Tone at the top is a very interesting predicament for management. It means to create an environment where illicit activity is not only frowned upon but constantly discouraged by the upper management of an organization. The tricky part is having an environment that discourages illegal or fraudulent activity while creating a culture that employees enjoy being a part of. Tone at the top also means an environment that encourages employees to feel comfortable enough to come forward with claims of fraud. It’s not hard to see the dilemma for upper management in this situation.
Regardless of the size of your organization the benefits of a strong tone at the top are plentiful and immeasurable. Auditors are extremely cognizant of the relationship between tone at the top and risk factors for fraud, or unintentional material misstatement. More importantly a strong tone at the top sets the table for the behaviors of every employee in an organization and ensure ethical behavior. Ensuring that your organization has a strong tone at the top is not overly difficult, especially in comparison to the benefits you can objectively observe. The ACFE wrote a wonderful research paper on tone at the top here.
The big question is how to behave as a manager so that you ensure a strong tone at the top. First, you have to, obviously, walk the walk. Telling someone how to act is one thing, but leading by example is another. Tone at the top means that you have to behave with respect and act with integrity. It also means you have to take every report of fraud seriously but treat it with professionalism and procedural justice. In order to have great tone at the top your employees should observe you behaving in the manner in which you’d want them to behave. Lastly, in order to ensure a strong tone at the top is to avoid the appearance of preference, bias, or impropriety regarding the aspects of the organization and its employees.
For information on testing you organizations tone at the top, check out this article by Deloitte/Wall Street Journal on measuring tone at the top.
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Mark Stone 
What kind of protections can be put into place to prevent retaliation against a whistleblower from upper management especially in a “right to work state” such as Nevada?
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Hi Rob, this is a great question! First of all it is important to note that there are already federal laws that protect whistleblowers from retaliation, but as we know these may not always be followed and litigation can be messy if they aren’t. As a principal manager, CEO, or owner you should follow a set of principles that can help protect employees from fear of and instances of retaliation.
First, tip lines must be anonymous, the research overwhelmingly shows that if a tip line is not anonymous then employees are less likely to utilize it. This also means that even the person collecting the reports cannot know who has submitted them. Secondly, every report of fraud should be treated with healthy skepticism, trust but verify. If you feel that the claim has any warrant at all, protect yourself and your employees, including the one that has been accused, by hiring an outside CPA that specializes in fraud examination. CPA’s that are specially trained in fraud examination take a neutral stance, they are objective fact finders, they should not offer an opinion on fraud, but list a set of facts that either support someone’s conclusion of fraud, or doesn’t. If the report comes back and does not support the claim of fraud, and the investigation has been done properly, the person being investigated should not necessarily know. Third, make sure that upper management is just as serious about tone at the top as you are, your managers should have the same attitude towards fraud as you do, and if you think they don’t then it should be addressed, or this could be a warning sign. Lastly, be proactive, schedule outside audits that will deter fraud from the onset, external audits are one of the greatest deterrents of fraud in small organizations because it is the perception by employees that auditors will catch fraud, and according to professional standards for auditors it is indeed something they should be looking for.
If your employees know that there is an emphasis on ethics, and that cases of fraud will be taken very seriously, they will know that you are also serious about protecting their rights as a tipster. In terms of tone at the top, this is acting with integrity.
Hopefully this answers your question, and if not please let me know. And thank you again for the great question!
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