Is Your Tone At the Top Thwarting Fraud? Dear Colleague: If an organization’s Tone at the Top could be measured and correlated with higher earnings and lower rates of financial reporting fraud…most directors would almost certainly want to assess that tone... Contrast: If directors or senior management could determine that a unit’s leadership paid mere lip service to compliance and ethics but did not “walk the talk” in day-to-day conduct, executives would theoretically want to know about that in order to correct the potentially “toxic” influence on employees and overall productivity. Important: Research indicates that “in stronger as opposed to weaker [corporate] cultures, rates of misconduct are roughly halved from 77% to 40% and retaliation against [whistleblowers] diminishes from a rate of one in four to one in 20.”* HOW TO MEASURE TONE AT YOUR ORGANIZATION There are at least 10 ways for directors, compliance officers, auditors and risk management executives to measure tone at the top. The conclusions drawn from these assessments can then be used as part of a broader evaluation of the organization’s fraud risk… 1. Measure the extent and nature of wrongdoing. Benchmarking against other companies in your industry the number and nature of known fraud cases may provide clues about the extent to which tone at the top promotes the organization’s compliance with ethics and anti-fraud policies. Example: If management dismisses or ignores minor frauds as “unimportant,” this may indicate a culture of tolerance of wrongdoing which is one of the drivers of elevated fraudulent activity. 2. Monitor the use of anonymity in incident reporting. A higherthan- average proportion of whistleblower reports being made anonymously may point to reluctance on the part of employees to report fraud openly, based on their fear of retribution. 3. Conduct a social media reputation assessment. Monitoring publicly accessible comments and criticisms of the organization on Facebook and other social media sites may offer clear—and surprising—indicators of how employees feel about the organization’s culture and management’s principles and values. 4. Conduct employee surveys. Many organizations already use this tool, but may not include questions specifically designed to elicit feedback from employees about whether management “walks the talk” on integrity and proactive fraud risk mitigation. Key: Carefully worded questions can elicit responses that offer substantive insight into employee perceptions about the organization’s culture. For large organizations, consider conducting these surveys on a unitby- unit basis and compare results for more accurate feedback about where in the organization tone at the top may need improvement. 5. Encourage group discussion by audit committee members, compliance executives, risk management officers and human resources managers. Aim: Exchanging perceptions of management attitudes and activities can help to build a consensus among key people about the organization’s tone at the top and encourage them to take action when tone at the top may be in need of repair. 6. Perform facility visits. Rotate the meeting locations for the board, as well as your compliance and risk teams to observe different parts of the organization’s operations. Key: Building contact with regional or local management facilitates future communication when fraud concerns arise. Also effective: Independent visits by the audit committee to remote locations. Impromptu encounters with local management may produce valuable insights into how local management views the C-Suite’s ethics and integrity. 7. Conduct carefully planned exit interviews. When employees leave because of, or with knowledge about, management misconduct, they may be reluctant to “spill the beans” to an exit interviewer. Others will do so as soon as the question is asked. Key: There are several ways to solicit feedback from departing employees, such as online surveys sent several months after departure with the option of responding anonymously. 8. Monitor management communication to staff. Announcements, updates and other messages sent from the “C-Suite” via the organization’s intranet, notice boards, office walls and Web site may reveal signs of poor tone at the top. Example: Internal memos sent by a CEO may be written in a manner that is contrary to the organization’s asserted values and desired tone from the top. 9. Interview key employees and/or conduct internal focus groups. Interviews of individual employees can be productive in assessing tone at the top when using a thoughtfully worded sequence of questions. When employees are reluctant to blow the whistle on fraud, or when employee surveys identify potentially significant but nonspecific suspicions about wrongdoing, focus groups led by an independent third party may help uncover theunderlying concerns—including knowledge of fraud or unethical conduct on the part of top management. Helpful: Anonymous messaging or handheld voting devices, along with an experienced facilitator,may coax sensitive information from reluctant individuals. 10. Analyze and respond to customer complaints. Monitor trends and patterns in customer feedback to gather insight into your organization’s culture. Key: Swift and transparent handling of grievances can be an indicator that the organization is committed to compliance and ethics. By contrast, poor response to customer complaints could reflect management attitudes and values associated with antisocial activities such as fraud and abuse.
Posted on: Tue, 17 Sep 2013 11:24:06 +0000
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