Halloween is fast approaching, which makes it a good time to take pause and think about how we might protect our company’s house from getting haunted (misconduct/fraud)!  In the “spirit” of Halloween, following are seven “twisted” little tips:

  1. Hauntings Happen – Just because you don’t believe in evil spirits or hauntings doesn’t mean it isn’t real. Companies must accept that a haunting can easily happen in their house and that if they don’t take the proper precautions, it might not end well for them.  Believe and know that people sometimes do bad things.  Employees, sub-contractors, and other agents are a company’s biggest risk and the adage “Trust, but verify” is one to be taken to heart.  Be proactive and ever vigilant in looking for and rooting out evil spirits in your company’s house.  If you don’t believe a fraud can happen to you, you are already a victim of one.
  1. Avoid Negative Energy – Just like negative energy attracts evil spirits and positive energy deters and pushes them away, positive ethical tone within a company’s house has the same affect. Top management of a company must establish and promote a positive ethical tone and ensure that it permeates throughout the company’s house. Promote a positive ethical culture in everything that you say and do and remember that actions speak louder than words.
  1. Get Your House “Blessed” – Putting into place and maintaining an effective and robust Corporate Compliance & Ethics Program (“Program”) is akin to getting your company’s house blessed. Not only in the sense of helping prevent a haunting, but in weeding out “evil spirits” (wrongdoers) and mitigating the effects of a haunting, if it should occur.  Government enforcement and regulatory agencies, when determining corporate culpability, focus on a company’s Program.  If it isn’t up to par, the penalties can be severe – even life ending for a company.
  1. Call a Priest – Don’t necessarily wait until you have a haunting in your company’s house to call for professional help. Have your Program assessed by an expert and, if they make recommendations, follow them.  If you think you have an evil spirit, those professionals can help exorcise (e.g. investigate) it and provide guidance on how to prevent it from coming back.
  1. Trust the “Children” – It seems that the children (employees) in a haunted house (company) are always the ones to first become aware of it, but the parents (management), by not trusting them (inaction) and/or punishing them for speaking up about it (retaliation), let the haunting fester to the point of crisis. Company executives and management must: (a) set a tone that encourages employees to speak up and report hauntings; (b) enable them to report concerns easily and anonymously; (c) not punish those who report concerns (e.g. non-retaliation policy) and; (d) show employees that they take their concerns seriously and are taking actions on it.
  1. Learn the History of the House – The only way to know if bad things have happened in a house is to conduct some research. If the house was the site of horrible things in the past (e.g. the movie “Amityville Horror”), you may want to consider not buying or renting it.  For companies, this means conducting effective due diligence on parties with whom it seeks to do business with (i.e. acquisitions, joint venture partners, foreign agents, intermediaries, suppliers, customers, etc.) and conducting effective background checks on those whom it employs and/or subcontracts.
  1. Know and Don’t Ignore the Signs – If you don’t know the signs of a haunting and/or ignore them, you can’t be prepared for what may happen. Train your employees to recognize the signs of misconduct and/or fraud and what to do if they see or suspect it (see also #5 above).  Conduct compliance risk assessments to identify those areas most susceptible to a haunting and further protect those areas through sound and understandable policies & procedures, enhanced internal controls, focused and effective training, and increased monitoring/auditing.