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Business Officer Magazine

Do the Right Thing

How sure are you that your staff will report potentially improper behavior? Find out how talking, training, and technology can create environments that engage everyone in the business of ethics.

By Apryl Motley

You've read the headlines: “University Administrator Sentenced in $175K Embezzlement Case”; “Bookkeeping Supervisor Accused of Theft”; “Official Defends Work as a College Trustee”; “Man Pleads Guilty to Higher Education Student Assistance Fraud and Identity Fraud.”

Most likely, your immediate reaction is, “Not here. That wouldn't happen at my institution. After all, my staff know better—don't they?”

Even if you are confident about the standards and practices established in your office, fostering ethical behavior in the workplace is an ongoing requirement. After all, staff come and go, and economic conditions like the ones we face now can lead people to consider desperate measures.

According to the Association of Certified Fraud Examiners' 2008 Report to the Nation on Occupational Fraud & Abuse, occupational frauds were most often committed by accounting departments or upper management. The ACFE's report also indicated that occupational fraudsters are generally first-time offenders. And another of the study's findings underscores the importance of making ethics part of your institution's culture: “...occupational frauds are much more likely to be detected by a tip than by audits, controls, or any other means.”

Most higher education institutions have gone to great lengths to develop honor codes or policies on academic integrity to encourage ethical behavior from students and faculty. But what measures have been put in place to foster and reinforce similar behavior among professional staffs? Have you considered what your role is in establishing an office where standards and requirements are clear, expected, and supported? People may know right from wrong, but situations outside established boundaries are bound to erupt. How sure are you that employees will make you aware when they observe potentially improper behavior?

These are questions you cannot afford to leave unanswered. Addressing ethical issues is part of managing risk proactively before you are confronted with a crisis. Here's a look at how some of your colleagues are fostering ethical environments on their campuses.

Lead by Example

“It's very important for me and my directors to model ethical behavior,” says Sheri J. Tonn, vice president for finance and operations at Pacific Lutheran University (PLU), Tacoma, Washington. “Managers cannot look the other way. There has to be equitable treatment for everyone—and that goes for everyday behavior as much as for responses to big events. In my office,” says Tonn, “I try to demonstrate openness, consistency, and fairness when discussing ethical issues with my directors. I am direct and encourage that same behavior in others. Also, when taking action in difficult and emotional situations, it is important to stay calm and base decisions on university policies.”

To emphasize ethics in leadership, PLU has established a program that enrolls 15 to 20 staff members each fall based upon the recommendations of their supervisors. “We want to make sure people know how to respond to these [difficult] situations appropriately,” says Tonn.

About 150 administrators have completed the yearlong program, based on the text The Leadership Challenge, by James M. Kouzes and Barry Z. Posner (Jossey-Bass, 2008), which is supplemented by several shorter reading assignments. Sessions include many mini-case studies on conflict resolution and ethical questions, says Tonn, and participants work in small groups to discuss how they, as supervisors, would handle difficult situations based on the advice provided in the materials as well as on the university's existing policies. Case studies focus on theft, safety violations, dishonesty, underperformance, and similar workplace issues.

When it comes to setting the tone for ethical behavior, all eyes are on those in leadership. “What managers do is much more important than what they say,” emphasizes Kevin Robinson, executive director of internal auditing at Auburn University, Alabama. “You have one dean trying to do the right thing, but people know of other situations where matters are handled inappropriately. It quickly undermines your controls if everyone is not on board.”

Fortunately, says Robinson, some experiences at Auburn have underscored the coordinated efforts of the university's leaders. “A few years ago,” he explains, “we had a situation within one division in which a federally sponsored program had expended money inappropriately. It was a fairly small program, and it's even doubtful the federal agency would ever have known. Yet, our administrators were all on the same page as to the right thing to do—namely, to make things right.” That's the kind of action, notes Robinson, that can help improve a control environment and ensure that everyone involved recognizes the importance of ethical behavior.

Put simply: “Leadership has to stand up and set the standard for ethical behavior,” says Tom Champoux, president of the Effectiveness Institute, Redmond, Washington. “Leaders have the responsibility to create a culture in which asking questions is standard operating procedure. Just following the rules is a cop-out. They must challenge employees to ask, ‘What's the right thing to do?’” Then, says Champoux, you must be ready to hear and respond to the answers.

