How to Use Corporate Culture to Prevent Fraud
Darrell Smith CFE, ARM, CIM, FCSI
Corporate Culture can be described as “The beliefs and values which are understood by employees.” Culture is like an invisible energy field that surrounds your organization and determines how people think, act and see the world around them.
Some facts about corporate culture include;
1. Culture determines the “way of life” for employees who often take its influence for granted.
2. Over time culture is fairly stable and resistant to quick changes. Once a culture is ingrained into the organization, it can resist change even with high employee turnover. 3. Culture involves both internal and external characteristics.
4. Employee’s know what the culture is and can describe its characteristics. You can measure, evaluate and perfect it.
5. Culture will develop in a random fashion, or you can manage it if a firm has incorporated it into their strategic plan that identifies specific properties and goals.
So how can a company reduce fraud in their organization by managing corporate culture? By aligning the organizations goals with the socialization process. The socialization process is what passes an organization’s culture from one generation of employees to next.
According to Dictionary.com the definition of the socialization process is; the continuing process whereby an individual acquires a personal identity and learns the norms, values behaviors and social skills appropriate to his or her social position.
The three stages of the socialization process are;
1. Anticipatory Socialization and the Hiring Process: Begins when the employee simply considers working for a company and continues through the hiring process, where the interviewer will communicate the norms and values of the company and determine if the candidate is a good fit.
2. Formal Socialization: Can be in the form of orientation and training programs for new employees and also through a mentoring process where values, skills and habits are communicated to the new hire.
3. Informal Socialization: Occur through many informal channels, through interaction with fellow employees and informal interactions with management. This is where the most effective and lasting socialization takes place.
At the anticipatory and hiring stage, the first step is to communicate the company’s norms and values through the web site to potential and current employees, that your organization puts a high value on honesty and integrity. Then during the interview process, the interviewer will reinforce the values by making it part of the interview process by asking open ended questions and reinforcing the company values.
The formal socialization stage is an excellent opportunity to begin the education process by making it part of the training program, through codes of conduct statements, and company policies and procedures. It is also very important to match the new hire with a mentor who will reinforce the company values in a positive reinforcing way. Use real examples of how real employees made contributions to preventing fraud. I am a big believer in positive reinforcement and not using negative reinforcement, such as discussing how this employee was caught committing fraud. This sets a negative tone for the new hire.
Finally the informal socialization process is where the employee will develop their values and ethics system by interacting with other employees and various levels of management. It is essential that management lead by example and follow the same rules as expected from the employees. Employees that are role models and set a good example should be given more exposure to the new employees.
I have worked with clients who accepted that employee fraud and theft was part of their culture, and spent large amounts of money on security, CCTV, and audit programs, focused on catching and prosecuting the dishonest employee. This is really just dealing with the effect and not the cause. I have also worked with companies who tried to change the culture of fraud and theft, by managing the corporate culture. The return on investment is much higher.
While every organization is unique, here are some helpful hints to get started;
- Survey your employees to understand their thoughts on fraud and theft in the workplace.
- Develop a vision statement that reflects the vision of the company on fraud and employee dishonesty. I had the privilege of doing some work for a contact center and the VP came into the class of new trainees and said I only ask two things of you; 1. Don’t use violence against each other 2. Don’t steal from the company or commit illegal acts against us. They have never had a workplace violence incident or fraud committed against them. Don’t underestimate the power of vision.
- Ensure senior management is on board and make sure they give a reason why the change is occurring.
- Establish a team to guide the change process.
- Set short-term wins, rather than one or two big goals. This will keep employees engaged and focused. Failing to meet a big goal or milestone will discourage employees and may mean the end of the program.
We have discussed corporate culture and the role it plays in shaping employees thoughts and behaviors. We also discussed how the culture can be managed with the socialization process. To change your culture takes time and a lot of energy, however the end result is worth it.
At East Coast Fraud & Risk Management Group we have worked with many organizations and developed several employee surveys, you can use to survey your employees on corporate culture as it relates to fraud and employee dishonesty. Drop us a line if you would like a copy of one at www.eastcoastfraud.ca
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