It’s long been clear that organizations with strong ethical cultures perform better than those without. In addition to the multitude of positive impacts a strong ethical culture provides, these organizations will also typically experience less fraud and misconduct. However, to achieve maximum results, a strong ethical culture must focus on accountability and include robust fraud prevention measures.
Ethical accountability takes time and effort to build, but the rewards of fostering the right culture in an organization are measurable. Fewer fraud incidents, for example, can be demonstrated by hard numbers. A strong code of conduct is a great start, but it’s critical to have a comprehensive ethics program that fosters accountability.
Join Joseph Agins, CFE, CCEP, adjunct professor and fraud expert, as he outlines strategies organizations can use to ensure every employee from the C-Suite down has the tools they need to help them make ethical decisions and prevent fraud.
The webinar will cover:
The importance of tone from the top
Identifying the pressures employees face and thus the ethics and fraud risks
Understanding the resources employees have (or not) to report wrongdoing
Whether the internal imagining of the culture matches the reality
Developing tools and strategies for fostering ethics in the workplace
Anti-fraud measures that should be incorporated into every ethics policy
Encouraging ethics and accountability
Polkadot JAM Slides - Token2049 - By Dr. Gavin Wood
7 Ways to Increase Ethical Accountability and Decrease Fraud Risk
1. 7 Ways to Increase Ethical
Accountability and Decrease Fraud
Risk
Joseph Agins, CFE, CCEP, Fraud, Ethics & Compliance
Expert
2. Learning Objectives
1. The importance of tone from the top
2. Identifying the pressures employees face and thus the ethics and fraud
risks
3. Understanding the resources employees have (or not) to report
wrongdoing
4. Whether the internal imaging of the culture matches the reality
5. Developing tools and strategies for fostering ethics in the workplace
6. Anti-fraud measures that should be incorporated into every ethics
program
7. Encouraging ethics and accountability
3. 1. The importance of Tone from the Top
• This one is #1 for a reason
• The importance of tone from the top simply cannot be understated
• Is it Cliché? Yes! Absolutely!
• It is quite literally the foundation, bedrock or cornerstone of any
compliance & ethics or fraud program
• The tone from the top sets an organization’s guiding values and ethical
climate
• Employees increasingly want to be identified with an organization that
stands for something more than quarterly earnings
• Employees look to their leadership to set the tone and will emulate them
4. 1. The importance of Tone from the Top
Creating and Maintaining Tone from the Top
• Leaders must find ways to connect with employees in order for
employees to see their values in actions
• Ethics, compliance and fraud program communications should include
messaging from leadership
• Training – orientation, professional development, mentoring should all tie
back to ethics, accountability and values
• Onboarding - recruit and hire as much for “character” as for
“competency”
• Recognition and rewards - employees should be measured not only on
what they did but how they did it
5. 1. The importance of Tone from the Top
Creating and Maintaining Tone from the Top (cont.)
• “Speak up” culture
• Accountability
• Nothing will undermine tone more quickly than turning a blind eye
towards those whose actions do not comport with the organization’s
values/culture
6. 2. Identifying Pressures Employees Face
Identifying the pressures employees face and thus the ethics and fraud
risks
• The Fraud Triangle
• Internal/External pressures
• Red Flags
• Releasing the pressure
• Risk assessments
7. The Fraud Triangle
The fraud triangle is a model for explaining the factors that cause someone to
commit occupational fraud. It consists of three components which, together,
lead to fraudulent behavior:
• Pressure
• Opportunity
• Rationalization
8. The Fraud Triangle - Pressure
Pressure = the motivation or reason to commit the fraud.
Example pressures:
• Financial distress
• Addiction
• Desire to live/maintain a lavish lifestyle
• Performance numbers
• Too much work/not enough time
• Poor or perceived poor tone at the top
• Adverse relationships between management and employees
9. The Fraud Triangle - Rationalization
Rationalization = the individual’s mindset and justification that its okay to
commit the fraud.
Example rationalizations:
• I’m going to pay it back
• I deserve a raise
• I don’t get paid what I am worth
• They were going to throw it away anyway
• Nobody will miss the money
• Everyone else or upper management is doing it so why shouldn’t I?
• Adverse relationships between management and employees
10. The Fraud Triangle - Opportunity
Opportunity = the ability to commit the fraud.
