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Articles From Lumsden McCormick

Employee Code of Ethics Helps To Lower Fraud Losses

Every two years, the Association of Certified Fraud Examiners releases its Report to the Nations, an occupational fraud study of for-profit, not-for-profit and government organizations. As in previous editions, the 2022 study reports most organizations require employees to read and sign a code of ethics or conduct. This relatively simple control can result in a median 40% reduction in fraud losses, should fraud occur.

But codes of ethics are about more than limiting potential fraud losses. They also provide your nonprofit with an opportunity to document and disseminate its core values.

Putting Ideals into Practice

Your organization probably already has a mission statement that explains its values and goals. So why would you also need a code of ethics? Think of it as a statement about how you practice ideals. A code not only guides your organization’s day-to-day operations but also your employees’ and board members’ conduct.

The first step in creating a code is determining your values. To that end, review your strategic plan and mission statement to identify the ideals specific to your organization. Then look at peer nonprofits to see which values you share, such as fairness, justice and commitment to the community.

Topics to Address

Now you’re ready to document your expectations and the related policies for your staff and board members. Most nonprofits should address such general areas as mission, governance, legal compliance and avoiding conflicts of interest. Depending on the type and size of your organization, also consider addressing:

  • Responsible stewardship of funds,
  • Openness and disclosure,
  • Diversity, equity and inclusion,
  • Program evaluation, and
  • Professional integrity.

When the code is final, your board must formally approve it. To implement and communicate it to staff, present hypothetical examples of situations that they might encounter and address real-life scenarios and how your organization handled them. To help ensure accountability, ask staff and board members to sign the code of ethics. Instruct them to report any ethical concerns to a supervisor or Human Resources.

Starting Point

Although your code of ethics can go a long way toward defining your organization’s values and raising staff awareness, it’s really only the first step in preventing fraud. Other controls, including mandatory vacation policies, confidential hotlines and surprise audits, are associated with even greater reductions in fraud losses. Contact us for more information.

Employee Code of Ethics Helps To Lower Fraud Losses

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Jill is an expert working with health care and human service organizations including hospitals, nursing homes, diagnostic and treatment centers, mental health service providers, and medical practices; nonprofit organizations; and government-funded entities in the areas of auditing, Single Audit, HUD projects, taxation, information returns, and financial reporting. Jill is integral to our Health Care and Nonprofit services groups managing our larger hospital and human service organization clients. She is a past Regional Executive for the Healthcare Financial Management Association (HFMA) Region 2; she also is a past President of the Western New York Chapter.

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