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.

 

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.)

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.

How Retail Mentality Can Clobber The Fiduciary Mindset - Ethics Video

I just stumbled onto a nicely done video that captures how a retail mentality can wreak havoc with the fiduciary mindset. This one happens to be about a bank (HBOS) but the concepts ring true across industries and organizational types alike.

It's hardly news that a sole focus on the bottom line can easily lead to ethical compromise. I like this video, though, because it does such a nice job of describing, in simple terms, how easy it is to incentivise inappropriate employee behavior just by shifting the organizational focus from trust and customer service to retail sales figures. 

Those of you who know my work certainly know that I am hardly either 'anti-retail' or 'anti-profit'. However, we all need to remember that losing sight of ethics in the pursuit of profits, whether in retail or any other endeavor, can easily have catastrophic consequences.

What Milton, NY Understands About Ethics That Most Businesses Don't

My catching up on goings-on around the country for my Municipal Ethics News and Views blog started with this piece blaring the opinion that the San Diego ethics commission is an expensive redundancy that overreaches. Now if it's true that they are "hiring a new investigator to check whether campaigns are using 12-point type for their 'paid for by' lines, as required by city law, instead of the 6-point type required under state law", I share some of the writer's concern. However, the central argument is that most of the local ethics code is already covered by state law. Maybe so, but does the state have both the resources and the interest in monitoring local government ethics at the same level as local governments do? With rare exceptions, I hardly think so. Bravo to San Diego - as well as the other California cities with their own ethics commissions - for taking the proverbial bull by the horns and assuring that their city's ethics stay in line. Is there a question about how they are spending their resources? If so, that needs to be openly discussed and challenged - but not used as the foundation for a wholesale dismissal of the importance of the commission and its overall mission.

It's easy to attack local government ethics codes, or the code of any organization, for exactly the reasons they need to be in place - they require that those covered by the code do what is right as opposed to what is merely easy or convenient at the time. This piece from Macon.com quotes councilman James Timley as saying of their ethics code, “I didn’t vote for it... You want to do all this stuff that makes you feel good and look good, but I told you this would come back to get us.” Now I need to allow both that this quote might be out of context in the article and that I haven't seen the Macon code. However, the sentiment is a both common and unfortunate one. This happens to be regarding a local government ethics code but it's a complaint is heard throughout the private sector as well.

If one doesn't support an ethics code because it truly does overreach or because it is either toothless or otherwise unenforceable, you have my total support. However, in that case, work to create a more appropriate document and enforcement structure, not dismiss the idea of a code! That a code makes some things less convenient is a ludicrous reason to attack it, assuming that the inconvenience is simply due to assuring that officials and employees are doing the right thing. Should codes be as 'user-friendly' as possible? Absolutely! But, like it or not, sometimes doing the right thing in government, business, or anywhere else for that matter, is not what happens to be the most convenient.

Meanwhile, little Milton, New York seems to 'get it'. After, apparently, a history of ethics concerns, they decided that they needed to take some serious steps towards assuring improved ethics and did exactly that. In fact, as this piece from the Saratogian reports, they managed to do what most far larger governments and businesses haven't been able to achieve - they got everyone into the same room, decided in a bipartisan manner what needed to be addressed, and then did exactly that. Bravo! Of course, their code has yet to be formalized and approved but - if the reports of their start are any indication - they are truly well ahead of the pack compared both to many local governments and businessses.

ETHICS U - Great New Ethics Site From LAUSD

I've been impressed in the past with the Los Angeles Unified School District's ethics initiative and so, apparently, have all of you since one of their great ethics videos is one of the most viewed links on this blog. They have now unveiled their new "ETHICS U" website and I recommend that everyone have a look at it. Yes, this means you too...

Regardless of your industry or job description, there are concepts there that you can use. Perhaps more importantly, it provides a great model for how an organization's ethics website can be set up so as to be informative and helpful to employees at all levels of an organization.