Example opportunities:
• Weak, ineffective or lacking internal controls
• Lack of supervision/management oversight
• Poor documentation of processes
• Low fraud awareness
• Too much trust
• Poor Tone at the Top can also result in an opportunity or an
organization that is more susceptible to fraud.
11. Internal/External Pressures
External Pressures
• Financial difficulties
• Addiction
• Living beyond means
Internal Pressures
• Lack of appreciation
• Lack of respect
• Perception of being undercompensated
• Unrealistic expectations
• Do whatever it takes
12. Red Flags
What is a red flag?
• A set of circumstances that are unusual in nature or vary from the normal
activity.
• A signal that something is out of the ordinary and may need to be
investigated further.
• Does not indicate guilt or innocence but merely provide possible warning
signs of fraud.
13. Red Flags
According to the Association of Certified Fraud Examiners, these 7
behavioral red flags have been the most common in every study going
back to 2008, with remarkably similar distribution.
Many of these relate back to “pressure”
Source: ACFE Report to the Nations – 2020 Global study on occupational fraud and abuse
14. Red Flags
Here we see red flags broken down internally and externally. And, again,
many if not most of these relate to some sort of “pressure”
Source: ACFE Report to the Nations – 2020 Global study on occupational fraud and abuse
15. Relieving Pressure
• Some pressures we can’t do anything about. Especially those external
pressures that may exist in people’s personal lives.
• However, we can and should do what we can through EAP and other
programs most organizations have.
• Certainly, there are some internal pressures we do have control over and
can work to alleviate. Then, there are some pressures that are simply part
of the job.
• Most often, good employees simply need guidance. This is where an
expanded hotline/helpline program comes in.
• If an employee has a safe, confidential, trusted place to report concerns
and/or ask for guidance, many of them will use it.
16. Risk Assessment
Fraud risk assessments are very comprehensive and include many tools.
The Fraud Triangle can be used as one of these tools.
• Which employees in our organization would feel the most pressure to
commit fraud or misconduct? (Pressure)
• How would they do it? (Opportunity)
• How might they convince themselves committing fraud is okay?
(Rationalization)
17. How aware of The Fraud Triangle were you prior to the last few slides?
a. No clue whatsoever.
b. I have heard of it before but can never remember the names of the 3
sides.
c. I have a good working knowledge of The Fraud Triangle.
d. Master level - I pretty much invented The Fraud Triangle.
Poll Question #1
18. 3. Understanding Resources
Understanding the resources employees have (or not) to report
wrongdoing
• This may be the most important section of the presentation.
• “Speak up” culture?
• Hotline/Helpline program?
• Alleviating pressures we discussed earlier
• 43% of occupational frauds are discovered by tips
• Best practices
• Simply having a hotline is not enough
20. 3. Understanding Resources
Hotline Best Practices (cont.)
• Timely follow-up
• Escalation criteria
• Socialization and training
• Quality control
• Effective case management tool
• Reporting
• Demonstrate trustworthiness
• Timely investigations/Case closure notifications
21. 3. Understanding Resources
Hotline Best Practices (cont.)
• It all comes down to socialization and trust
• Leveraging the data to help understand the culture
• Anonymity rate example
22. 4. Internal Imaging of Culture
“We have a great culture at ABC Widgets Inc.” Leadership often
mistakenly think they know what the culture is when they really have no
idea.
Does the internal imaging/perception of the culture match the reality?
• How are things “really done?”
• Compliance by wandering around
• Culture must and can be measured
• We must know what is broken in order to fix it
• Culture surveys
• Hotline program data
23. 5. Developing Tools and Strategies
Developing tools and strategies for fostering ethics in the workplace.
• “Ethics” doesn’t just happen
• Tone from the Top is not enough
• An ethics training once a year is not enough
• Values such as ethics or integrity need to be incorporated in all facets of
the organization
• Communications need to constantly be updated and “refreshed”
• Importation strategies
• Employees leaving
24. 5. Developing Tools and Strategies
Examples
• Communication - Keep employees informed
• Storytelling
• Fraud is not the “F” word. Talk about fraud
• Talk about ethics
• Using employee examples. Have them carry the banner
• Encourage candid feedback
• Employee recognition
• Encourage employees to speak up and when they muster the courage
to do so, LISTEN?