Dilemmas for Discussion

Consider these situations and how you might handle or address them with staff in the business office and colleagues in other departments at your institution. Some are based on actual situations at higher education institutions, but they have been redacted for publication.

  • You have been made aware that the university is considering a reduction in force due to the economy, but this information has not been made public. Meanwhile, a close friend-and colleague, who works in one of the departments targeted for layoffs-tells you how great things have been going for her. She shares that she is thinking of buying a house, and asks your opinion about whether she should proceed. Do you share with her the information about potential layoffs?
  • A higher education supplier, recently named one of the most ethical companies to work for, sends out a letter before the holidays requesting that vendors do not send gifts to employees. The letters make vendors aware that employees will not be able to accept any gifts valued at more than $50. How does your office handle a situation in which employees may receive gifts from vendors?
  • An employee has misused the purchase card issued to him by the university. The person has engaged in this behavior more than once. The first time, a reprimand was placed in his file, and the second time he was sent to mandatory training on ethics in the workplace. The employee was not prosecuted, but his purchase card privileges have been revoked indefinitely pending a review by his supervisor and other university officials. How would you have handled this situation?
  • An institution was attempting to improve the protection of institutional data and implemented new policies and controls to help manage this critical risk area. The president of the institution approved and issued the new procedures, but then shortly after implementation exempted his office from the requirements. After learning of this exemption, an employee at the institution stated, “We have suggestions here, not policies.” In this instance, one act resulted in a mixed message that quickly spread across campus: Policy compliance is important, but there are some policies for employees and others for top administrators. How would you address this situation with your employees?

Robinson stresses that chief business officers and others in leadership roles at their institutions must “remind their employees of what their expectations are in direct ways, such as: ‘It's my expectation that we comply with laws and policies. If anyone asks you to do something unethical, report it to me.’”

Indeed, approachability and trust are critical pillars upon which an ethical environment is built at any higher education institution. “Trust is gained slowly, but can be damaged—or destroyed—quickly,” explains Randy Van Dyke, assistant vice president, auditing and risk services, at the University of Utah, Salt Lake City.

“Employees become comfortable with reporting problems only as they come to trust that management will take appropriate action and feel assured they are safe from retaliation. They take special note of anything they may hear about how the CBO has reacted to some bad news. Our CBO is approachable and has a well-earned reputation for steady, fair-minded leadership when confronted with unexpected problems.”

Van Dyke cites a couple of examples in which the CBO has helped cultivate the trust of the university's workforce:

  • Discovery of an embezzlement led not only to the prosecution of the perpetrator but also to an evaluation of the effectiveness of a supervisor and the quality of that unit's management. The CBO took an active role to ensure the fairness of the conclusions that were reached and actions that were taken.
  • A midlevel manager formally appealed disciplinary action for poor performance and also made a number of allegations regarding his supervisor's honesty and effectiveness. Again, the CBO played a key role not only in handling the appeal, but also ensuring that the manager's allegations were fully investigated and appropriately resolved.

Other examples, says Van Dyke, include the CBO's handling of issues that occasionally arise regarding the application of institutional policies on conflicts of interest and employment of relatives. “How these issues are handled," says Van Dyke, "offer evidence of the CBO's commitment to fairness and doing the right thing-and are noted by employees up and down the management line.”

Get Them Talking and Trained

Even if you're the most approachable person in the world, “most people don't want to have conversations about ethics and core values,” Champoux acknowledges. “But that doesn't change the fact that you've got to talk about those things.” Champoux contends that discussions about ethics should be an agenda item for your staff meetings at least quarterly. That's just one way to approach open communication.

Straight talk. Advises Champoux, “As the leader, you can get the conversation started by asking, ‘Are there any processes and procedures in place that we wouldn't want 60 Minutes to know about?’ or by saying, ‘[Such and such] has been brought to my attention, and it's my expectation that we discuss this issue as a group and that you ask questions.’” By creating a culture of conversation, you don't force employees to make difficult decisions by themselves. When faced with an ethical dilemma, many heads are usually better than one.

