How do we teach ethics to future fraud examiners?

Is it legal? Is it in accordance with established professional standards? Does it adhere to ethical principles of behavior? Is it consistent with my personal values and beliefs? 

When faced with ethical decisions, fraud examiners, of course, should consider these questions. They should know that they’re always under the ethics microscope and should consider ethical issues in all situations. I give my students the following framework that they can use throughout their careers.

FRAMEWORK FOR MAKING ETHICAL JUDGEMENTS 

• Is it legal, i.e., in conformity with statutes and regulations (e.g., Title 18 of the U.S.C., SEC regulations, Sarbanes-Oxley Act of 2002)? 
• Is it consistent with in-house rules (an organization’s policies and its code of ethics)?
• Is it consistent with professional standards (CFE Code of Ethics, CFE Code of Professional Standards, AICPA Code of Professional Conduct)? 
• Is it right?
• How will my intended actions harm or benefit stakeholders? 
• Will my intended actions be just to the situation and those involved?
• Will my intended actions be consistent with virtues, such as honesty, integrity and reliability? 

Ethics instruction should begin and end with reflective thought about whether the decision maker has been faithful to the CFE values of honesty, trustworthiness, competence (including professional skepticism), confidentiality, accountability and integrity.

Integrity encompasses all the other values. A person of integrity acts on a conviction that there’s an ethical choice to be made among alternative courses of action and that that action is worth defending.

ETHICAL VALUES VS. LAWS 

We may act ethically but not necessarily follow the law. Of course, being a law-abiding professional is a critical component of ethical behavior. Fraud examiners should comply with the law simply because that’s what they’re trying to uphold.

The instances are few when a deviation from legal action is ethically warranted. If a fast-spreading wildfire was about to engulf my neighbor’s home, I might feel compelled to warn him. After I knock on his door several times and call him on the phone to no avail, I might conclude it’s better to break the law by breaking a window, entering the house and making sure my neighbor isn’t incapacitated than to see him suffer injury or death.

Conflicts occur for fraud examiners when they must choose between two competing values. For example, a bank might hire a fraud examiner to infiltrate a group of employees who allegedly are selling fictitious certificates of deposit to unsuspecting customers and pocketing the money. The bank gives the fraud examiner a false identity to protect her and give her cover if the fraudsters become suspicious when she asks questions and is present when they make their false transactions.

The issue here is whether it’s ethically appropriate to lie to uncover criminal activity. We might turn to the ethical framework to evaluate the issue. Two points are important here.

First, a utilitarian analysis would show that the benefits to be derived by the fraud examiner assuming a false identity far outweigh the costs of lying to achieve that goal. The actions of the offending employees are harming the bank: They’re stealing money, defrauding customers and placing the bank’s reputation at stake.

Second, the fraudsters are violating the rights of the customers when they sell them false certificates of deposit. Consider whether you would want others to act this way in similar situations for similar reasons. This universality perspective focuses ethical action on the “reasonable person” standard often used in law as an objective test in which the conduct of an individual is compared to that of a reasonable person under similar circumstances. The answer seems quite clear that if employees in other banks committing a similar fraud were allowed to act unchecked, then the banking system might suffer irreparable harm.

VIRTUE AND COMMUNITY

The old proverb, “Virtue is its own reward,” has been attributed to Cardinal John Henry Newman in a religious context and the ancient Greeks — in particular, Cicero — in the context of a person’s character. Good character is an essential element in determining the professionalism of fraud examiners. Fraud examiners must be beyond reproach.

Virtue applies both to our decisions and the reasons for making them. Plato said virtues are intrinsic to self-interest; he argued that we must all have wisdom, courage and self-discipline. Wisdom implies that there’s a difference between knowing what the right thing to do is and doing it. Courage equates to integrity and calls for carrying out ethical decisions with ethical action. Self-discipline means that a principled person doesn’t allow pressure from others to sway ethical action.

At the heart of the virtue approach to ethics is the idea of “community.” A person’s character traits aren’t developed in isolation but within and by the communities to which she belongs, such as the members of the ACFE (governed by the CFE Code of Ethics and CFE Code of Professional Standards) and the AICPA (and its Code of Professional Conduct).

The traits pertain to characteristics of acceptable behavior within the fraud examiner profession — its community. Every professional practice requires certain kinds of relationships among those who participate in it. The virtues are the standards of excellence — principles of conduct — that characterize relationships within the practice.

To enter into a practice is to accept the authority of those standards, obedience to the rules and commitment to achieve the internal rewards. Fraud examiners who are members of the ACFE pledge to act with integrity and to perform their work in a professional manner. Those are the required commitments essential to allow acceptance into the ACFE community.

I’ve observed in my ethics teaching that all too many students find the concept of virtue foreign to their notion of the pursuit of self-interest. I try to point out that as future fraud examiners and accounting professionals they need to embrace the concept that the reward for behaving virtuously is the satisfaction one feels in doing what one knows to be right. I stress that many use the proverb to warn that we shouldn’t expect material rewards for acting virtuously.

LEARNING BY DOING

Aristotle said, “For the things we have to learn before we can do them, we learn by doing them.” Aristotle believed that every activity aims at some end. So that everything you do (every activity), you do for some purpose (some end). So you go to school (activity) to get a job (end). You learn automotive repairs (activity) in order to fix cars (end). You study fraud examination to understand how and why fraud is committed, gather evidence and analyze it to detect fraud, conduct a fraud examination and present evidence in a report.

When I teach ethics, the worst thing I can do is lecture students on the subject. They’ll tune me out in a few seconds. So, I always involve them in the learning process. If I pose an ethical dilemma and ask what they would do, I’ll grab their attention, personalize the matter and engage them in reflective dialogue.

For example, after I tell them about the previous bank case, I might ask: “If you were an employee of the bank, what would you do if you suspected some co-workers were selling fictitious certificates of deposit?” I respond based on how the discussion proceeds. If they say they wouldn’t say anything to management because they want to be loyal to their co-workers, I explain their actions can do more harm to the organization than good. I point out if they remain silent, then they become part of the eventual cover-up. I stress that they’re risking their good names to protect others who have acted unethically. They’ve violated their ethical obligations as future fraud examiners. Most importantly, I tell them that it takes a long time to build a reputation for trust, but only a few minutes to lose it.

We can’t assume that professional codes and ethics frameworks alone will mold future fraud examiners into professionals with character. However, as teachers (and this goes for all fraud examiners), they’ll follow our ethical examples more than our words.