Ethical Decision Making for Private Colleges: The Relationship to the Auditor's Opinion

Colleges and other not-for-profit institutions have been experiencing increasing fiscal concerns because of the American economic downturn that began in 2008. As a result, fraudulent activity is becoming more of an issue. This study focused on the annual auditor's report and its relationship to the ethical relativism of financial managers. In times of desperation, the need to obtain an unqualified audit opinion may result in the financial manager of a company in financial difficulty engaging in fraudulent behavior as a means to revive the institution. The fraud triangle, auditing standards, and ethical stances provided the theoretical foundation for the study. The purpose of this quantitative, survey-based research was to determine the relationship between the annual auditor's report and the ethical relativism of the financial managers within private colleges. The financial managers of 128 private colleges in the southeastern United States were asked to (a) provide the type of opinion received by the college on the last audit report, (b) rate their level of agreement with 10 statements about ethical choices by means of a survey instrument which consisted of a modified version of the Forsyth Ethics Position Questionnaire (EPQ), and (c) provide important demographic data. The survey was conducted using the web-based SurveyMonkey.com, which provided data collection that ensured anonymity. A 2-tailed t test was then used to analyze the data. The findings resulted in a statistically significant difference in the auditor's report and the ethical relativism of financial managers. This information should be shared with auditors, higher education stakeholders, and agencies to test individuals prior to hiring or promoting in order to reduce fraudulent activities, specifically within financially struggling institutions.