Tone at the Top

How management can prevent fraud by example, part one


By Suzanne Mahadeo

 

Preventing fraud is good business. Inspiring employees to follow ethical standards starts with the tone at the top in the executive suite. Learn the steps to prevent fraud in your workplace. 

In January of 2001, Walt Pavlo received a 41-month federal prison sentence for money laundering, wire fraud, and obstruction of justice. Pavlo claimed that he was pressured by his bosses to commit financial statement fraud at MCI WorldCom. As a senior manager in billing collections, he dealt with customer payments, credits, and reconciliations of accounts. Upper management described revenue projections and, according to Pavlo, pressured employees to meet or exceed these projections. As Pavlo watched his bosses manipulate the organization's financial records, he and his colleagues soon began to do the same. Pavlo and his supervisors then began meeting to devise ideas on cooking the organization's books. His supervisors taught him how to conceal uncollectible debt, which boosted the company's assets and profits. Pavlo's employees then followed his fraudulent example. Auditors eventually found Pavlo's unusual journal entries, confronted him, and he confessed.

Similar to others who commit white-collar crime, Pavlo at first didn't believe he was doing anything wrong. He felt that he was just doing his job and making his employers happy by altering the company's financial data. He convinced himself that the problem ultimately would remedy itself - a highly unlikely scenario in which he believed that the company's revenues would grow enough to cover his transgressions.

Even highly educated and well-experienced employees can become white-collar criminals if their bosses pressure them enough. Pavlo held an industrial engineering degree and an MBA and had worked for five years at WorldCom but that didn't stop him from succumbing to the wishes of his supervisors and then corrupting his employees.

After his conviction, Pavlo left behind his wife and two young sons to serve his prison sentence.

What can employers do to prevent the creation of wayward employees? Setting a good tone at the top is a start.


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