Unethical Practices Prevention Tools

Some tools and mechanisms that may be used to prevent and detect the occurrence of unethical practices are listed below.

Management responsibility

Management should maintain the highest standards of integrity in its everyday dealings. Where senior management behaves dishonestly, corruption and fraud will spread to all levels.

Management’s responsibility is to set the highest standards of integrity and be an example for everybody in the organization to follow. Managers should also point out correct behavior to employees and draw the line between acceptable and unacceptable behavior.

Management is also ultimately responsible for the operations and assets under their command. It is their responsibility and in their interest to ensure that the organization has the necessary procedures and control systems in place to ensure maximum security and minimize the risk of corruption and fraud.

Code of ethics

All organizations should develop a code of ethics for all staff to follow. A code of ethics is a formalized statement containing ethical codes of conduct for the organizations’ members to follow. The Code of Ethics will clearly state what type of behavior is expected from the members, and what type of behavior is unacceptable.

Organizational procedures

To prevent fraud and corruption an organization should have in place the following organizational procedures:

• Pre-employment screening- The background of all job applicants should be checked before they are employed and granted access to premises and assets.
• Classification and protection of information- Clear desk policy’, secure filing cabinets for all employees, sufficient number of paper shredders, secure disposal of all waste paper.
• Data security standards- Procedures should be introduced for all data processing resources. Instructions on minimum standards should be enforced.
• Incident reporting- All employees should be responsible for reporting losses and security incidents. All incidents, regardless of how small they are, should be reported.

Personnel policies and procedures

Fair, open, and efficient personnel policies and procedures reduce the organization’s exposure to fraud.

Factors relating to policies and procedures will include:

• Job descriptions- Security responsibilities should be drafted into contracts and job descriptions to deter personnel from being dishonest.
• Education and training- Awareness training can clarify what is meant by ethical conduct, short cuts, and fraud and contribute to the prevention of fraud. Training programs can be supported by booklets on the organization’s business ethics and security policies, articles in internal newsletters or magazines, newsletters including reports on frauds discovered and the lessons learned from them, as well as films and videos. New employee induction training can cover security.
• Investigation- Set down organizational rules for conducting investigations into suspected or reported incidents of fraud or breaches of security, including employee obligations to assist in such investigations. Criminal offences or reasons for disciplinary action should be brought to the attention of all staff.

Accounting Controls

The integrity of accounting systems is an essential element in preventing fraud. Controls should ensure that details of all goods and equipment moving in and out of the organization are recorded on serially numbered documents or computer records, and copies of documents recording movements are retained securely. Maximum use should be made of numerical controls, using documents with pre-printed serial numbers.

Levels of authority to approve accounting transactions should be clearly defined and regularly audited. Each system should define who will be held responsible for losses, errors and concealment. Areas of responsibility should be identified and enforced. Books and records should be protected in the same way as all of the assets of the organization.

Segregation of Duties

This is the most basic and one of the most effective ways of preventing fraud, since it removes the possibility of ‘closed loops’, that is, one person having the authority to budget, provision, ordering and paying. Each transaction should be divided into a number of stages and no one person should ever have the authority to handle all of the stages.

Controls in Procurement

Procurement procedures should be set out in a manual provided to all staff involved in procurement. Procedures, authorities, responsibilities and penalties for not adhering to procedures should be clearly defined. When setting the strategy for a particular procurement, the following factors should be taken into account:

• The threshold above which contracts and orders must be put out for competitive tenders should be clearly defined and enforced.
• As far as possible, spot, short-term, or emergency orders should be avoided.
• Cost-plus contracts should be avoided if possible, but if they cannot be avoided special care should be taken to verify the supplier’s expenses.
• Controlling the receipt and storage of goods is a vital aspect of eliminating opportunities for fraud.

Financial Approval Policy

The policy on financial approval for procurement actions should be clearly communicated to all relevant staff. The consequence of abuse should be defined. Approval levels should not be set artificially low, but at a realistic level sufficient to enable employees to do their jobs efficiently.

Standard terms and conditions of contract, and standard forms should be included in all solicitation documents as well as in all contracts and purchase orders. Standard forms used in procurement should be developed.