Tone at the top: and your fraud levels

Forensic Focus - November 2015

An interesting question that we grapple with is why do some clients suffer more fraud than other clients?  Most large entities will have a large number of staff, reasonable controls and internal audit capability, yet some of our clients have a discernibly higher level of fraud and other integrity issues than other similar clients. 

A common theme with many of these organisations that seem to suffer more fraud and other integrity issues is that they often lack a strong “tone at the top”.  High-profile international examples involve the senior leaders of an organisation showing a clear disregard for business ethics (think Enron).  Locally, examples we have commonly seen in the New Zealand fraud context include:

  • ‘Do as I say and not as I do’ attitudes and behaviours from senior leaders.
  • Senior leaders displaying a disregard for proper process or controls.
  • A view that the senior leaders are not approachable, friendly, or available.
  • Retaliation by senior leaders when employees raise integrity-related concerns.
  • Fear of delivering or reporting ‘bad news’.
  • Track record of not referring issues to the Police and/or recovering funds civilly.

This link between the tone at the top and culture is succinctly captured in the quote:

The culture of any organization is shaped by the worst behaviour the leader is willing to tolerate.”

– Gruenter and Whitaker.

A negative tone at the top makes it easier for those employees to make the wrong decision and choose the wrong path.  We believe this is because it makes it much easier for them to rationalise negative actions because “everyone is doing it”.  By contrast having a positive tone at the top and a supportive culture will maximise the likelihood that your employees will choose the right path when faced with difficult integrity-related decisions.

The top 5 questions to consider in respect to the “tone at the top” of your organisation

1.     How are the senior leaders perceived in your organisation from an ethical point of view?

2.     Do senior leaders “walk the talk” in respect of policies, processes and controls?

3.     How are people encouraged to share concerns in your organisation?  How many people are doing so?  If few, is this because there are not many concerns, or that people do not feel empowered to share their concerns?

4.     How are people treated when they raise concerns?

5.     What action does your organisation take when it has found people are involved in fraudulent and/or other integrity issues?

If you would like to discuss the content of this article, please do not hesitate to contact either Ian Tuke or Lorinda Kelly. 

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