Ethical Decision-Making Tools: Two Models for Fraud Examiners

Laura Hymes, CFE, reviews two ethical models that fraud examiners can use when faced with tough decisions and shares some hypothetical questions examiners can ask to reach conclusions.

By Laura Hymes, CFE

February 2015

 

Fraud examiners inevitably face difficult ethical decisions in the course of their work, so they should have tools and resources to support and guide them in these decisions. One of the most helpful tools that fraud examiners have at their disposal is an ethical model — a framework that can be applied to a specific situation to help an individual decide how to act. Here, we’ll review two ethical models that fraud examiners can use when faced with tough decisions and some hypothetical questions they can ask to reach conclusions.

 

Deontological Versus Teleological Ethics

Don’t be intimidated by the philosophical words; these are simply two categories that academics use to break down ethical models. Deontological decisions are based on a duty to do or not do something (D for deontological and duty). The outcomes of actions are irrelevant in this decision-making model. Teleological decisions are based on the turnout (the result) of an action or inaction (T for teleological and turnout).

 

Both ethical categories have a well-known principle associated with them. Deontological ethics is associated with the imperative principle, and teleological ethics is associated with the utilitarian principle.

 

Imperative Principle

The imperative principle is the most well-known model based on deontological ethics. It states that people must make their decisions based on universal rules by which everyone must abide. For example, the generally accepted rule against killing is a dictate that members of society agree to follow. Expanding this rule to a deontological scope, it does not matter what the result of an act of killing would be (e.g., self-defense); the rule says not to kill, so you can’t kill. Theoretically this principle works because everyone is obligated to abide by the same rules. However, as we all know, it doesn’t work that way in real life, and as a society we have made exceptions to some rules (e.g., killing in self-defense).

 

Even though we make exceptions to the imperative principle, it can still serve as a useful decision-making tool. If examiners have a set of rules (such as the ACFE’s Code of Professional Ethics) to guide their actions, they should review it to see if their specific ethical dilemma is addressed. If there is a strict rule addressing the issue, the examiner’s problem is solved because he or she must simply follow the rule. Unfortunately, it’s rarely that clear-cut.

 

Consider the following scenario:

 

Fred and Ginger own a fraud examination business, and they are hired to investigate suspected malfeasance by board members of a large corporation. They discover that one board member is colluding with the CFO to conduct a financial statement fraud. Ginger thinks they need to disclose this discovery to the rest of the board (all of whom have been cleared of suspicion), but Fred thinks they only have authority to disclose the information to general counsel, who hired them to conduct the investigation. They both cite the ACFE’s Code of Professional Ethics (“A Certified Fraud Examiner shall not reveal any confidential information obtained during a professional engagement without proper authorization”) as support for their position because they interpret “proper authorization” differently. Ginger thinks they ultimately report to the board and therefore have an inherent authorization to disclose this new information. Fred does not assume any inherent authorization and therefore wants to inform general counsel and nobody else.

 

Utilitarian Principle

The utilitarian principle is the most well-known model based on teleological ethics. It states that people should make their decisions based on the outcomes of their actions. If doing something creates more good than bad, people should do it. If doing something creates more bad than good, people shouldn’t do it. However, the balance of good and bad is subjective and can lead to different conclusions.

 

Consider this scenario:

 

Martha and George are fraud examiners at the same company, and they are investigating a possible asset misappropriation. While they are interviewing an accounts receivable clerk named Bill, he confesses to stealing incoming checks and depositing them in his personal bank account. He goes on to explain that his daughter is very sick, and it has become impossible for him and his wife to stay on top of the medical bills. He tells Martha and George that he tried talking to his boss about his financial situation, but his boss was dismissive of the problem. Bill says he couldn’t think of any other solution, and he finally gave in to temptation and began stealing company checks. He begs George and Martha not to tell anyone and swears that he will pay back all of the money.

 

After listening to Bill’s full account of his actions, Martha and George meet privately to discuss the new information. George is sympathetic to Bill, but Martha is unconvinced. George thinks that by getting his daughter the medical treatment she needed to survive, Bill’s actions created more good in the world than harm, especially because Bill intends to pay back the funds he stole. George argues that applying the utilitarian principle to the case vindicates Bill because a young girl receiving life-saving health care results in more good than a multimillion-dollar company receiving a few thousand dollars on time.

 

Martha argues the opposite, but also using the utilitarian principle. She thinks that Bill’s actions created more harm than good because he set a bad precedent for other employees. She agrees that Bill’s motivation is powerful and sympathetic, but she does not think it justifies stealing from his employer. She says that if Bill goes unpunished, other employees might claim to have a good reason to defraud the company as well. Someone’s car breaks down and they need money for the repairs. Another person is behind on their credit card payments. Someone else wants new work clothes. Where do they draw the line? She thinks that Bill’s actions created more harm than good because now the company could face exponentially more employee thefts. If the company loses enough money, management might have to lay off staff or the business could possibly even close. How many parents would lose their jobs then, imperiling their children’s access to health care?

 

Questions to Ask

Fraud examiners can also ask themselves questions to prompt reflection when faced with a difficult ethical decision. Examples of questions they can use in conjunction with ethical models include:

 

What are my alternatives? What good and bad will come of each choice?

Are there any rules or guidelines to address this decision?

Do any of my choices indicate a bias that is impairing my decision-making process?

How does my decision affect other people?

Have I discussed my dilemma with ethical colleagues?

What would I think if someone else made this decision?

Would I want everyone else to make the same decision in a similar situation?

 

Conclusion

Ethical models and theories are ideals toward which professionals should strive, but they are also open to interpretation and not always practical in the real world. As the examples above illustrate, two people can apply the same ethical model to the same scenario and come up with opposite decisions.

 

The value in ethical models and hypothetical questions comes from the self-reflection and awareness they prompt in decision makers. They encourage individuals to analyze a situation from all angles before choosing a response and to discuss options with teammates. There is no guarantee that fraud examiners will choose the best response to a dilemma, but tools that encourage thoughtful decision-making help the process.