BA 310 Mod 14 Ch 13 Evaluating Corporate Ethics Objectives List some of the specific goals of ethics training programs 1 Describe the components of organizational fraud 2 3 Describe how firms can increase the ethical awareness of employees 4 5 6 Describe the concept of ethical auditing 7 8 Describe the steps for establishing an ethics hotline Explain the key elements in a global ethics training program Explain how companies can enforce their ethics policies List items that whistleblowers should consider 1 Components of Organizational Fraud Types of Fraud IP Infringement Asset Misappropriation Accounting Fraud Bribery and Corruption Cybercrime Money Laundering Anticompetitive Behavior Espionage Tax Fraud Illegal Insider Trading Why Firms Need Ethics Training Programs PriceWaterhouseCoopers interviewed 3 877 senior executives from 78 countries for its 2011 Global Economic Crime Survey 34 of the companies had been a victim of economic crime in 2010 56 reported that the most serious fraud committed to the company was by their own employees The size of the firm experiencing fraud in the survey 17 of firms with up to 200 employees 29 of firms with 201 1 000 employees 54 of firms with more than 1 000 employees The cost of fraud Average cost per company was 2 1 million Includes a range of types of fraud including asset misappropriation theft embezzlement inaccurate accounting bribery and counterfeiting Includes collateral damage such as loss of reputation decreased employee motivation and poorer business relationships with customers and suppliers Reasons fraud is committed Lack of adequate internal controls which gave the individual the opportunity to commit the crime Financial need to maintain a high standard of living so there was an incentive to commit the crime The individual was not aware that his her actions were wrong which allowed for rationalization Who Commits the Fraud If committed by an employee internal 39 by low level staff members 41 by middle managers 18 by top managers If committed by someone external to the company 35 by customers 21 by other third parties 17 unable to identify 9 by suppliers How are they caught monitoring Corporate control detected by internal audits and other internal transaction Corporate culture detected by internal tips and whistleblowers Beyond the influence of management detected by chance or outside law enforcement investigations 1 BA 310 Mod 14 Ch 13 Evaluating Corporate Ethics 2 Establishing an Ethics Training Program Specific Goals of Ethics Training Programs the firm Provide the necessary tools needed by the employees to understand the ethical decision making process Give the employees an opportunity to assess ethical priorities Explain the procedure used when employees violate the ethical standards established by Give the opportunity for employees to be able to identify ethical programs based on the firm s ethical standards Increase the level of sensitivity of the employees view pertaining to specific ethical issues Enhance the ability of the employees to increase their level of individual reflection as it Create a strong positive ethical work climate in which ethical support systems and coed are relates to ethical issues in place within the firm companies to do the following Creating effective business ethics programs from all aspects of the organization better allows Avoid bankruptcy fines lawsuits and criminal charges Protect and strengthen sales brain image and reputation Protect the company especially during times of stress and transition Strengthen employee loyalty and commitment Avoid prescriptive government regulation Avoid loss of business Enjoy greater access to capital Limit vulnerability to activist pressure and boycotts 3 4 Establishing Global Ethics Level of Complexity related to ethics increases significantly when doing business in a foreign country Key elements in any global ethics training program Ensure morally sensitive cultural education Provide education on international human rights not only on foreign law compliance Present a rational dialogue for important international issues when there is dissent Try to get beyond rule formalism Global Cultural Dimensions and Ethics Training Programs Individualism vs Collectivism the extent to which people define themselves as individuals rather than members of a group High context vs Low context Communication high context focuses on nonverbal cues whereas low context focuses on actual words spoken High Uncertainty vs Low Uncertainty preference for structured rather than unstructured Masculinity vs Femininity assertive and competitive society vs one that is more situations relationship oriented High vs Low Power Distance status difference between superior and subordinate 5 Enforcement and the Ethics Training Program Employees may be reporting every action seen as a violation of the code of ethics Valid complaints must be investigated regardless of time and money it takes For a compliance program to work effectively it is necessary for the code of ethics to be enforces properly The tone from the top is important 6 Corporate Ethics Officers 2 BA 310 Mod 14 Ch 13 Evaluating Corporate Ethics 7 Whistleblowing Federal Sentencing Guidelines for Organizations Act was passed in 1991 Component of controls to help prevent detect and report criminal activities the act was the government s encourages firms to implement internal Ethical Auditing ethical auditing the regular comprehensive evaluation of the compliance of the firm s ethical policies and procedures The ethical auditing process is an evaluation tool used by management to ensure that the ethical conduct described in the code of ethics is enforced throughout the organization Five Parts of an Ethics Audit Questionnaires are filled out by the employees Employee interviews are conducted Ethics auditors make a firsthand inspection Ethics auditors develop a final report Ethics auditors follow up on the recommendations in the final report whistleblowing the process in which an employee informs another responsible employee about potentially unethical behavior Many firms now allow employees to report anonymously 24 hours a day through hotlines Questions to ask Did the individual observe behavior that was illegal immoral or illegitimate Should the activity be reported Should the questioned activity be halted by the firm What should be done concerning the whistleblower False Claims Act 1863 and amended in 1986 Makes it illegal for anyone to