Christopher Bauer's Ethics Nexus

Associaton of Certified Fraud Examiners Releases 2012 Global Fraud Study

The Association of Certified Fraud Examiners (ACFE) had released its 2012 "Report to the Nations on Occupational Fraud and Abuse". As all ACFE studies, it is a trove of interesting and useful, if sometimes alarming, data.

The current study analyzes data from 1,388 verified fraud cases from around the world and these data were reported via an online survey of ACFE members between October and December of 2011. To be included in this study, the investigation of these cases must have been completed at some point between January 2010 and the time of the survey.

Among the many compelling findings found in their executive summary are the following:

• On average, survey participants estimated that typical organizations are losing approximately 5% of revenues each year to fraud and abuse. (This corresponds closely to the figure frequently cited for major corporations in the U.S. So, these findings suggest that this estimate is both worldwide and probably, in fact, unrelated to the size of the organization.)

• The median fraud loss in this sample was $140,000 but more than a fifth of the cases resulted in losses of greater than $1,000,000. (Here again, theses figures correspond relatively closely with domestic U.S. studies from the last several years.)

• Occupational fraud reported in this study was far more likely to have been discovered by a coworker than through formal oversight and audit programs. (This is why effective ethics and compliance training must help employees learn to recognize danger signs for fraud and abuse as well as how best to respond to them. After all, they are the folks most likely to actually notice something is amiss. Obviously, formal oversight and auditing process are critically important; just don't fool yourself into thinking that they are any more effective than they actually are.)

• A significant majority of the perpetrators in this study (87%) had neither been charged or convicted of a fraud-related offense or punished/terminated by a previous employer for fraud. (This provides stil more data supporting the already-large pool of evidence that, despite our stereotypes, only a fraction of fraud and fiscal abuse is perpetrated by the 'criminaly-minded', reagrdless of one's definition of 'criminal-mindedness'.)

It is interesting that, as has often been the case with ACFE studies, these findings are based on 'worst case' reports of informants. (In other words, informants were asked to report on the worst case they had seen during the study period.) Although in theory that should skew these data significantly in the direction of overly liberal estimates, the findings are far more similar than different to those of other studies not using a 'worst case' data set. It's tough to know exactly what that means but my money is on the likelihood that patterns of fraud and abuse are so similar across cases that the range from best case to worst case, once the amount is large enough to be both reported and material, is actually smaller than one might imagine.

Much, much more is reported in this current ACFE report and giving it more than a passing glance is highly recommended.

 

"Better Ethics NOW" Now Available on Kindle

Just a quick note to all you Kindle owners to let you know that the latest edition of my book "Better Ethics NOW: How To Avoid The Ethics Disaster You Never Saw Coming" has now been released for the Kindle and is available here on Amazon.com for only $9.99. (For those of you outside of the U.S. and Canada, it is available on all of the other Amazon international sites as well.)

 

Should you download it it and like it - as I certainly hope you will - it would be terrific if you could leave a review for it on its Amazon page.

 

In the meantime, happy reading and thanks!

Some Good News and Bad News From The Ethics Resource Center's 2011 National Business Ethics Survey

The Ethics Resource Center recently released the results of their 2011 National Business Ethics Survey. Long term readers of this blog and my Weekly Ethics Thought will know that I am always impressed with their research methods and clarity of reporting. This year's study is no different in that regard.

While, as always, I heartily recommend downloading a copy for closer personal review, here - with a little added editorializing - are the key points from their executive summary in the meantime:

• Since their prior survey two years ago, the number of employees in their sample who witnessed misconduct at work fell by four percent. That would be great news except that the new number is still a stunning 45 percent.

• Those reporting misconduct, once seen, rose two percent. Certainly good news but, again, not-really-so-good in that the improved figure is only 63 percent making reports in this sample.

• Alarmingly, retaliation against employee whistleblowers rose significantly to 22 percent. While the form and intensity of that retaliation can be all over the map from worst-case to relatively benign, that any type of retaliation should be reported in that high a percentage means that organizations need to work far more diligently to train on and rigorously enforce non-retaliation policies.

• Reports of pressure to compromise standards rose five points to thirteen percent - also a significant cause for alarm, it seems to me.

• Perhaps of the greatest overall concern, the percentage of companies in their sample with weak ethical cultures climbed back to "near-record" levels - an astounding 42 percent. If that isn't a call to re-double our efforts to build and maintain cultures of organizational ethics, I don't know what is.

So, did ethics improve in the last two years according to this study? A little. Kinda. In some ways. However, sorry to say, from my view the road ahead, overall, remains longer than the road behind.

The Ethics Lessons Learned From News Corps and Rupert Murdoch

The news world and blogosphere have been filled for the last couple of weeks with all of the revelations regarding Rupert Murdoch and the wild ethical transgressions by employees of News Corp. Along with these stories there have been loudly trumpeted all the valuable ethics lessons we are to have learned from this still-unfolding debacle.

So what exactly have we learned? Here, I believe, is precisely what we have learned; nothing. Really.

For all the lurid details and alarming oversteps, please tell me one new thing we have actually learned about ethics here.

Is it news that owners and executives still maintain the responsibility for the work done in their chain of command?

Is it news that tone at the top - including the top of any portion of the organization (e.g. managers and supervisors at all levels of the organization) - has a significant impact on the behavior of employees and contractors alike?

Is it news that transgressions which are ignored are likely to continue if overlooked and essentially certain to continue if rewarded?

I keep looking for even one new thing about ethics that we are to gather from all of this and I seem to keep coming up empty.

If you have gleaned something new and enlightening, I do hope you will come forward and share it.

