By David Morgan
25 March 2019
Integrity in the workplace has come under the spotlight in 2018, bringing about a need for significant cultural change in both public and corporate entities operating in Australia.
Reviews, such as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, have exposed numerous disconcerting behaviours from Australian businesses. In short, there has been a sense of entitlement coming from the top of companies that is destroying the trust between these businesses and the general public. It also highlights the need for Australian companies to embrace policies regarding organisational integrity to ensure their businesses are operating ethically and fairly for all stakeholders.
Fraud: a multibillion-dollar disease
Fraudulent activity is nothing new to the corporate world, but it is still incredibly prevalent today. If most people know these actions are wrong, why do we see this occur? Three common traits have been found to be present in fraud cases. They have become known as the Fraud Triangle – a term coined by Donald Cressey, a prominent criminologist throughout the 60s, 70s and 80s. The triangle has been theorised to be made up of three factors: pressure, opportunity and rationalisation.
Looking at the past events detailed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there has been pressure to provide revenue and results for the company – creating the motivation for acting unethically and, sometimes, illegally. Once presented with an opportunity to do so, so staff will most likely take it. Offenders then tend to justify their actions as a result of seeing their manager or co-workers using unethical practices to further themselves in the company.
This leaves them thinking ‘everyone does it’, helping to ease their mind. It is this rationalisation that has bred a mindset of disregarding integrity that has then led to the state that some companies find themselves in. It can sometimes become the collective culture of the organisation, but more often than not develops in pockets of an organisation.
What is quite alarming is the scale at which modern businesses are being impacted by fraud schemes. The Association of Certified Fraud Examiners (ACFE) in its Report to the Nations, (released in 2018), detailed the trends of the cost of fraud in 125 countries and 23 industry categories from more than 2,600 survey respondents regarding investigations over the period of January 2016 to July 2017. The report highlighted that during those 18 months, total losses to companies due to fraudulent activities exceeded $7 billion with ‘22 per cent of cases [causing] losses of $1 million [or more]’.
It is also concerning that victims who are smaller businesses are affected more than larger corporations, losing ‘almost twice as much per scheme to fraud [than larger companies]’.
Disappointingly, it is apparent from the ACFE report that internal control was a contributing cause for these crimes to be undetected for significant lengths of time. Had there been more effective internal reporting policies and procedures, significant amounts of money may have been saved as the perpetrator may have been discovered earlier. We hope that the high-profile cases and Royal Commissions that have been highlighted in Australia in recent times, lead to a shift in mindset regarding the importance of integrity frameworks inside the workplace.
Read Part 2 of ‘Whistleblowing in the Boardroom’ in our next edition of Pulse.