On CNN there are videos, articles, and blogs about ethics, specifically at Hewlett Packard. This story somewhat proves the argument that good ethics is good for business and bad ethics is bad for business. There has been a drop in the stock prices of HP since the debacle became public regarding their now ex-CEO Mark Hurd.

There are many little ways that employees can “steal” from the company they work for. Fraud is usually driven by 1) opportunity, 2) rationalization or 3) financial pressure. In Mark Hurd’s case there was opportunity to falsify his expense reports. Truly, who is going to challenge the CEO on whether or not his expense report is accurate. In addition, it appears Mark Hurd was trying to cover up an inappropriate relationship. While the inappropriate relationship is one matter, using the company to “hide” it is another.

Is falsifying expenses reports really a big deal? Yes, it is. And it is an even bigger deal when committed by someone in a leadership position (opinions on HP leadership – Washington Post). Imagine the impact on an organization if 25 percent of their employees submitted false expense reports. Let’s say there are 250 employees at this organization. Assume that each expense report states the employee is owed $5 more than they really are due. So 250 employees * 25 percent = 63 employees. Now take 63 employees * $5 = $315 per period. While $315 doesn’t seem like a large amount, consider that in many organizations expense reports are submitted 2 times per month. So $315 * 24 times per year = $7,560. For a small business this $7,500 could be huge. The numbers get bigger when you add more employees.

Is my estimate of 25 percent of employees too high? According to a study completed by the Association of Certified Fraud Examinars* companies who employ less than 100 employees experience fraud at a rate of 46 percent. And while small organizations are more at risk for fraud because they don’t have the proper internal controls in place, it happens in large business too.

For more information about how fraud impacts businesses visit the Association of Certified Fraud Examiners Key Findings and Highlights from the 2010 Report to the Nations.

*source: 2004 Report to the National Occupational Fraud and Abuse, Association of Certified Fraud Examiners, p. 6. via Kimmel, Weygandt, Kieso Financial Accounting 5th Edition.