KPMG 2013 Integrity Survey Highlights why Fraud Occurs and Challenges to Integrity in the Workplace

Integrity is the basis for trust in business. It is critical to having an ethical workplace environment. Integrity is a fundamental trait of character that enables a person to withstand pressures that might compromise ethical judgment and lead a person to act out of expediency, and even greed, rather than from a principled perspective.

Imagine if your boss told you to be silent about the fact that the financial statements have been manipulated to increase earnings prior to a stock sale or in order to increase stock option value for top managers. Furthermore, it is clear as day that if you do not go along with the demand you are likely to be fired. What would you do in such a situation?

An organization has its own ethical practices that may or may not coincide with the ethics of those who work for the organization. When we have a Low (organization) – High (individual) pattern, the ethical dilemmas lead to a great deal of pressure imposed on subordinates to “be a team player” and go along with wrongdoing. Often, the rationalization given to the employee is “it is a one-time request.” Rarely does it work that way because once wrongdoing occurs and goes unchecked, the organization begins the slide down the proverbial ‘ethical slippery slope’ and there is no turning back.

Integrity is the ethical value that enables an employee to look for ways to change the culture of an organization, at least with respect to a specific occurrence of wrongdoing. The employee seeks out those in the organization that might help her withstand the pressure while gathering the data and rules that support a position built on integrity. The employee then should approach her supervisor and try to convince him to change the accounting. It is with these characterizations in mind that I was interested to read the KPMG Integrity Survey 2013.  

The KPMG Integrity Survey 2013 provides an inside look into corporate fraud and misconduct as derived from the experiences and perceptions of more than 3,500 employees in the U.S. Some of the key findings include:

• A majority of employees (73%) reported that they have observed misconduct in the prior 12-month period. More than half (56%) reported that what they had observed could cause “a significant loss of public trust if discovered.”
• The prevalence of misconduct that could cause a “significant loss of public trust if discovered” reported by employees in a number of industries saw a marked increase from the results of the 2009 survey   
• One of the most commonly-cited drivers of misconduct continues to be attributed to pressure to do “whatever it takes” to meet business goals. Other commonly-cited causes included not taking the organization’s code of conduct seriously, having in place systems that rewarded results over means, and the fear of job loss if targets are not met.
• While the propensity to report misconduct to an ethics hotline has increased, employee willingness to look the other way and do nothing or to report the conduct outside the organization has also increased. Such results demonstrate a continuing need for organizations to enhance the effectiveness of their internal reporting mechanisms, especially in light of the provisions of various federal and state whistleblowing laws such as Sarbanes-Oxley and Dodd-Frank.
• Having in place formal ethics and compliance programs continues to make a positive difference. Employees who work in companies with that have formal programs report more favorable results across the board than employees who work in companies without such programs.                

Potential fraud can be combated through integrity-based decision-making. It must start at the top by top management setting an ethical tone and making it clear to employees that their actions should be based on ethical standards and policies that are part of strategic management. Top management must walk the talk of ethics.

A quote I like about integrity in life comes from W. Clement Stone. He said: “Have the courage to say no. Have the courage to face the truth. Do the right thing because it is right. These are the magic keys to living your life with integrity.”

Blog posted by Steven Mintz, aka Ethics Sage, on August 14, 2013