The bright line in ethics
Ethics is your moral code. Its your values, your sense of right or wrong. Its the principles you live by. However, ethics has degrees based on one’s values and principles. Ethical conduct does not always equate to following the rules.
Breaking the law a little is the same as breaking it a lot. Its black or white, not shades of gray. If employees feels that breaking the rules a little is no big thing because it was not “major”, your organization is already at risk for fraud. Your company should have a clear, concise set of rules with as little ambiguity as possible. Punishment for violation of those rules should also be spelled out and most importantly, applied consistently to all violators.
The tone at the top
What is the culture of the overall management? Does management abide by the same rules that they expect employees to abide by or do they circumvent them? The tone at the top is important in establishing an environment of ethical work. Employees need to see that management values the rules, otherwise there is no reason for employees to value them.
What is the culture of the area where fraud could occur the most? This is an important question and even more important are the responses. Fraud occurs commonly where it is “encouraged” or unethical behavior is frequently overlooked. To reduce the risk of fraud, management should identify the areas most susceptible to fraud and evaluate the culture in those areas. This information will serve the basis for a risk assessment, i.e. how likely is fraud to occur.
Rationalization: It doesn’t hurt anyone
We always have reason why we did something wrong, don’t we?
What pressure is being placed on people? Pressure comes in the form of external and internal. External pressure could have to do with personal financial problem, where internal pressure could be related to promotions, performance, and job security. Pressure is probably the biggest reason that otherwise ethical people, commit unethical acts. Understanding the pressures faced by your employees can assist with reducing the risk of fraud occurring.
As humans, we all have a morale code that we follow, to some degree. For an organization, the varying degrees of ethics is why the risk of fraud should always be in the front of management’s mind. There are other reasons someone commits fraud, but reinforcing an environment of ethical behavior and reducing pressures, can go a long way in mitigating fraud.