Electronic tools. A similar philosophy led to the creation of Auburn University's ethics-focused Web site and electronic newsletter launched earlier this year. The specific area of the site devoted to ethics includes a monthly commentary from Robinson called “Case in Point,” as well as newsfeeds describing current cases and events involving violations of business ethics. Staff members are encouraged to review these materials and share them with colleagues, resulting in a more open discussion about ethics than might otherwise take place.

Approachability and trust are critical pillars upon which an ethical environment is built at any higher education institution. "Trust is gained slowly, but can be damaged—or destroyed—quickly."

Randy Van Dyke, University of Utah

“We started [publishing] the monthly newsletter to try to make our tone consistent at the top,” Robinson says. “We send this newsletter to vice presidents and directors and ask them to share it with their staffs to signal that these issues are important. People outside the university can also subscribe to the newsletter. In this financial environment, we are more prone to fraud and unethical issues, and the newsletter content serves as a reminder to people about potential problems.” Recent articles describe everything from university employee theft of funds for research to an accounts receivable specialist being accused of embezzling thousands of dollars from her institution.

Early initiation. At Pacific Lutheran, the dialogue about ethics begins when employees first start working for the university. Seven years ago, PLU revised its standards of personal conduct, which state that “all employees have a duty to report, verbally or in writing, promptly and confidentially, any evidence of improper practice of which they are aware.” The code is reviewed during orientation, and each staff member is required to acknowledge and confirm understanding of the standards. “We expect each employee to exemplify the highest behavior,” Tonn says.

Checklist for Creating an Ethical Culture

1. Do you currently have an established code of conduct?

2. Do you offer training, and if so, is it an ongoing process and not just a single event?

3. How current are your training programs and code of conduct?

4. Do you currently have an external reporting mechanism for whistle-blowing and does it include case management tools?

5. Do you enforce your guidelines and take action on infractions?

6. Are your employees aware of the items noted above?

Source: Based on Six Steps to Creating an Ethical Culture at Your Organization, by Greg Heaps, vice president, professional services, Allegiance Inc.

In addition, Tonn has worked frequently with the Center for Ethical Leadership in Seattle to host workshops on ethics for managers in the finance and operations division. In these workshops, managers use the center's publication Ethical Leadership: In the Pursuit of the Common Good as their core text, which provides them with a guide as they examine real-life scenarios while considering how to align their own internal beliefs and external behaviors.

At the University of Utah, Van Dyke explains, “Ethics training is available to all departments.” For example, a general workshop presented by the human resources department is designed to help managers define what it means to be an ethical employee of the university, learn through case studies how to apply ethics principles at work, and focus on ways to use certain processes and resources for dealing with ethical and legal issues. Training sessions regarding specific topics, such as managing sponsored research funds or using university purchasing cards, also include discussion of ethical standards and stewardship responsibilities.

To get people on your campus talking about ethics, you've got to make it real for them. “People learn through stories. Real-life stories from other institutions are ones that people can relate to better than any policy that we could write,” Robinson says. “They start to ask themselves, ‘Could this happen here? How could I prevent it?’”

Unearth Ethical Issues, Regulate Risk

Once an employee has raised an issue, anonymously or otherwise, it's critical to have a specific process in place for investigating the claim. “We were one of the early adopters of hotlines,” says Robinson. “Ours is Web-based but can be used by phone as well. We get as many reports from people coming directly to our office as we get online, but the hotline is good to have. In either case, people have to know that you'll take the report seriously and protect their identity as much as possible.”

Decisions for Hotline Design

As with many reporting systems, effective ethics hotlines are only as good as the reports you design for tracking, summarizing, and analyzing information. Bill Piwonka, senior director of marketing for EthicsPoint Inc., Portland, Oregon, says that when the company works with higher education institutions, training representatives offer advice on the following best practices regarding reports and other related hotline issues:

Think strategically. Institution leaders should determine current compliance and risk levels, set goals for improvement, and establish processes-including implementation of an ethics hotline-for reaching those goals.

Cover the basics. If your institution hasn't established and communicated a code of ethics, incorporate that effort into the launch of the hotline. Many templates exist, says Piwonka, and can be modified to your institution's requirements.

