|
 Setting the Tone at the Top
by Julie A. Aydlott, CFE
Ethics, do we have them or is it more like do as I say and not as I do? There seems to be so much corruption going on in the world today that it is setting specific standards where stealing is being viewed as ok. If they see others do it, they often feel that there isn't anything wrong with it. The tone needs to be change and it needs to start at the top. It has been proven that setting your own ethical standards has a positive effect on how others behave as well, especially employees.
Setting the tone at the top is going to be a huge part of fraud prevention and how effective a company’s internal controls are. According to the ACFE in an article titled “Tone at the top: How management can prevent fraud in the workplace” – available for download at www.acfe.com –
“Tone at the top refers to the ethical atmosphere that is created in the workplace by the organizations leadership. Whatever tone management sets will have a trickle-down effect on employees of the company. If the tone set by managers upholds ethical integrity, employees are more inclined to uphold the same values. However, if upper management appears unconcerned with ethics and focuses solely on the bottom line, employees will be more prone to commit fraud.”
For small business owners, setting the tone at the top doesn’t seem like it would be that much of a priority because they are “small”. The unfortunate side of this is that small businesses continue to rank highest in occupational fraud which means that there is still a huge problem with fraud in small businesses. If you don’t set guidelines, expectations and ethical standards for your own business, you have a greater risk for fraud.
If the tone at the top of the organization shows that the owner uses the business account as their own personal piggy bank, the bookkeeper or person who is handling the bookkeeping most definitely notices. It is very frustrating for them because they see the disregard to other employees who work at the company as well as themselves. The owner doesn’t think anything of it because it is their company. If employees see their employers abusing the system regardless of who owns it, there is a feeling of betrayal and entitlement which can ultimately lead to the employee acting the same way.
You need to ask yourself if you consistently use your company’s assets as though they are for your own personal benefit. On the devil’s advocate side, imagine that you are a business owner and your bookkeeper is struggling to make their mortgage payment. They come to you and ask for a small raise and you tell them that there are raise freezes because of the economy. A month later, it is your daughters birthday. You decide to go all out and rent a ball room at a hotel, invite hundreds of guests, a really cool DJ and a caterer. If you did this privately and not through your company’s books, your bookkeeper would not be aware of how you spend your money, but in the real world, the majority of the small business owners use the company’s bank account to pay for these lavish expenses. Now, think of that bookkeeper posting these expenses into your accounting software even if it is posted to your distribution account. You could have spent a few thousand dollars in a mere day to celebrate your daughter’s birthday, but for your bookkeeper, you just took her raise when you told her you didn’t have any money. No matter how you try to justify it in your mind, in your employees mind, you just lied to them and cheated them out of compensation for their hard work. You just set a poor ethical standard and an invitation for your bookkeeper to do the same thing.
There are several factors that come into play when you operate your business in this manner.
- Setting a negative example to employees for use of business assets
- It’s too easy to co-mingle legitimate business expenses with personal expenses for the benefit of a tax deduction
- The risk of piercing your corporate veil if you are incorporated
- Harder to prove if employees committed fraud when the books are not clean
It is important to clearly state what the company’s values and ethics are, but it is more important to follow them. Your company needs to implement them by writing a formal code of ethics. Your employees must be made aware of those expectations and sign the code of ethics policy to acknowledge that they have read and understand it.
If your company is operating with a negative work environment, it is more likely to become a victim of employee theft. If moral is low and employees are disappointed and disgruntled they begin to feel entitled to justify their behavior which can result in the common excuse for employee theft which is “My employer deserved it” or “I was entitled”. Sometimes even the best employees can be broken if you are not treating them with respect and setting the proper tone at the top. Creating a positive work environment for your employees will not only help with moral, but it has been proven that it also lowers the fraud risk and employee misconduct.
There are several resources available to assist small business owners with implement their internal control program and code of ethics policy. If you are unsure if your company needs to create one, ask your CPA, Attorney or contact a Certified Fraud Examiner.
Julie A. Aydlott, CFE
Business Fraud Prevention, LLC
www.businessfraudprevention.org
|