25. Have you ever left an organization because the culture didn’t comport
with your own values and expectations?
a. Yes.
b. No. I am one of the lucky ones.
c. I’m putting in my letter of resignation as soon as I’m done with this
webinar.
d. I can’t leave. I own the company.
Poll Question #2
26. 6. Anti-Fraud Measures
• Importation strategies: The person you hire may be a fraudster or
future fraudster. Applicants should be hired based on character as
much as they are based on competence and education. Of course,
following best practices regarding background checks, etc, is also key.
• Tone from the top: As previously discussed, tone from the top is key.
Leadership must buy in and been seen as buying in. Optimally, top
leaders participate in trainings or videos emphasizing the negative
impacts and unacceptability (at any level) of fraud.
• Fraud training for management and employees: Employees are on
the frontline, working with others every day and working with the
systems and controls that are potentially vulnerable to fraud. These
employees need to understand what fraud looks like, be aware of the
signatures of fraud as well as their duty to report.
27. 6. Anti-Fraud Measures
• Fraud Policy: A formal fraud policy should be created and communicated
to all employees, contractors and suppliers. It should make expectations
(zero tolerance) clear that it is endorsed by the most senior levels and
remind that all employees are responsible for prevention and detection. i-
Sight has a great template for this!
• Effective internal controls: Traditional financial controls (segregation of
duties, etc.) should be in place but only work if they are implemented
correctly. Therefore, they must be reviewed on a regular basis and by the
right folks.
• Mandatory vacation: Mandatory vacations policies require employees to
take time away from their job as this can help detect malicious activities
such as fraud or embezzlement. Employees in positions of financial trust
(stock traders, bank employees, etc.) are often required to take an annual
vacation of at least 5 consecutive workdays.
28. 6. Anti-Fraud Measures
• Job Rotation: Like mandatory vacations, job rotations are a very
effective fraud prevention measure. However, with job rotations, we
must ensure to revoke access. Otherwise, they still may be able to
cover up fraudulent activities.
• Implement an effective fraud hotline: One of the easiest and most
effective ways to detect fraud is having an effective hotline program. A
hotline is a critical component of any ethics program and, as we
learned, nearly half of all frauds are detected by tips.
• Increase the perception of detection: A fraudster’s number one
concern is getting caught. A robust anti-fraud culture in which there is
regular training, communication and discussion about fraud make it
clear to would be fraudsters that the likelihood of getting caught is high.
29. 6. Anti-Fraud Measures
• Exit interviews: Exit interviews have been used by the HR world for
years. How did you like your job? Why are you leaving? However, these
interviews are also an important anti-fraud measure when leveraged
effectively. Employees oftentimes don’t report fraud and/or unethical
activity for fear of retaliation. However, on their way out, this is no
longer a concern. If you don’t ask, they will likely simply move-on.
• Ethical culture: A strong ethical culture is a fraud deterrent in itself.
Just as good employees don’t want to work for organizations with poor
cultures, the same can be said for bad employees.
30. 7. Encouraging Ethics and Accountability
Many steps can be taken to encourage ethics and accountability and thus
decrease fraud risk:
• Amplify Tone from the Top: Most of the time, the right tone exists but
the bulk of the employees don’t get to see/witness it.
• Conduct culture assessments: We cannot improve our culture if we
don’t know what/where our culture is to begin with.
• Reward employees for doing the right thing: All to often, people are
rewarded and promoted based on what they did as opposed to how
they did it.
• Procedural justice: Violations of the code of conduct or fraud must be
adjudicated fairly and consistently across all levels of the organization.
31. 7. Encouraging Ethics and Accountability
• Keep it interesting: When communications are stale, they fail. Find
new and interesting ways to communicate about values, ethics and
fraud.
• The good, the bad and the ugly: Good news is great but bad news
can also be of great value. Consider publishing redacted reports of
fraud and wrongdoing. When employees hear of fraud that has taken
place, it not only can serve as a deterrent but lets them know the
organization takes fraud seriously and punishes those who commit it.
• Shout it from the rooftops: Most organizations tend to under-
communicate when it comes to topics such as ethics, accountability and
fraud. While care should be taken not to over communicate, when it
comes to values, ethics and fraud, more is better.
32. 7. Encouraging Ethics and Accountability
• Lead by example: Senior leaders hold themselves and those reporting
to them accountable for complying with the law and organizational
policy, as well as adhering to the shared values of the organization.
