The Costs of Employee Misconduct

When constructing an annual budget, considering ways to prevent unethical behavior in the workplace is rarely on anyone’s mind. The Report to the Nations from the Association of Certified Fraud Examiners (ACFE) found that a typical business could anticipate losing five percent of its annual revenue to fraudulent activity.

Corruption has routinely been the most pressing concern for larger companies, while smaller businesses more frequently face issues with check tampering, skimming, and payroll irregularities. Despite these variances in the method of fraud, the study found that the reported median loss of $120,000 varied little when accounting for company size.

Beyond these more blatant concerns are, of course, the seemingly benign unethical behaviors that are common in almost every office. After all, how bad can it be for your employees to spend a little too long in the break room every day or occasionally take credit for another’s work?

Surprisingly, there is a strong chance that these small ethical shortcomings could snowball into larger concerns. According to an article jointly written by three university research teams, people are more likely to rationalize unethical behavior if the opportunities for misconduct at work are presented gradually rather than as an abrupt change. Similarly, those surrounding the inappropriate behavior—even those charged with oversight—are more likely to overlook this creeping employee misconduct.

Guide: Prevent Risky Business

Organizations who aren’t taking proactive steps to prevent ethics shortcomings are exposed to lawsuits, regulatory penalties, investigations, intense media scrutiny, and damaged employee relations.

Without a sound, ethical culture, a business can quickly find itself on the wrong side of the law. Previously, a major U.S. bank was penalized for $185 million due to the fraudulent creation of roughly 1.5 million bank accounts. Several thousand employees throughout the business created these fake accounts to take advantage of corporate compensation policies that rewarded sellers on the number of new accounts they opened.

And without proper oversight, corruption bloomed. Altogether, the bank has fired more than 5,300 employees connected with fraudulent activity.

So what can you do to ensure this doesn’t happen at your organization? Promote ethical conduct in the workplace with these six steps.

How to Promote Ethical Behavior in the Workplace:

1. Establish straightforward guidelines

You should develop an easily understood yet comprehensive code of conduct that outlines company expectations for ethical behavior at work. Identify common missteps and how to avoid them while unambiguously relating the consequences of ethical failings.

2. Promote knowledge

Don’t just offer code of conduct or ethics training to new hires as one of the ways to prevent unethical behavior in the workplace. Routinely provide refresher courses to your existing staff. Bring in guest speakers to help employees build problem-solving skills so that they can react appropriately to employee misconduct.

3. Provide tools

Consider implementing a reporting system that allows your employees to disclose conduct violations anonymously, and identify procedures for staff to request private meetings with supervisors responsible for ethics oversight.

4. Be proactive

According to the ACFE study previously mentioned, organizations that lacked anti-fraud controls suffered greater average losses—often twice as much—from ethics violations.

5. Employ data monitoring

Another effective way to prevent unethical behavior in the workplace is to establish management review boards to investigate possible violations to the code of conduct. Set up reporting hotlines or email accounts that are capable of capturing relevant details including corresponding documentation or the names of potential witnesses.

6. Foster ethical behavior

When evaluating candidates during the hiring process, you should consider their values and whether they fit into the company’s vision. Distribute responsibilities across employees and departments, creating a system of checks and balances that reduce the risk of unethical behavior.

Nudging Employees Towards Ethical Conduct in the Workplace

Just as employees are susceptible to gradual ethical erosion, they are equally open to positive influences. Research indicates that a “nudge” in the right direction, such as having staff sign paperwork verifying the authenticity of mileage expenses immediately before actually submitting the mileage figures, can subconsciously encourage employees to be more honest.

Not surprisingly, the more ethically responsible a business operates, the happier and more loyal its employees tend to be. And happier employees tend to behave more ethically, creating a positive cycle for your business.

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