To Prevent Corporate Fraud, Examine Flawed Beliefs

20 Flawed Beliefs

1. We only hire people we trust; therefore, ethical behavior will take care of itself.
2. Controls demonstrate to employees that we don't trust them.
3. It can't happen to us!
4. Most wrongdoing is immaterial.
5. We only work with reputable vendors who stand behind us.
6. The new system controls will prevent the problems we've seen.
7. We're a preferred employer, so people know better than to risk their job here.
8. It's nearly impossible to detect purposeful fraud by management.
9. The insurance company will take care of us.
10. Rank has its privileges, and the employees understand that.
11. We're just talking about timing differences.
12. It all washes out in consolidation.
13. If it gets out, it will damage our reputation, so we should keep it quiet.
14. It's a fixed-fee deal, so we've limited our risk.
15. We use positive pay, so the bank has us covered.
16. Our public accountants are all over this.
17. We're too busy making money to worry about what we're losing.
18. It's just the cost of doing business.
19. You just don't understand our industry.
20. We budget for unexplained losses, and that helps us keep it under control.

There are counterpoints, of course, to every one of these, and I have a joke that goes along with a few of them. But there is a real problem, and it lies in the attitude surrounding these beliefs. They're meant to downplay internal controls and checks and balances; they're meant to dull our professional skepticism.

What to Do

If you are an executive, and you catch yourself saying such things, then you can be sure your subordinates are picking up on it and are staying loose with their transactions as well.

Organizational discipline dictates that we handle problems on our terms before we are forced to handle them on someone else's terms. Therefore, it's wise to follow up on symptoms of problems early.

When I think about failures to address problems early, I recall a conversation with my doctor several years ago. I was on the back end of a bronchial irritation that lasted a couple of days. I'd missed a workout that week and didn't want to miss another one, so I went to lift. A week later, I was in my doctor's office and told him what I did.

He said, "Congratulations! You've turned a minor illness into walking pneumonia." Instead of resting for another couple of days, my body forced me to rest for a month.

We don't run a full-blown audit of a department whenever we hear one of the lines above, nor do we suggest you do; your auditors would outweigh your sales team.

However, it is worthwhile paying attention—if you were already questioning some transactions or some behavior in a particular department and you start hearing excuses such as these, it may be worthwhile validating some of their transactions, independently and objectively.

Not every symptom is going to become aggravated into walking pneumonia. This isn't about being cynical or paranoid; it's about being vigilant to potential problems.