33. 1. Tone at the Top is paramount. Without it, none of this is possible
and you may as well start looking for another place to work.
2. Fraud doesn’t exist without pressure. As we learned from the
fraud triangle, without “pressure,” fraud doesn’t happen. However,
pressure will always exist and therefore we must be able to
recognize and deal with it.
3. An “effective” hotline/helpline program is key. To bolster a strong
ethical culture, employees must be comfortable coming forward with
concerns without fear of retaliation. As we also learned, 43% of all
frauds are detected because of tips.
4. Ethics surveys and cultural assessments are invaluable.
Management’s perception and “how things really are,” are oftentimes
vastly different. To get a truest picture, we must ask the employees.
In Summary
34. 5. Creating a more ethical workplace can be done. While there is no
single, silver bullet for increasing ethical accountability. There are
many, proven best practices (tools and strategies) we can leverage
to create ethical accountability.
6. Anti-fraud measures work. Such measures go hand in hand with
and should be incorporated into every ethics program and policy
where applicable.
7. Once is never enough. Encouraging ethics and accountability
should be an ongoing, cradle to grave, activity and something that is
woven into the very fabric of the organizational culture.
In Summary
35. Is “Tone at the Top” the most overused term in our space?
a. I’m hearing it today for the first time.
b. No. There are others that are overused even more.
c. Yes, but it’s so important, I don’t care.
d. Yes, but its better than “Sound at the Summit.”
Poll Question #3
36. Let’s talk! Please ask questions as others on the call likely have the
same or similar questions.
If I can answer them, I will pretend to have technical difficulties and end
the session.
Not really. If I can’t answer them now or we run out of time, we can
discuss afterwards by phone, email, etc.
Thank you for having me!
Questions?
37. Thank-you for participating
Contact Joseph Agins
joeagins@gmail.com
@joseph_agins
https://www.linkedin.com/in/josephagins
Contact i-Sight
webinars@i-sight.com
Find more free webinars:
http://www.i-sight.com/resources/webinars
@isightsoftware
Editor's Notes
Increasing ethical accountability and decreasing fraud risk always starts with tone from the top
TFTT is the fabric that binds the organization together.
Leaders must openly and continually communicate their values, using different platforms and distribution systems.
Employees are suspicious of leaders who are closed off or quiet about their values and standards.
A CEOs behavior tells employees what is valued and what is punished.
A sense of shared values
Don’t let communications get stale
Leaders must openly and continually communicate their values, using different platforms and distribution systems.
Employees are suspicious of leaders who are closed off or quiet about their values and standards.
A CEOs behavior tells employees what is valued and what is punished.
A sense of shared values
Don’t let communications get stale
Wells Fargo
Additional examples
Addiction
Gambling
Drug
Sex
Shopping
Debt
Credit card bills
Medical bills
Pressure to maintain a high standard of living
Keeping up with the Jones’s
Living beyond ones means
Pressure to perform
Have to make the numbers for the month, quarter, etc.
Unrealistic expectation – too much work, not enough time
“Pressure” could also be called “motivation.”
Additional examples
Addiction
Gambling
Drug
Sex
Shopping
Debt
Credit card bills
Medical bills
Pressure to maintain a high standard of living
Keeping up with the Jones’s
Living beyond ones means
Pressure to perform
Have to make the numbers for the month, quarter, etc.
Unrealistic expectation – too much work, not enough time
“Pressure” could also be called “motivation.”
The “HOW” of fraud. If we are talking about theft, there must be something to steal and a way to steal it. Anything of value is something to steal. Any weakness in a system is a way to steal.
Without opportunity, fraud becomes impossible. Opportunity is the only component of the fraud triangle over which the organization exercises significant, or in some circumstances, complete control.
Example after example take place in which an employee is placed in a position of complete trust.
More example opportunities:
Low fraud awareness
Higher turnover of employees
Absence of mandatory time off
Examples of internal controls
Mandatory vacation – for embezzlement actions of any substantial size to succeed, an employee/fraudster needs to be constantly present in order to manipulate records and respond to different inquiries. On the other hand, if an employee is forced to be absent for at least 5 consecutive workdays, the likelihood of these frauds is greatly reduced., since someone else would be required to answer the queries during the employees' absence.