There are several measures companies and the society can take to reduce the instances of fraudulent activities. Companies should formulate clear ethical standards so that the employees know how they are expected to behave and the upper leadership should lead by example. Leadership plays a major role in shaping an organizational culture. The companies should also implement fraud monitoring and detection tools to make it difficult to commit fraud and when such instances do occur, companies are able to detect them and take action in a timely manner . Similarly, societies also need to increase the cost of fraud through more severe criminal penalties instead of relying on civil penalties only. Societies should also utilize rules and regulations where necessary to reduce conflict of interest and increase accountability for organizations. Sarbanes and Oxley is a step in the right direction because it has forced organizational management to take greater responsibility for instances of fraud.
One of the ethical issues we should consider regarding fraudulent activities in a company is the potential impact on other stakeholders who have no involvement such as employees and investors. Similarly, fraudulent activities are not always willful if pressure from the upper management is involved such as to manipulate accounting statements. While there are protections for whistleblowers, the personal costs for whistle blowing are often too high including difficulty of finding employment with another company. Another ethical issue is the cost of enforcement which could be prohibitively high for smaller organizations with limited resources as opposed to bigger organizations.
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- Financial Post. EY Insights: Fraud prevention: The certainty of ethics in an uncertain economic age. 20 August 2013. 5 February 2014 http://business.financialpost.com
