Fall 2015 Issue of Horizons

FEATURE | What’s Your Fraud IQ?

6. (b) In any organization, two ethical cultural systems are at play: the formal system and the informal system. The formal cultural system is composed of the policies and programs that are formally established and adhered to in an effort to build and boost the company’s ethical culture. Elements of a formal cultural system include the organization’s mission statements, core value statements, ethics policies, hiring processes, orientation and training programs and performance-management systems. In contrast, the informal cultural system involves those symbolic traits that influence employees in a more subconscious way, such as company leaders’ responses to crises, the issues and situations that leaders systematically pay attention to, the behavior that is celebrated as part of company rituals (e.g., community service days, awards to top salespersons) and the language used to communicate values throughout the organization. Employees’ perceptions of informal cultural systems tend to influence their ethics-related behavior more than the formal systems, so attention to and proactive management of these systems is especially crucial. 7. (b) As companies embrace the importance of fostering an ethical culture from the top down, many organizations have created a leadership position charged with maintaining, monitoring and continually improving the ethics program. Whether combined with the duties of the chief compliance officer or divided into a separate chief ethics officer role, a C-level official focused on ethics can serve as an embodiment of the organization’s desired ethical culture. The chief ethics officer role is typically charged with managing the formal and informal components of the entity’s ethics program, as well as leading the response to any potential violations thereof.

∙ Interviewing employees about the company’s culture and commitment to ethics. ∙ Observing processes for adherence to ethics-related policies and procedures. ∙ Analyzing the frequency, significance, and trends in known misconduct. ∙ Analyzing trends in reports of wrongdoing by employees and others. ∙ Examining how previous ethical breaches were handled. ∙ Asking management what the company has done to prevent repeat occurrences of past breaches. The audit team’s selection and application of such procedures should be based on the specific relevant ethics risks in each area (e.g., conflicts of interest in sales, falsifying company financial data in accounting and bribery in geographic regions where such practices are common). Using this risk-based approach, the goal of the ethics audit should be to identify gaps in the company’s policies and practices where additional guidance or requirements would better serve employees in making ethical decisions. 5. (c) If conducted effectively, ethics training can foster a culture of trust. While there is no single best way to train employees in ethics, training sessions are typically most effective when they are conducted live, led by managers and held in small groups. Ethics workshops provide a more interactive and personal—and, thus, a better retained— training experience than online or lecture- style programs. Workshops can be conducted using a variety of approaches, but the goal is to provide discussion-driven, applicable and actionable learning to all employees.

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