Collect the right information. Establish precise issue categories and subcategories in each department for which you plan to collect reports of breaches in ethical practices. Many institutions, says Piwonka, track information in academic affairs, finance and accounting, student life, human resources, research, and other departments. In the business office, for example, managers might put their heads together to identify the areas of most potential vulnerability and make sure that reports of such incidents are captured by the hotline reporting system.

Ensure awareness of the new system. "This is a big issue," says Piwonka, "for both public and private institutions. You want to use a number of communication techniques to inform potential hotline users that you are implementing this program." One method, he says, is to send via e-mail and other internal media a letter from the president explaining why the institution has chosen to use a hotline, how it works, and why people should consider using it.

Additional methods for building more general ethics awareness for employees, students, and other stakeholders include: placing promotional posters at various places on campus; reinforcing the code of conduct and offering suggestions on what to do if you observe misconduct; providing a customized ethics Web site that reinforces the code of conduct, lists frequently asked questions, and provides other links to helpful information; and providing periodic training, videos, and e-mail messages.

Hotline reports may come to Robinson or the human resources staff, depending on the nature of the concern. Once a report is received, Robinson will communicate with the university's general counsel about potential litigation. He may notify the president if deemed necessary. In addition, a $10,000 threshold is built into the system to trigger notification of the audit committee. According to Robinson, once a report is received, his office “will investigate the claim and assign an auditor, while keeping risk management [staff] in the loop.”

The University of Utah also has “well-established methods for reporting and investigating potential wrongdoing,” says Van Dyke, “including an active ethics and compliance hotline.” Most issues are necessarily handled case by case. “Standard procedures are in place for investigating hotline reports,” he adds, “including periodic communication of results to our governing board.”

To help ensure anonymity as reports are investigated, most Web-based systems explicitly remove any tracking or monitoring mechanisms, making it impossible to identify the reporter through the personal computer he or she has used. Additionally, the system often gives a unique report key and password to the person reporting the possible ethics violation. That way, the individual can check updates to the online report and review the actions that are being taken. On the investigative side, the person assigned to look into the case can follow up with questions or set up a chat session with the incident reporter to gather more information.

Most higher education institutions have hotlines in place, along with specific policies and procedures outlining how reports of unethical behavior should be handled. Portland, Oregon-based EthicsPoint Inc. has worked with many of them (including the University of Utah and Auburn University) to implement the systems and observe trends in how they are being used.

“There has been somewhat of a shift in what higher education institutions are looking for when they contact us,” said Tim Howard, the company's senior account manager for higher education. “Five years ago, the emphasis was on Sarbanes-Oxley. Now there is more focus on overall risk management and compliance with regulations like the Federal Acquisition Regulation and the IRS Form 990.”

Institutions are analyzing risk on an ongoing basis, which requires “a central database that can be used to identify trends, maintain consistency, and mitigate risk,” says Bill Piwonka, EthicsPoint's senior director of marketing. “Having one central repository provides a mechanism for consistency in terminology and resolution of problems.”

“It's absolutely critical for institutions to use the reporting capabilities of their systems,” Howard adds. “People want to know, ‘What happens to that report after it's filed?’Providing reports makes your efforts to address unethical behavior more transparent across departments at the institution.”

More than 250 higher education institutions are currently using systems provided by EthicsPoint. Most approached the company because they were looking for one unifying solution that would enable them to “expand their ethics programs and do a better job of communicating with employees,” Howard says.

To get people on your campus talking about ethics, you've got to make it real for them. "Real-life stories from other institutions are ones that poeple can relate to better than any policy we could write."

Kevin Robinson, Auburn University

Piwonka estimates that more that 80 percent of the reports received from higher education institutions come in through the Web: “If you want employees to be engaged, you have to provide a venue or vehicle that's appropriate for them, and there's a high level of comfort with technology in the higher ed market.” He views the technology as a means for institutions to further support their intentions to create circumstances that promote ethical behavior. “For example, the system may be able to help you identify policies that employees don't understand,” Piwonka said. “Even the most well-run organizations have issues. You have to be willing to [openly] investigate whether your institution is fostering an ethical environment or not. People have to believe in the system.”

APRYL MOTLEY, Columbia, Maryland, covers higher education business issues for Business Officer.