Monthly Archives: November 2013

A Brief How-To Guide for Avoiding White Collar Prison

We are all familiar with examples of high level financial executives who landed in white collar prison due to their indiscretions. Think of Enron, WorldCom, and Madoff as just a few examples. How can these situations be prevented?

I wrote previously about the fraud triangle and followed up with a post about a model that expands this from three to five elements. Organizations can do their best to hire people who do not have the pressure to commit fraud or the desire to rationalize fraud. However, the bottom line factor that organizations can directly manage, largely through internal controls, is reducing the opportunity for theft, irregular financial reporting, and other frauds.

Although an organization’s management has the primary role of preventing opportunities for fraud, each employee can prevent the temptation of committing fraud by mitigating pressures and overcoming rationalizations.

Of course, one’s ultimate career goals, as well as ethical responsibilities, go well beyond staying out of white collar prison. So here are some tips for avoiding getting anywhere close to the line of unethical or illegal activity:

  • Eliminate the pressure to commit fraud by having your own financial house in order. This applies on at least two fronts. First, your temptation or pressure to steal from an organization will be reduced if live within your means and keep your debt levels low. Employees sometimes are driven to cross the line by having personal financial pressures. Secondly, if you encounter a situation in which someone pressures you to commit financial reporting fraud, you can more easily say “No!” and walk away from your job (and paycheck, bonus, and stock options) if you have savings in the bank and low personal debt levels.
  • Eliminate the opportunity to commit fraud by making yourself accountable. A value-adding financial professional will undertake implementation of sound internal controls. Top financial executives are not “above the law,” and they should demonstrate this by the tone they set through words, actions, and patterns of behavior. Some well known frauds have been perpetuated because senior management exempted itself from internal control standards.
  • Eliminate the rationalization to commit fraud by maintaining your integrity. Have nothing to hide. Make good on your promises. Draw a personal “line in the sand” that you will be unwilling to cross even if pressures and opportunities arise. Create options and alternatives for yourself in order to gain walkaway power. Be ready to take decisive action rather than hesitating and giving yourself time to rationalize what you know is a fraudulent course of action.

Again, go beyond the aspiration to avoid white collar prison. Maintain the highest levels of ethics and integrity. I will explore models of ethical decision making and behavior in future installments.