Fraud can affect any business, from the Fortune 500 to the mom-and-pop. A culture of strong ethics, starting at the top, is one way to discourage this problem. Test your fraud knowledge and consider how this could help your business!
- According to the Ethics Resource Center’s 2013 data, what percentage of workers observed ethical misconduct at their workplaces?
- In the wake of an unfortunate scandal, ABC Company is looking to improve the culture of ethics in its organization and has decided to create a new position for an ethics officer. To be most effective, this individual should:
- Report directly to the company’s legal counsel.
- Have direct, unimpeded access to the board of directors.
- Be hired directly by the company’s vice president of operations.
- Be exempt from performance goals to boost independence.
- Which of the following is NOT a recommended practice for incentivizing employees’ ethical behavior?
- Providing employees with a list of general ethical qualities that they should strive for to be rewarded.
- Allowing employees to report instances of or other employees who exhibit exemplary ethical behavior.
- Including ethical behavior as a formal part of all performance evaluations.
- Empowering managers to reward employees who exhibit a high level of ethics.
1 – (C) The study found that 41% of private-sector employees witnessed misconduct at their organizations during the 12 months preceding the study. This finding is a record low for the ERC’s surveys and reflects some potential good news regarding the effectiveness of many organizations’ ethics programs. Another positive note from the ERC survey is the decline—from 13% in 2011 to 9% in 2013—in the percentage of employees who reported feeling pressure to compromise their ethical standards on the job. However, 60% of the incidents of observed misconduct were perpetrated by supervisors and managers, and 67% of the misconduct involved multiple acts or ongoing unethical behavior, revealing the need for companies to continue taking proactive steps toward building an ethical culture.
2 – (B) To ensure that the chief ethics officer is positioned to be most successful, he or she should:
- Be hired (and fired) only by the board of directors.
- Report directly to the board of directors or CEO.
- Have direct, unimpeded access to the board for purposes of reporting potential issues in order to mitigate the potential for management interference.
- Be held to performance goals and metrics set by the board and CEO.
- Be independent and free from conflicts of interest, influence, and fear of retribution from parties inside and outside the organization.
- Have the necessary resources to serve as a key member of the leadership team.
3 (A) Most organizations have performance management programs in place to address and discipline ethical breaches. But far fewer entities have implemented measures to formally incentivize desired behavior. In other words, for many companies, the stick is present, but the carrot is missing. To be fully effective, a comprehensive ethics program should include mechanisms to address both angles of encouraging ethical behavior.
See more information about these and other fraud questions in the April 2015 Journal of Accountancy. Contact Cassandra Elgersma or any member of the litigation support team at SDK for help with you fraud issues.