Of more than 5,000 U.S. workers polled this summer, 74 percent said they had personally observed misconduct within their organizations during the prior 12 months, unchanged from the level reported by KPMG survey respondents in 2005. Roughly half (46 percent) of respondents reported that what they observed "could cause a significant loss of public trust if discovered," a figure that rises to 60 percent among employees working in the banking and finance industry.

"Restoring trust and confidence in the integrity of our capital markets and institutions will require business leaders to build corporate cultures that reward 'doing the right thing,' instead of 'doing whatever it takes,'" said Richard H. Girgenti, national leader for KPMG's Forensic practice. "An effective ethics and compliance program is instrumental in reducing the likelihood of wrongdoing occurring as well as reducing exposure to the devastating fallout that can be associated with criminal liability and fines, when fraud or other illegal acts occur."

The survey found that 72 percent of respondents whose companies had no formal ethics and compliance program reported having observed misconduct during the previous year, an increase from 65 percent of respondents in a similar survey in 2005. Meanwhile, in companies with ethics and compliance programs, 55 percent of respondents reported witnessing wrongful activity, a slight improvement from the 59 percent reporting such activity in the 2005 survey.

Girgenti adds, "A downward market can magnify conditions that give rise to fraud risks, and the KPMG data suggest that managers and employees facing heightened pressure to meet revenue and cost targets may resort to improper means of doing so, especially if they think their jobs are in jeopardy if they miss those goals. With so much on the line, now is not the time for companies to cut back on the very investments that are designed to safeguard their reputation for integrity."

"We expect prudent managers will also look for opportunities to leverage antifraud efforts by exploring opportunities to control costs and reduce losses associated with fraud, waste and abuse - particularly in circumstances involving significant government funding in private enterprise," Girgenti said.

The survey findings suggest those in leadership positions may be unaware of brewing concerns until it is too late. Among those to whom respondents said they would be comfortable reporting misconduct include local managers (61 percent), peers (57 percent), human resources (57 percent), hotline (57 percent), legal department (52 percent), senior executives (43 percent), internal audit (40 percent), and board members (32 percent).

Although 89 percent of the survey respondents said they would be "doing the right thing" to report an incident, some 34 percent of respondents suggested a lack of confidence that appropriate action would be taken. Only 47 percent believed those involved would be appropriately disciplined, no matter their position, and just 39 percent expected they would be satisfied with the outcome of any response to an incident they reported. Meanwhile, however, 53 percent anticipated that they would be protected from retaliation.

"Ethics and compliance needs to be a management discipline that's embedded within all areas of the business," said Girgenti. He emphasized that "too often, organizations create compliance programs that look good on paper, but don't align with how business really gets done. This creates a false sense of security, especially in environments where heightened levels of scrutiny and skepticism are needed most."

In conducting the survey, respondents were asked to report only incidents they personally witnessed and chose from a list of more than 40 categories such as deceptive sales practices, submitting false invoices to customers, market rigging, manipulating financial reporting information, asset misappropriation, conflicts of interest, insider trading, circumventing supplier selection rules, fabricating quality or safety test results, violating environmental standards, among others.

Keywords: KPMG Llp.

This article was prepared by Medical Verdicts & Law Weekly editors from staff and other reports. Copyright 2009, Medical Verdicts & Law Weekly via NewsRx.com.

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