Tone at the top
Tone at the top is the first attribute of internal control listed in the Green Book (Standards for Internal Control in the Federal Government).
Here is how the GAO kicks off the Green Book:
Green Book: 1.02 The oversight body and management demonstrate the importance of integrity and ethical values through their directives, attitudes, and behavior.
I liken it to the first statement in the Bible : Genesis 1: In the beginning, God created the heavens and the earth. If you aren’t in for that statement, you likely won’t be in for the rest of the Bible.
Similarly, if you don’t think or believe that leaders have a significant impact on your organization, none of the rest of the Green Book is going to make much sense and the controls you work so hard at designing are unlikely to work.
A leader’s attitude and behavior matter
If the leaders of an organization are uninterested in excellence in operations, compliance with laws and regulations, and accurate and transparent reporting, efforts toward those objectives by the underlings will fail. No matter the size of the entity, the leader’s attitude and behavior permeates the whole organization.
One of my clients sells groceries in 28 countries. Since my family eats food sold by this grocer, I was very happy to hear the executive in charge of food safety initiatives talk openly and emotionally about his responsibilities to keep customers safe.
He began his presentation by sharing the pictures of children in his briefcase that he looks at every day. These were not picture of his children, but children who had died of food borne illness from all food retailers – groceries and restaurants – in the United States. Then he began to share statistics about how vulnerable children are to food borne illnesses. And then he cried.
And, man, was I happy to see him cry! I did not want my children to end up as a picture in his briefcase and neither did he or any of his team. His serious and heartfelt commitment to food safety permeated his whole organization and let his team know what to do when they had to choose between profitability and the safety of their customers. As a result, I feel safe buying food for my precious family from his organization.
Smaller organizations are particularly vulnerable to negative tone at the top
So, if his message permeated such a large organization, imagine how much more the viewpoint of a leader in a small organization can impact controls. Smaller organizations are particularly vulnerable to the attitudes of the leadership.
Here is a personal example: Because I was the only business major in the group, I agreed to be the treasurer for the local chapter of the National Speaker’s Association and served for three years. We only had about 30 members and the tone at the top changed depending on who we elected as president... Continue reading here.