Fraud Prevention Tip #4: Create a Solid Ethical Foundation

My four-hour presentation on fraud prevention had just ended. Over two hundred people were leaving the room and headed to their next conference session. One man lingered behind in front of the stage, and as I packed up my computer and cables he introduced himself and asked a great question – How do we know our organization has a solid ethical foundation?

That’s not a question with a quick answer. So we left the room, found coffee, and invested 45 minutes in making a list of the minimum attributes of a business environment build on ethics. Here’s our result.

• Clear Definition of Who We Are As An Organization

Somewhere out there, your business is probably being targeted for fraud. Internet-based hackers, international organized crime organizations, and even a small percentage of employees all see your business assets and information as too tempting to ignore. But what should you do to deter these barbarians at the gate – or already inside your business? Managing business fraud risks requires your daily attention. It’s a ‘cat and mouse’ endeavor where the smarter we get, the harder they have to work to get us. While there are many prevention and deterrence steps you can take, here are three critical components of any business anti-fraud program.

This isn’t marketing copy, this is a statement of who we are, what we do and why. It’s a statement that every employee publicly signs-on to support, and every supplier, contractor and customer can look to when seeking guidance about how to act when dealing with us. It clearly says that we practice the highest of ethical principles every single day, that we treat our employees and all others with respect and fairness, that we honor our commitments, that we create and maintain a safe work environment, and that we strive to ‘do the right thing’ in our business practices.

• Management Example

We walk the ethical talk at all levels of management. The ‘tone at the very top’ is the same as the tone for the fist level supervisor. There is no difference between our ethical statements and our deeds. When we are unsure of an action, we seek guidance first. And when real-world events create uncertainty, we report these events immediately so that objective action can be taken if appropriate. Transparency is the norm.

• Code of Conduct

We have a written Code of Conduct that lays out required behaviors in day-to-day and non-routine business situations. This Code provides clear instructions, ‘what-if’ examples, and answers to likely questions. It’s the same Code for executives and employees regardless of level, position or length of service. Employees and others refer to the Code for practical guidance on what to do and what to avoid. The Code recognizes that not all situations can be anticipated, so when unique events don’t match Code guidance employees are directed on how to obtain clarity from authorized sources before taking action. “When in doubt, talk it out” is the norm.

The Code of Conduct is formally reviewed annually in a meaningful way – ideally at the first staff meeting of the year. Employees are required to sign-off on Code compliance as part of this annual review including a positive acknowledgement that they are not aware of any Code violations in themselves or others. Suppliers and contractors are required to honor our Code, and our Code is made part of all procurement or contracting documents.

• Positive Work Environment

A positive work environment includes:

• Clear measurable job requirements
• Objective performance measurement
• Reward systems consistent with mission and ethics
• True equal opportunity
• Collaborative decisions when feasible
• Safe conditions
• Clear meaningful communication
• Meaningful training and development
• Employee empowerment consistent with job requirements
• Trusted mechanisms to obtain advice or report concerns

• Quality Comes First

Quality in business gets a lot of talk, but is too often pushed to the side when time and cost pressures are present. A real observable measurable culture of quality is essential to a foundation of ethics. Quality includes meeting our commitments as best we can; honoring laws, regulations and policies in both letter and intent; respecting individuals, the community and the environment; and simply doing the right thing at all times. ‘On time done right’ is the balanced goal of daily behavior at all levels

These five foundation principles of an ethical business environment aren’t everything, but they are a solid start. Operating practices, internal controls, market conduct and everything else we do as an organization all flow from our core ethical principles. As with everything else in business, the Chief Executive Officer leads the charge. The CEO must demand compliance and hold all accountable for results.

How does your organization stack up against this baseline? Let us know if we can help you assess your current state and assist in building a Better! result.

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”