Tone-deaf at the top

Reckless leaders cheat society, alienate employees and waste capital. Here’s how CFEs can evaluate and help improve C-suites’ and boards’ ability to detect and prevent fraud.

Some companies are their own worst enemies. Insider fraud scandals at Volkswagen and Wells Fargo & Company are the latest in a long tradition of top management deceit. But CFEs with the right diagnostic skills can spot and help mitigate the cultural and governance flaws that foster such corruption.

Here are telltale signs to look for:

1. An organizational ethos that permits or encourages fraud.
2. Management pressure to achieve overambitious business goals regardless of regulatory requirements and ethical standards.
3. Lack of support for anti-corruption objectives and inadequate assessment of progress toward them.
4. Little or no management commitment to learning from an organization’s past ethical lapses.
5. A C-suite and board of directors out of sync with each other and the workforce.

This article explores recent governance research and discusses the above problems with two CFEs — Zachary Rosen and Igor Sandrej. Each has internal and external audit experience, has practiced in the U.S. and is now based in Europe — Rosen in Prague, Czech Republic and Sandrej in Košice, Slovakia — working for or with large German corporations.

Volkswagen, Germany’s biggest firm, was once world-renowned, but insider fraud has made it infamous. Like Wells Fargo, another victim of internal corruption, Volkswagen’s greatest risks were in its C-suite and boardroom.