Character and Leadership in the Workplace
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Fraud in the Workplace: Building an Ethical Organization Environment

Organization’s must “walk the talk” of Ethics

This is the second of a three-part series on building an ethical workplace culture. Last Friday I blogged about 'Character and Leadership in the Workplace.' Today's blog addresses workplace fraud and building an ethical organization environment.

According to the National Federation of Independent Business, the average small business loses $190,000 from a fraud incident, more than the largest corporations in America. There are several reasons it’s so easy for small companies to be victims: lack of money for security measures, employees performing multiple tasks across several departments, and inexperienced workers. Fraud can occur in any aspect of business, from employees to purchases and everything in between.

Fraud prevention is one of the biggest challenges facing small business. Due to the lack of resources necessary to effectively protect themselves, small businesses lose nearly $630 billion to fraud each year and are almost twice as likely to experience internal fraud as larger organizations.

According to the 2012 Global Fraud Survey of the Association of Certified Fraud Examiners (ACFE), occupational fraud is a significant threat to small businesses. The smallest organizations in the study suffered the largest median losses. These organizations typically employ fewer anti-fraud controls than their larger counterparts, which increases their vulnerability to fraud.

Overall, research by the ACFE found that employees were more likely than their bosses to commit a fraud within a company. Of those that had committed fraud at work, 42 percent were employees and 38 percent were managers. Additionally, 18 percent of fraudsters were business owners and executives. 

What can a small business do to prevent fraud from infecting the workplace? Here are some of my thoughts.

  • Establish a credo that states clearly what the organization stands for – aspirational values to guide all behavior both within the organization and with its external stakeholders
  • Develop ethics standards that address all relationships with stakeholders – not a code of ethics that is typically ignored. Those standards should establish guidelines for ethical behavior in the organization that builds on the values embedded in the credo
  • Develop an ethics training program for employees that addresses the specific needs of the organization built around the stakeholder responsibilities; offer the training program every year to address changing dynamics in the workplace
  • Develop a separate training program for top management that addresses occupational fraud and financial statement fraud. A separate program is necessary because of compliance regulations such as Sarbanes-Oxley and Dodd-Frank. Compliance and ethics go hand in hand
  • Establish a procedure within the organization (i.e., hot line) for employees to report perceived unethical behavior, fraud, and other actions that violate the organization’s norms and its legitimate concerns about compliance with regulations
  • Reward ethical behavior and punish unethical behavior. Employees must be taught and shown by action and deed that the organization values ethical behavior and will take corrective actions when its ethical standards have been violated
  • “Walk the talk” of ethics and incorporate ethics into strategic planning

Being ethical in life is challenging enough because of all the diversions and pressures we sometimes feel to take shortcuts that may be in our own self-interest but that violates societal norms and may harm others. Being ethical in an organization is more difficult because of the varied personalities that come into play and natural conflict that occurs when people deal with other people in the workplace. It starts with an ethical “tone at the top” that infiltrates throughout the organization backed by specific actions to encourage ethical behavior.

In my next blog I will address the implications of establishing an ethical organization environment and what might happen when the reverse occurs.

Blog posted by Steven Mintz, aka Ethics Sage, on October 15, 2013

 

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