June 22, 2021
It is easy to imagine we all understand what is right and what is wrong, but our individual perceptions of right and wrong differ depending on the situation. This phenomenon is called ‘situational ethics’.
For example, the salesperson who is comfortably achieving their targets is unlikely to offer a customer a bribe to place an order. But that same person, just one sale away from getting their $20,000 bonus, might behave differently if a customer is overtly dropping hints that a bribe will get that final sale across the line in order to hit their target.
Situational ethics has always been a factor in corporate fraud and corruption. When fraudsters are confronted with evidence of their corrupt behaviour, they inevitably offer a situational excuse: “Yes, but I only did it because… I was under pressure from my manager to make our targets… I needed money for my kid’s medical expenses… my house had flooded and my insurance didn’t cover the repair bill…”
The Virus Has Created A New Working Situation
The pandemic has now significantly changed the situation in which employees work. The post-COVID new normal has blended work and life so seamlessly, it’s hard to know where one ends and the other begins. And that poses new fraud risks:
- Lack of Controls – In the rush to move employees to remote working, organisational priorities were (understandably) to provide staff with the necessary digital tools and hardware to do their jobs. Controls were a secondary thought. It took a while before companies got a handle on the new compliance risks that arise when employees start running your company and representing your brand from their living rooms.
- Disengagement – While many of us appreciate the lack of commute and flexibility associated with working from home, others believe that going to work breeds loyalty; they worry that the second we make work fit around life, we have a different relationship with it. Daily interactions and office rituals mean employees identify with an organization whereas the prevalence of working from home means loyalty can begin to dissipate. Without water cooler conversations or the ability for managers to spot when people are struggling, will the connections between individuals and organisations start to break down? What will happen when employees can no longer find themselves in the company photo. Will notions of career paths fade away?
It is easy to imagine a scenario where inadequate controls and employee disengagement may lead to increased fraud and corruption, as the three usual barriers to corrupt behaviour are weakened. These barriers are (in this order):
- Is It More Than My Job’s Worth? Disengaged employees are more likely to risk jobs they’re not even sure they want.
- Will I Get Caught? Employees working from home feel they are less observed, are aware that controls may have weakened and are therefore increasingly likely to believe they will get away with unethical behaviour.
- Is It Right or Wrong? The situational reality of working from home, including any perceived lack of support, will lead employees to rationalize their behaviour. “It wasn’t my fault. If only my manager had checked in with me more often, I’d have known this wasn’t compliant behaviour.”
But Compliance Protocols Have Not Kept Pace.
Compliance protocols have not kept up with the post-COVID situational ethics. Boards and executives considering these issues need to review and update their ‘occupational fraud diamond’.
The prevailing thinking is that fraud will occur when all four elements of the diamond – pressure, rationalization, opportunity and capability – align. To this we should now add ‘disengagement’ because left to fester, disengagement will not only drag down productivity, but will also lead to new fraud and corruption vectors.
How Should Companies Respond?
As they transition to permanent remote working or hybrid structures, companies would be well advised to address the additional fraud and corruption risks of the new workforce situation:
- Close Engagement Gaps – by strengthening leadership, reinforcing purpose and improving communication
- Ramp Up Detection – by revisiting and strengthening controls, and dialling up independent investigations
- Build A Remote Compliance Culture – modelling integrity, rolling out training and awareness and encouraging whistleblowing