When there is an allegation of fraud that turns into a reality, everyone usually asks the question, “Why wasn’t the alleged fraud caught sooner?”
Maybe because one profile of a fraudster includes a salesperson mentality that is cloaked with a “false sense of integrity“, hoping your level of skepticism is lowered in an effort to deceive you, or deflect, or direct you away from them and the evidence being concealed that could ultimately prove a fraud has occurred.
So how can you increase your odds of detecting an ethical meltdown, or worse, a fraud?
Let me try to lay it out for you.
The word “ethics” is derived from the Greek word ethos (character), and from the Latin word mores (customs). In essence, it is what you do or don’t do when no one is watching.
It’s always clear what’s right or ethical in a perfect world, but we don’t live in a perfect world! In the real world, situations are often murky.
Someone’s wrong can be your right, which means your right will definitely, at some point, be someone else’s wrong. Most of the time the “right” choice can be subjective.
At some point, senior leadership and employees will have to make tricky ethical decisions and often those decision are impacted by ethical conflicts, which are influenced by pressure or some other factor(s). Recognizing these conflicts and the red flags can help deter a situationally ethical senior leader or employee from crossing over the line.
Some common ethical conflicts include the following –
Truth vs. loyalty – Honesty or integrity vs. commitment, responsibility, or promise-keeping.
Justice vs. mercy – Fairness, equity, & even handed application of a principle or rule conflict with compassion or empathy.
One vs. many – When the needs of an individual person or group conflicts with the needs of a larger group or society as a whole.
Short-term vs. long-term – Now vs. then conflicts arise when immediate needs or desires run counter to future goals or needs.
- Pressure to maintain sales, budgets, etc.
- Behavior that uses fear and silence
- Leaders with a big or unconstrained ego/personality or hubris (infallibility and superiority)
- Conflicts of interest that are overlooked or unaddressed
- An attitude that goodness in some areas atones for evil in others
Here are some linguistical red flags that I find helpful too*-
- “Well, Maybe just once…”
- “No one will ever know…”
- “It sounds too good to be true…”
- “Everyone does it…”
- “Shred that document…”
- “We can hide it…”
- “No one will get hurt…”
- “What’s in it for me…”
- “This will destroy the competition…”
- “We did not have this conversation…”
Board of Directors Role in Helping Thwart an Ethical Meltdown
- Bolster your corporate governance framework by having it reviewed by an outside party;
- Ensure the communication from senior leadership is appropriate and pure (not filtered);
- Have a strong working relationship with CEO and work together to develop strong ongoing monitoring protocols;
- Go out into the field and talk to mid-level managers – listen for a murmur;
- Be sure the written policies are more than the bare minimum of compliance – require more than just the minimum;
- Listen to dissenters carefully;
- Understand that Tone and Conduct from the Top is not just the CEO’s responsibility – it’s also the Board of Directors; and,
- Reward people who speak up and help minimize damage or even save the organization.
Everyone in the organization is responsible for ethics and sustaining a culture of compliance!
Be cognizant of the common ethical conflicts and deal with them timely and appropriately.
Don’t ignore any red flag.
I welcome your thoughts, opinions, and suggestions.
Jonathan T. Marks, CPA, CFE
*Tip – consider these when doing an email search during an investigation.