The business world is littered with financial transgressions. Last month, US department store Macy’s delayed the release of its financial statement after a former employee was allegedly found to have hid over $130m (£103m) of expenses through “erroneous accounting accrual entries” over a three-year period.
The ethical challenges faced by accountants have become more prevalent and are harder to resolve, according to a report by the Association of Chartered Certified Accountants (ACCA). Over half of the accountants surveyed have witnessed unethical behaviour in their career and one in four have been put under pressure to behave unethically in the last three years.
Respondents described a range of incidents, including tax avoidance, pressure to manipulate financial statements, bribery, reluctance to challenge authority and weak governance.
Business leaders rely on their accounting teams to uphold the financial integrity of the company. Yet these findings emphasise the need for stronger ethical standards, processes and training in the field.
What’s driving rule-breaking behaviour?
Although regulation is often designed to ensure transparency and accountability in financial reporting, the pressure to comply with constantly evolving regulatory requirements has created new challenges. Respondents described having to navigate ambiguous standards and regulations, which sometimes differ between regions and where there is not always a clear consensus on what is right or wrong.
Sustainability reporting is a good example of this, according to Ty Francis, the chief advisory officer at LRN, an ethics and compliance training company. Unlike financial data, which is generally standardised, sustainability metrics are often subjective and harder to quantify. This can create ethical dilemmas in reporting. “There is a temptation to present an overly positive view of an organisation’s sustainability efforts,” Francis explains. “This, combined with the lack of necessary resources or expertise to effectively manage sustainability reporting, can lead to pressure and ethical compromises.”
Take care that financial incentives do not encourage the wrong behaviours
Excessive pressure to meet business objectives can also encourage rule-breaking, according to Francis says, particularly in accounting, where professionals face tight reporting and revenue deadlines. High stress levels and burnout are common complaints among those in the field and one-third of accountants admit to making “at least a few” financial errors every week due to being overly stretched, according to a Gartner survey.
In some cases, personal financial gain and lofty career ambitions can override professional obligations. Meanwhile, conflicts arising from providing multiple services (audit, tax, consulting) to the same client, and the desire to build and maintain high-value client relationships, can cloud objectivity.
“Fixing this is not easy,” Francis says. LRN’s recently published Ethical Culture 2024 Report identifies a gap between senior leadership’s perception of ethical culture and the experiences of frontline employees. “Middle managers, who interact directly with accounting professionals, may not adequately reinforce ethical values, increasing the likelihood of unethical pressures,” he explains.
Weak culture and leadership is to blame
Others argue that the root of the problem lies beyond the finance function. Liza Tullidge, CEO and founder of Netā, a boardroom consultancy firm, believes that a willingness to break rules is primarily a governance issue stemming from weak organisational culture and leadership.
“Finance professionals frequently find themselves caught between their duty to uphold transparency and the demands of senior leadership to meet aggressive targets,” she says. “This conflict is particularly acute in environments where governance structures are weak or where short-term financial results are prioritised over long-term integrity.”
An absence of clear values and consequences can create an environment where unethical behaviour flourishes. Addressing this requires more than isolated interventions within the finance team, Tullidge says. “Boards and senior executives must establish clear boundaries and reinforce ethical governance by implementing transparent reporting systems, protecting whistleblowers and holding leadership accountable for fostering an ethical culture.”
Boards and senior executives might consider including ethical performance as a criteria in leadership evaluations to hold finance managers accountable for any lapses within their teams.
The role of finance leaders
Finance leaders need to have strong internal controls and effective monitoring in place to prevent unethical behaviour from going unchecked.
Creating an environment where team members can report concerns without fear of retaliation is critical, says Bernadette Young, co-founder of governance advisory firm Indigo. “There are signs that this hasn’t been achieved,” she explains. “A lack of whistleblowing, for example, can indicate that the reporting policy is not working properly. Although it’s easy to misread this as a positive.”
Other signs of unhealthy work practices include high staff turnover, a rise in mental health issues and long-term sick leave, Young says.
Finance professionals are caught between their duty to uphold transparency and demands to meet aggressive targets
Finance leaders need to be clear about what is, and what is not, acceptable and must be prepared to push back against unethical demands from higher up. “Sometimes it can be a small as paying attention to how you frame requests,” Young says. “Special care should also be taken around bonuses and financial incentives to make sure that they are not encouraging the wrong behaviours.”
Regular training, tailored to real-world dilemmas faced by finance teams, can also help to empower employees to navigate complex situations. Young believes there should be more focus on soft skills in crisis situations. For example, helping accountants understand what constitutes unethical behaviour, as well as regular updates and reminders on standards and regulation when it comes to matters such as data protection policies and bribery laws.
A quarter of respondents to ACCA’s survey say they do not receive appropriate soft skill training from their organisation and almost all agree (95%) they need ongoing training to maintain this skillset.
Handling ethical challenges will be important for finance leaders moving forward. Most accountants see such incidents growing more complex with remote working and increased adoption of AI in decision-making. By discussing the actions needed to address ethical dilemmas, organisations can identify weaknesses, build a transparent culture and discourage toxic behaviour.
