There’s an almost infinite number of ways a company can wander off the high road — from workers pilfering office supplies to purchasing managers accepting kickbacks, product developers “borrowing” competitors’ ideas and executives manipulating financial results. Just because a business is struggling doesn’t excuse bad behavior or management’s tacit approval of ethical lapses. Ethical, well-run companies are the ones best positioned to weather uncertain times. Here are some steps you can take to reinforce business fundamentals.
1. Lay Down Ground Rules
If you’re going to hold your employees to high ethical standards, you must first define those standards, as well as the values (such as teamwork or superior customer service) that define your company. Put these standards and values in writing and communicate them clearly and frequently to your employees, customers, suppliers and other stakeholders. That way, everyone knows what’s expected.
If you don’t already have one, implement an internal controls policy to help prevent and detect fraud. Your CPA can work with you to determine the policies you need based on the type and size of your business. But common cost-effective controls include:
- Segregation of accounting duties,
- Multiple authorizations for checks over certain amounts,
- Mandatory vacation policies
- Background checks for new employees.
Keep in mind that ethical standards are only as strong as your implementation and enforcement of them. Everyone, from mailroom staff to your CFO, must comply with your company’s policies or face disciplinary action.
2. Cut Costs with Caution
Even if your business already has well-established codes of conduct, you may find that current circumstances require a new level of vigilance. Quality control, for example, may be one of the first victims of an economic downturn as some businesses turn to cheaper materials and reduce oversight.
There’s nothing wrong with saving money, but to avoid a possible lawsuit or government investigation, it’s essential that cost-cutting initiatives don’t:
- Endanger the health or safety of your employees or the public,
- Violate any laws, including labor, product safety and environmental protection,
- Increase your liability risk, or
- Violate the terms of any contracts.
Keep in mind that, even if you avoid a legal catastrophe, your customers are likely to notice if you start cutting corners. Also be on the lookout for increased fraud activity, including small schemes such as inflating expense reports or making promises to customers that your company can’t possibly fulfill to land a commission. More damaging are scams in which accounting staff invent vendors or “ghost” employees, or executives manipulate revenue, growth and other financial metrics.
3. Set an Ethical Tone at The Top
Well-communicated ethics policies and vigilance will help keep your business on the straight and narrow. Most important, though, may be the “tone at the top.” As many studies have found, the most successful companies have leaders who don’t just talk the talk, but also walk the walk.
Partner with an Assurance Expert
Economic pressures are one of many reasons that a company, or individual within a company, might feel the urge to compromise their integrity. Risk and control reviews exist for this reason and can serve as a way to identify risk and provide guidance on mitigating that vulnerability.
Clark Schaefer Hackett provides assurance services that can help you navigate these waters, and ensure that your business has the right checks and balances in place. Don’t hesitate to reach out and learn more about how we can partner with you.