Corporate Fraud and Internal Control + Software Demo: A Framework for Prevention

CHAPTER SIX

Role of Ethics in Fighting Fraud

Virtue lies in our power, and similarly so does vice, because when it is in our power to act, it is also in our power not to act. … So, if it is in our power to do a thing when it is right, it will also be in our power not to do it when it is wrong.

—Aristotle, philosopher and polymath (384–322 B.C.)

After studying this chapter, the reader should be able to:

• Identify the nature and role that ethics play in the organization to combat fraud, and evaluate the current state of the existing ethical structures within an organization.
• Design a code of conduct that will reduce the likelihood of fraud occurrences and increase the probability of early detection.

Ethics are frequently confused with individual moral principles but, in fact, go far beyond them. Ethics address issues from both practical and idealistic perspectives and, as a result of this dual focus, the ideal in many cases conflicts with the practical. For this reason, ethics have been described as being “above the law but below the ideal.”1 Merely obeying the law is not, in itself, ethical since ethics are concerned with making decisions regarding what is right in situations where there are options or where there is little guidance from the law itself.

HOW MORAL DECISIONS ARE MADE

Lawrence Kohlberg developed a theory related to moral reasoning being the basis for ethical behavior. ...