowledge, the client can then make an informed decision about hiring the auditor/consultant.

I suspect OP is not high enough on the totem pole to have firsthand knowledge of the existence, if any, of such a Chinese Wall. Deming's theory about a System of Profound Knowledge (SoPK) posits such knowledge should be widely disseminated throughout the company. A good consulting firm should have made such dissemination part of the conditions of employment, precisely to avoid suspicions of conflict of interest.
The potential conflict of interest the OP is referring to is simply a consulting firm that's doing internal auditing of documented procedures that they also designed. The question is, can the auditors be considered independent of the functions that they're auditing?
 

Wes Bucey

Quite Involved in Discussions
#8
Opportunities for improvement (OFIs) are a normal and expected output of third-party audits. What's generally considered "consulting" and out-of-bounds is advice in implementing them.
I did say "form of."
The potential conflict of interest the OP is referring to is simply a consulting firm that's doing internal auditing of documented procedures that they also designed. The question is, can the auditors be considered independent of the functions that they're auditing?
Precisely! Same individual does consulting AND audit? Probably a conflict, EXCEPT that he is really checking on whether the employees are executing the system he suggested, in which case, such "internal audit" is just evaluation of effectiveness of suggestion and training.

This "auditor" is not examining his system (perhaps his creation), but examining its implementation. I freely admit he may be biased and not willing to admit/tout the existence of either #3 or #4 situation in my list
  1. everything is going according to the organization's written plan and there are no apparent reasons to change
  2. employees are not following the written plan and this is causing discrepancies or nonconformances in finished products or services - some action needs to be taken
  3. employees are not following the written plan, but their adaptations have resulted in improvements and investigation is required to determine if the written plan should be changed
  4. everything is going according to plan, but auditors have noticed some opportunities for improvements which might be explored
 
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