Rather than my trying to somehow summarize what's there and describe it's great functionality, just go give it a look. If you're looking for a model for your organization's ethics site, I'd say that they've developed one of the best ones out there. Consider me (perhaps obviously) a fan. Are there other sites with more depth and breadth out there? Absolutely. Do they function nearly as well? Not in my mind.

Have a difference of opinion? Let me know. Like their site as much as I do? Let them know. Ethics programs like theirs can use all the support we can possibly provide!

Where Do You Draw The Ethical Line?

Every now and then I encounter an ethics article that covers a topic in a both thorough and refreshingly easily-digested manner - too many are either or neither of those... Just read a great piece by Vadim Liberman in the Conference Board Review called "Workers Behaving Badly". It falls squarely into the if-you-just-read-one-piece-on-business-ethics-this-month-make-it-this-one category.

As a 'teaser', here's a part of the lead-in to the article:

"The executive who expenses a few kinda-sorta-but-probably-not-really work-related dinners or cab rides, the colleague who comes in a bit late every morning, the employee who charges a hotel-room movie to the company, the worker who expenses a new stapler and takes it home, the manager who knows he needs a receipt for a reimbursement of $25 but since he doesn’t have one decides to submit two requests for $12.50 . . . the question isn’t whether these individuals are acting unethically. They probably are. The real question is: Should a company care? Should organizations concern themselves with all of their workers’ ethical infractions? Or just specific bad behavior? Or just specific workers? Or just at specific times? Where do you draw the line?"

Liberman, along with a number of guest contributors, do a better job than most in then trying to answer those questions. Can it actually be done? Of course not! That's why these simple-sounding illustrations are so vexing - they sound easy and obvious when, of course, they really aren't. BUT, this piece does a terrific job of talking through how you might go about deciding how you want to answer them for yourself and your company. 

Among other things, it's great to hear/see someone dare say out loud that where one draws the line on ethics issues, especially those not affecting anyone outside the company, is often really a matter of choice and not something iron-clad. Though I happen to be a proponent of drawing a fairly conservative line - for exactly the range of reasons given in the article - I'm certainly conscious of the fact that one can reasonably argue for drawing the line in any number of places. As I say so often in my programs, what frequently matters most has less to do with the decision you make (about where you draw the ethical line) and more to do with your rationale, the message your decision sends, and the degree to which your decision will be both sensible and enforceable for everyone in the organization.

Agree or not, it's a very nicely done article and highly recommended. 

And, er, where do you and your company draw the line?

When Is Ethics Training Not Really Ethics Training?

I just posted a similar version of this over at my Municipal Ethics News and Views blog last night and realized that it really belongs on here as well. Readers of this blog won't be surprised by these comments but I guess I never get tired of talking about this issue...

When is ethics training not really ethics training? All the time, it seems!

It is amazes me how often ethics training programs are proudly trotted out by providers or clients only to find that they fall into one (or more) of three barely-even-marginal categories:

• Programs that only review the rules. There are obviously lots of rules and everyone needs to know them. However, reviewing the rules, in itself, is hardly ethics training. Employees at all levels of a company need to know how to put the rules into practice, how to easily spot problems and potential problems in themselves and others, and what to do when they see those problems and potential problems. Simply knowing the rules doesn't help them learn those essential skills and yet it's exactly a lack of those skills that causes far more ethics problems than does a lack of knowing the rules. 

• Programs that don't discuss the values and principles the rules are there to reinforce. If employees don't understand the values and principles on which the rules are based, then how are they going to know how best to apply the rules? More importantly - and I know that my audiences get tired of my repeating this - if you're going to expect people to act ethically, they better have a pretty good idea of what to do when there isn't a rule for something! Frankly, I have no idea how to make that happen without talking at least as much about values as the rules.

