Part 1 discussed a summary of statistics from the Report to the Nations on Occupational Fraud and Abuse produced by the Association of Certified Fraud Examiners as well as the basics of the Fraud Triangle and a few ways to prevent fraud in your organization. Part 2 dives into why people start down that slippery slope and allow themselves to be boiled in a pot of water.
This reminds me of the board game “Chutes and Ladders” where certain squares have pictures of children making good choices while others show children getting themselves on Santa’s naughty list. Landing on these squares causes a player to either climb the ladder for making good decisions or slide down the chute for making bad decisions. The picture that always stands out to me while playing this game with my own children is the child grabbing the jar of cookies and eating them all. I believe this is due to my love for cookies, but I also see how my love for cookies could get me into trouble if I let myself.
There is an old analogy about a frog who if put in a boiling pot of water will immediately jump out. But if that frog is put into a pot of cool water, then the heat is slowly turned up, the frog will be boiled without even realizing it. Now, I believe this frog’s instincts of “warning! It’s getting hot!” would kick in, but this story demonstrates a good point; how do good ethical people end up making bad ethical decisions? How did they get from point A to point B?
At the 27th Annual ACFE Global Fraud Conference, John Hurlimann, CFE taught a course entitled, “Mastering the Edge of Ethics.” In this course, he discussed two different ethical views: utilitarianism and deontological. The first is making a decision based on being for the greater good while the latter is based on laws, rules and policies. The analogy he gives is the Trolley Car Dilemma, which is a popular analogy for demonstrating ethical dilemmas and how one makes ethical decisions. The analogy goes like this: there is a runaway trolley car heading down the tracks toward five people tied up on the tracks and cannot move. You are next to the tracks and a lever that will switch the trolley car to another set of tracks. But before you pull the lever, you see one person stuck on the other tracks. What do you do? Pull the lever causing the trolley to kill the one person or do nothing and allow the trolley to kill five people? Whether your ethical compass follows the utilitarianism or deontological view will determine which choice you make. Kill the one person because saving five people is for the better good or do nothing because pulling the lever will be purposely murdering someone.
As discussed in Part 1, one of the legs of the Fraud Triangle is rationalization. Utilitarianism describes how many people can justify their actions because in their mind it’s for the greater good, such as “I was making the company more money” or “I had to help my mother with her medical bills.” The dilemma is that some good might come of the action but at what cost? But as we know, the cost of fraudulent and unethical behavior is very high to the company and to the individual who commits the wrong doing.
When I think of these dilemmas, I think of the analogy of the little shoulder angel and devil; two little creatures whispering their reasoning behind why their decision is the best. Although funny, these two creatures represent a very real process that occurs in our brains numerous times throughout each day. Rationalization is easy because it can be seen as just a small thing that won’t hurt anyone or no one will miss it or maybe everyone else is doing it or it’s for the greater good. Every time an act is rationalized and committed, the heat increases. Soon, the person has committed actions they never would have dreamed of doing before that first unethical decision; then they find themselves boiling in a pot of water. Hurlimann describes this as creating a new baseline for what is acceptable. Each time an unethical act is committed, it seems minimal because it’s the new norm. But these acts would never have seemed okay to the person in the beginning.
So how does an organization create an atmosphere of ethical behavior and prevent fraudulent actions? Part 3 will discuss specific ways that your organization can create the “tone at the top” and a culture of good behavior that will save your organization from fraud.