By SOS Founding Partner, Gwendolyn Wyard
In late 2023, I was reading an article titled, “Integrity of Organic Foods and Their Suppliers: Fraud Vulnerability Across Chains.” It’s a fascinating article, one I wish I read several years ago when it was first published in 2020. There are many interesting insights and takeaways, but the one that “struck and stuck” is summed up by this glorious sentence,
“Long, misty supply chains will favor fraud, but so will a poor morale.”
Researchers noted that the opportunity for fraud within supply chains is relatively consistent across different products. The components that vary the most are the cultural and behavioral drivers from company to company. As a result, the research focused on the similarities of actors on vulnerabilities resulting from cultural and behavioral drivers independent of the supply chain and concluded that a strong internal ethical business culture can contribute to preventing organic fraud in a multitude of ways.
The research finding, while not entirely unexpected, prompted me to reflect on the objectives of USDA’s Strengthening Organic Enforcement (SOE) Rule and the new requirements for every certified organic business to implement “monitoring practices and procedures to verify suppliers in the supply chain and organic status of agricultural products received, and to prevent organic fraud” (7 CFR 205.201(a)(3)).
My observation of the SOE rule implementation is that organic businesses and certification agencies are primarily focused on verifying organic suppliers and the external factors to the certified organic business that may lead to fraud. But what about the risk of fraud within the business itself? What internal factors need to be assessed? What are organic businesses doing to prevent organic fraud within their own four walls? What are business leaders doing to set the tone for ethical behavior? Are certification agencies and inspectors asking about “company assessment” as it relates to ethical codes of conduct and internal fraud prevention?
As I’ve continued to read and understand the motivational drivers of organic fraud, review organic fraud prevention plans, and consider the various vulnerability assessment templates in use by certifying agencies and businesses, I’ve concluded that ethical business culture, the climate in a company, appears to be a very important factor of organic fraud vulnerability and deserves sufficient attention in fraud mitigation plans.
With all of this in mind, I wanted to share some insights and key points on this topic to help guide organic fraud prevention efforts into new territory and hopefully inspire positive change and improvement.
Working towards a culture of integrity
A strong ethical business culture is the first step toward preventing ethical lapses and organic fraud. Not only does it foster a sense of shared responsibility and ownership within an organization, but it also fosters transparency, accountability, and integrity. This makes it difficult for fraudulent activities to go unnoticed or unchallenged. When employees understand and embrace the importance of honesty in their work, they are less likely to engage in dishonest practices. Employees are also more likely to report suspicious behavior if they know it is taken seriously by management. When individuals feel invested in the company’s values and reputation, they are less likely to engage in activities that could harm the business or its customers. Furthermore, an ethical culture emphasizes the importance of compliance with regulations and industry standards. This reduces the risk of unintentional errors or lapses that could lead to fraudulent activities.
Here are some key points about how an ethical business culture prevents fraud:
- Clear expectations: A well-defined code of ethics, ideally embedded within a formal ethics program, communicates what behaviors are considered acceptable and unacceptable, reducing ambiguity and potential fraudulent activities.
- Employee empowerment: When employees feel comfortable reporting potential misconduct without fear of retaliation, it encourages proactive fraud detection.
- Open communication: A culture of open communication encourages employees to raise concerns about potential fraudulent practices.
- Accountability: When organizations hold their employees responsible for their actions, it reduces the chances of fraud occurring. A strong accountability system encourages employees to act ethically, knowing that their actions will be monitored. This approach helps to create a safe environment for both employees and customers.
- Transparency: When businesses share information about their processes, suppliers, and ingredients, they build trust with their customers. This transparency reassures consumers and encourages employees to adhere to high standards. With clear guidelines and open communication, everyone in the organization can work together to maintain ethical practices.
- Regular training: Providing ongoing ethics training keeps employees informed about fraud risks and how to report suspicious activity.
By valuing integrity, businesses inspire employees to uphold these principles, which helps eliminate any temptation to cut corners, deceive customers, and commit fraud. This commitment to integrity protects organic integrity and consumer trust and enhances the brand’s reputation.
The Role of Leadership in Fostering Ethical Culture and Preventing Fraud
Strong leadership is essential for creating a culture of integrity and preventing fraud within an organization. Leaders play a key role in setting the tone, promoting ethical behavior, and establishing systems that encourage transparency and accountability.
Key Aspects of Leadership’s Role:
- Setting an Example: Leaders who demonstrate integrity in their own actions and decisions inspire employees to follow suit. Openly discussing the importance of honesty and ethical behavior reinforces these values throughout the organization.
- Communication and Transparency: Open communication about ethical expectations and procedures creates a safe environment for employees to report concerns or potential fraud without fear of reprisal. Clear communication also fosters trust and understanding within the organization.
- Active Participation: Leaders should actively participate in fraud prevention efforts, such as reviewing and approving fraud prevention plans and providing adequate resourcing to help departments effectively carry out risk assessments and fraud mitigation strategies. This demonstrates their commitment to ethical practices and sends a clear message that fraud prevention is a top priority.
- Fostering Teamwork and Collaboration: Encouraging teamwork and collaboration creates a sense of shared responsibility and accountability, making it more difficult for fraudulent activities to occur or go unnoticed.
Specific Actions Leaders Can Take:
- Lead by example: Demonstrate integrity in all actions and decisions.
- Establish clear ethical standards: Develop and communicate a code of ethics and, ideally, a formal ethics program.
- Provide ethics training: Educate employees about ethical expectations and potential fraud risks.
- Encourage open communication: Create a safe environment for reporting concerns.
- Implement a whistleblower protection program: Protect employees who report misconduct.
- Recognize and reward ethical behavior: Acknowledge and incentivize integrity.
- Enforce consequences for unethical behavior: Hold individuals accountable for misconduct.
- Regularly assess and monitor: Conduct risk assessments and audits to identify vulnerabilities.
By taking these actions, leaders can establish a “tone at the top” that promotes ethical behavior and reduces the risk of fraud. This creates a positive work environment, builds trust with employees and customers, and protects the organization’s reputation and long-term success.
At SOS, we like to refer to the “tone at the top” Organic TLC – Organic Top Leadership Commitment.
The ripple effect: from internal culture to positive external impact
Organizations can significantly reduce their vulnerability to fraud by fostering a culture of integrity, implementing robust controls, and empowering employees. This multifaceted approach creates a more ethical and transparent work environment, protects the organization’s reputation, fosters trust with stakeholders, and ensures long-term success. The organic sector benefits greatly from these internal measures, as they lead to positive external impacts such as increased supply chain integrity, better compliance with regulations, enhanced consumer trust, and improved industry reputation. Additionally, an ethical business culture promotes collaboration and knowledge sharing within the industry, leading to a collective effort to uphold standards and protect the organic label. Ultimately, ethical business culture fosters innovation and long-term growth, contributing to a more resilient and successful organic industry.
In conclusion, the fight against organic fraud requires a dual focus: clearing the fog from long, complex supply chains and nurturing a robust ethical culture within our organizations. By cultivating transparency, accountability, and integrity, we can create a resilient shield against fraud, safeguarding the organic promise and fostering a thriving, sustainable industry. Let’s remember that the traceability and transparency of our organic supply chains must also take into account the moral fiber that binds them together.