In the meantime, sadly, all I think we may end up learning from Rupert and son is that - as has historically been the case so often - simply knowing what is right can be a startlingly poor predictor of doing what is right. (Especially when there is so very much to gain by stepping, even egregiously stepping, over the line.)

Two Interviews on Developing High-Impact Values Statements

Thanks to i-sight software for publishing excerpts from two interviews they did with me on developing high impact values statements. As you've all heard me say before, a well-developed and appropriately implemented values statement will not only go a long ways toward developing and maintaining a culture of ethics but will also do so much more. Done right - and it really does need to be done right - a values statement will drive better management, leadership, customer service and branding.

Interested? You can find the two interview excerpts here and here. Enjoy!

Three Great Ethics Videos By Students

I am constantly asked for ethics-related videos and rarely have much to offer because so few are really very engaging. So, I was thrilled to have a friend point me in the direction of these three terrific student videos on ethics.

These all came from a competition sponsored by the Center for the Public Trust and, if this year's winners are any indication, I'll look forward to seeing the new ones each and every year. Terrific pieces of student work on ethics, I thought. Congrats to these young videographers for a job well done!

Isn't It Too Late For Ethics Training?

I am constantly amazed and alarmed by how often I am asked if ethics training is really worthwhile. The argument I hear most often is that ethics are something we ought to have learned at home or in church or in school when we were all younger and, if the job hasn't been done by now, what's the use?

This all stuns me for so many reasons and here are just a few of those reasons:

1.) 'Old dogs' do, indeed, learn new tricks. Give someone a compelling reason why their attitudes or behavior should change - something you can clearly show them will contribute to their personal success - and you might be amazed how much new learning can take place. (Even more so if that learning is novel, interactive, and fun. And yes, ethics training can be all three of those...)

2.) Even if ethics training won't magically send the unwashed to their knees begging for forgiveness, you can certainly help folks who want to do the right thing to have an easier time doing so. Again, just make it compelling, relevant, and easily applicable. (Yes again, ethics training can be all three of these as well.)

3.) As a part of helping the folks who wish to do the right thing, you can also help them become better able to see when others are enaging in behavior that may not be appropriate. You can then arm the 'good ones' with the right tools to intervene both immediately and effectively. Might that help reduce the risk and rate of problems with those folks who, for whatever their reasons, may not be on the right path? I certainly believe so.

Might all three of the above be reasons that ethics training for all of your employees could be of value? I certainly think so and, in fact, that the value can be huge.

New Website for College Ethics and Decision-Making Programs

If you have been following this blog then you'll know that it has been left neglected for several months now. Among the reasons for the neglect has been my focus on developing a couple of programs for college students and staff. Although one program is really simply a repositioning of an existing professional ethics program for students and staff, the other is a whole new program on responsible decision-making, specfically for students.

Though my core audience will remain companies and professional association as always, I have long enjoyed working with students and my hope is expand my college work into being a greater percentage of the mix.

The new website for my college programs is still quite primitive at this point but, if you'd like to give it a look and - I hope - provide feedback, you can find it at www.GreatDecisionMaking.net.

Thanks!

Survey on Ethics Program Interests for College Students, Faculty & Staff

I have been asked for quite some time to do more work with college students on helping them to make better choices and I am now at a point where I can pursue that in a more dedicated manor. I have created a quick survey for college students, staff, faculty and parents on what kinds of programs and resources they would like to see on how to help college students make better choices.

 

The link to this very quick survey is here.

 

If you are a student, staff or faculty member - or the parent of a college student - I hope you will take a few short moments to fill this survey out. Whether you are one of the above or not, however, I'm guessing that you know one or more folks in each of those groups. If you would be willing to forward this post and survey link to them, I would be most grateful. Thanks!

Three Often Overlooked Sources of Electronic Data Breaches

Regardless of whether customer and employee data is legally protected in your country or industry, we all have an ethical obligation to protect others' personal information as well as our own organizations' proprietary information. Doing otherwise is an open invitation for that information to be used in malicious ways ranging from identity theft to corporate espionage. At the very least, it's simply common courtesy to protect others' privacy!

 

Even in companies with elaborate data-protection systems, here are three sources of electronic data breaches that I see all the time:

• The most common breach has perhaps always been - and will perhaps always be - computer monitors left on and exposed so that passers-by can read the screen. (Plus, if that machine is 'live' and unattended, what's to stop someone from using it to forage for still more information?). Have a reasonable and enforceable policy to prevent each of these things from happening.

• Redeploying computers. Most companies seem to be getting better about removing hard drives from old computers they are trashing or selling off. (And if you aren't doing that, you need to! Those drives can easily be accessed by the new owners to retrieve whatever is on there. Remember, that is true even if you've used many of the programs designed to mask that data.) What about redeploying computers to new parts of your business, though? Are you sure that the new user needs access to the information gathered by the former user? If not, get that data off the machine before it goes where it ought not be going!

• People change their electronic technology more often than their underwear these days and all those machines and gadgets are a huge source of potential data breaches. While cell phones are especially likely to have your and others' private information on them, remember that there are memory chips or drives in pretty much everything these days and some are surprisingly large. Things like copy machines and fax machines are prone to have a ton of data on them that needs to be protected. Be sure that their memories are wiped clean before you get rid of them.

Like with so many things ethical, electronic data security is often seen as someone else's job. Also like so many things ethical, however, we have not fulfilled our ethical obligation if we don't do everything in our power to assure that the proper thing is being done. If you see any of these potential data breaches occurring in your organization, make it a point to bring the problem to whomever has the authority to correct the problem.