Ethics in action: Pressure to commit fraud

The modern workplace can be an ethical minefield. This column can help you tackle a thorny challenge that management accountants can face in the workplace.

Written by the CIMA Professional Standards team and based on a realistic situation, the following is a practical guide to using the CIMA Code of Ethics for good decision-making.

The scenario: Being pressured by a superior

Six months ago, you started work for a small talent agency with a few notable celebrities on the books. The agency has, as its principal asset, an events space with a capacity for 500 people. One morning, the managing director approaches you with a company cheque for £10,000, which she has already signed. The managing director has been really welcoming, and everyone at the agency respects her. They say she's the best boss they've had.

An invoice from a contractor accompanies the cheque, and she asks for your countersignature, explaining that it is the deposit for refurbishments of the event space. The managing director explains that refurbishment is required due to the space being neglected during the pandemic. You have six months left of your probationary period and don't want to make trouble for yourself. Given you have the invoice from the contractors, you countersign the cheque.

A few days later, the managing director calls you stating that she will be in the office later that afternoon with a further cheque for £5,000. She says she's already signed it and just needs your countersignature. She explains there are additional costs associated with the construction beyond what was initially anticipated. She says that arranging payment is a matter of urgency because there is an event due to take place in the space within 12 weeks and construction needs to begin as soon as possible.

This is the second, similar request in a matter of days, and you decide to do some research before she arrives in the office. You discover that the sole director of the contracting company is a friend of the managing director. You recognise him from her social media posts and after-work drinks he has previously attended as her guest. You can find no emails or records of any proposed construction, and when you speak with other staff at the company, no one appears to have any knowledge of the construction project.

You look into the contracting company. The registered address of the company is in the British Virgin Islands, but the first invoice has a UK bank account for payment. You take a closer look at the second invoice and notice the payment details relate to the same UK bank account. You also notice that the date and invoice number are the same as the first invoice submitted a few days earlier.

What do you do?

Consider the ethical issues. The managing director may be attempting to have you countersign a company cheque for a fraudulent invoice. By doing so you may become party to fraudulent activity. This would not only be a breach of the CIMA Code of Ethics but would also constitute a criminal act. If this is the case, it would create serious risks for the company — a reputational risk, given the company's client base, but also the risk of legal action if discovered. There is also the risk to your professional reputation and the risk of potential legal ramifications, including the possibility of a custodial sentence were a prosecution to be pursued.

Identify the facts and red flags. To assess the situation, start identifying the relevant facts. It may be prudent to delay your meeting with the managing director to gain time and obtain further information.

The scenario presents potential red flags worth considering: the fact that the contractor is a friend of the managing director and that no one is aware of the proposed construction. Is it possible that the managing director has been careless with paperwork and that staff have not yet been briefed on the upcoming works and event? Given the lead time for such a project, this seems unlikely. Further, the fact that both invoices have the same date and invoice numbers would suggest this needs closer inspection. Another red flag would be the company having a UK bank account but being registered in the British Virgin Islands. 

Consider laws and obligations. Once you have the relevant facts, consider relevant laws and regulations as well as any obligations required by your professional body. In this instance, knowing what your obligations are ensures that you report any suspicious activities as appropriate.

Follow the CIMA Code of Ethics. All CIMA students and members must follow the CIMA Code of Ethics. In this instance, the Fundamental Principle of Integrity can offer guidance on how to manage this dilemma.

CIMA Code of Ethics Part 1, Sub section 111, Integrity, requires a professional accountant to "be straightforward and honest in all professional and business relationships". With that in mind, countersigning the cheque when there are grounds for suspecting fraudulent activity would run counter to this principle.

The CIMA Code of Ethics requires you to apply the conceptual framework to identify, evaluate, and address threats to compliance with the fundamental principles. One of these threats is the intimidation threat — when you are deterred from acting objectively by actual or perceived pressure or influence. Section 280 of the Code looks at this pressure in more detail. One of the examples describes "pressure from superiors to approve or process expenditures that are not legitimate business expenses" and the factors to consider.

You may not be directly intimidated right now, but due to your position in the company, you may feel obliged to comply with the managing director's request. If you push back, you may find yourself pressured more directly. However, if you comply now, you may be asked to do things that make you uncomfortable in the future.

Fraud can begin at a low level and once the perpetrator has succeeded in a low-level fraud, they have established a safe route to higher levels of fraud, which can be repeated.

Evaluate ways to push back. The way in which you push back will depend on several factors, such as the relationship you have with your superior and colleagues and the company culture. A good way to push back is to explain the risks associated with the activity and stress that you are doing what any professional management accountant would do to protect the company and its officers.

You should not accuse anyone of fraud directly unless you are absolutely sure of the situation and the evidence you have available. However, using language like "what you are doing could be perceived as fraud" allows you to raise the issue in a less accusatory way and come across as helpful.

To support this, you can remind the managing director of the legal and regulatory frameworks you operate within and why countersigning would be a risk. After all, the talent agency works with many notable public figures, and any conduct that could be perceived as improper could lead to a risk of negative press, which could impact the agency and, consequently, its clients.

These might be difficult conversations to have because she is the managing director of the agency and is well thought of. Still, you must keep in mind that CIMA Code of Ethics Part 1, Sub section 112, Objectivity, requires a professional accountant to ensure that they do not "compromise professional or business judgment because of bias, conflict of interest or undue influence of others". The managing director may be well liked, but if your concerns are real, they should not be ignored.

Determine if disassociation is required. Should the transaction be fraudulent and the issue cannot be resolved, you must disassociate yourself from the conduct in question. This may seem drastic, but it is important that you do not become involved in unethical or potentially illegal behaviour. Whatever you decide to do, it is important you keep a record of any communications and back up conversations with a follow-up email so that, if called to do so, you can demonstrate that you advised appropriately at the time and were not complicit in any fraud (CIMA Code of Ethics Part 2, Section 280.4).

Additional guidance for difficult ethical situations

If you find yourself in a difficult ethical situation, visit the CIMAglobal website and use our Ethics checklist to help guide you towards making the right decision.

For further guidance, get in touch via the Ethics inbox or helpline. CIMA staff will be able to direct you towards relevant sections of the Code and available resources and help to consider your next steps.

— Xose Lumor is the manager, Advocacy and Professional Ethics–Management Accounting at AICPA & CIMA, together as the Association of International Certified Professional Accountants, and is based in the UK. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.