• Programs, regardless of what they cover, that simply provide a written or PowerPoint-driven review. (And to add insult to injury, these programs are often followed by - or sometimes even substituted with - some kind of fairly meaningless canned test.) Might that approach be useful for giving folks a basic overview or reminder of a few simple things? Sure. But let's not fool ourselves - that type of 'training' is really better at meeting risk management oversight objectives than anything else (i.e. "It's not our fault! That employee was required to review that material and pass a ten point test on it every single year!"). Please... If you want folks to really 'get' ethics, you'd better use a training program that allows them to actively discuss the real-world issues they face and to problem-solve around any barriers they see to making good on their ethical and legal mandates.

In my experience, far too many organizations are entrenched in using these three substantially sub-par approaches. In fact, they are so used to them that they will often actually ask for them when presented with an alternative. When I say that I do programs that are largely interactive and that I do far more than just review the rules, these types often look puzzled or annoyed. To them, doing more than the bare minimum feels inefficient, unnecessary or just plain weird. Unfortunately, the fallout from those attitudes shows up in the countless needless and costly ethics problems we read about in the newspapers every single day. 

I certainly sleep better at night knowing that I offer programs that most audiences find to be extremely practical. After all, that's what they really need.

 

I certainly sleep better at night knowing that I offer programs that most audiences find to be extremely practical. After all, that's what they really need.

 

Ethics in 2009: Extraordinary or Simply Ordinary With A Little Extra?

2009 has been a year of extraordinarily big splashes in ethics of all kinds. We've had the ethics questions permeating both the global economic crisis and the U.S. economic meltdown in particular - especially issues related to the sub-prime mess,TARP, and more, the medical prescribing ethics questions surrounding Michael Jackson's death, the almost unimaginably gigantic fraud scheme of Bernie Madoff and many other 'merely' huge financial scandals, and we've had the relationship ethics questions flowing from Steve McNair up the Appalachian Trail to Mark Sanford and then on to Tiger Woods. Each has been huge in its own way and has led 2009 to being well on its way to being labeled by the history books as a year of infamy in the annals of ethics of all kinds. It has certainly felt that way all year long.

But is that really what we've been seeing? The more I review the year in my mind, the more I start to see it differently. Call me a hopeless glass-half-full kinda guy if you like - it certainly wouldn't be the first time - but I'm rapidly changing my tune on 2009; I think it might have actually been a pretty ordinary year in far more ways than not. Here's my thinking...

In the corporate world? In 2009, we've seen evidence of a variety of improvements in ethics as well as other data suggesting the status quo or worse. Sound familiar from other years? It certainly does to me.

Otherwise, with few exceptions, the 'big splashes' of 2009 made the headlines because of coming to their end in 2009 - maybe we ought to be adjusting our collective ratio of celebrating to moping with a hefty increase in the former. Bernie Madoff and his cronies had been scamming for decades and the lax oversight that allowed him to do so had to have been happening for equally as long to allow it. The financial meltdown was the product of problems that had been developing for years and years; sub-prime mortgages, for example, weren't some new product heaved onto the shelves in 2008 or 2009 nor were any of the shaky investment structures supporting them. Michael Jackson didn't start having problems in 2009, he finally died from them - and here again, the prescribing issues allowing his death were hardly either new or unique to him. And, of course, serial philandering is hardly a new concept for '09 - we simply saw several more-interesting-than-usual people get caught in more interesting-than-usual ways.

So, was it a bad year in ethics? It was terrible! Was it a worse year than usual? I really don't know. It seems to me that each of the above examples has largely to do with splashy, high-profile cases that actually came to their respective ends in 2009. In other words, maybe we need to nurture a bit 'o thanks for the uncovering or resolution of some of these problems during the year rather than misunderstanding them as examples of 2009-generated new lows in ethics of so many kinds. (True, some remain highly problematic but I'd like to think that their higher exposure will allow us to keep a search for their solution more easily in mind.)

Was 2009 an extraordinary year in ethics? The more I think about it, the less I think it probably was. In either case, though, here's to our collective hopes for a faaaaaaaar better 2010!