An accounting’s team lack of diversity can lead to scandals
Diversity is often discussed when hiring practices come up, but these discussions rarely lead to meaningful action. Many organizations are simply not committed to increasing diversity within their workforce. Not only is this unfair, reducing opportunities for qualified applicants, but it can also lead to problems in the workplace.
Studies have shown time after time that organizations with diverse teams outperform their competitors when it comes to metrics like profitability. Diverse organizations are more innovative and typically enjoy lower turnover rates. But in a field like accounting, a lack of diversity can lead to more than just mediocre profit margins—it can lead to scandal.
The challenges auditors face with accounting fraud
Accounting, despite the stereotype of being “boring,” can be high-stakes and at the center of a variety of financial crimes. Fraud is a constant threat, and many businesses struggle to ensure that their books stay clean. In fact, organizations around the world lose 5% of their revenue each year to fraudulent activity.
Fraud is not a new problem, but white-collar criminals are getting more sophisticated all the time. With most accounting activity now taking place in digital form, new technological tools are being used to cover up illicit activity, including artificial intelligence (AI) and robotic process automation (RPA).
Accountants themselves are rarely those committing fraud. Many financial crimes are committed by those in the C-suite—CEOs, CFOs, and other high-level executives. However, this can make it difficult to prevent fraud and scandals that occur when the truth comes out. Internal audits are often ineffective, as those committing fraud can manipulate the books to make everything seem normal.
How an accounting team’s diversity can mitigate scandal
Accounting scandals are dramatic and can have a huge impact on organizations and individuals. Depending on the scope of the scandal, millions or even billions of dollars can be at stake. Accounting teams must do their due diligence in order to prevent fraud and scandals.
Aside from maintaining ethical standards and paying attention to detail, however, how can fraud be prevented? Surprisingly, by building a more diverse team.
In one study, it was shown that gender diversity helped to reduce the frequency of fraud. Additionally, the stock market’s response to fraud that did occur was mitigated significantly. Researchers noted that their hypotheses were corroborated by their study of securities fraud cases among Chinese companies.
Diversity also has a huge impact on decision-making. Overall, diverse teams’ decisions provide 60% better results than non-diverse teams. Mixed-gender teams and teams with different ages and ethnicities represented made better business decisions.
Different perspectives are powerful in the workplace. Teams made up of people who have different backgrounds and experiences can be powerful because they are less likely to fall into “groupthink” and more likely to consider problems from various angles. People with different perspectives may also notice things their colleagues don’t.
While a diverse accounting team alone can’t prevent all fraud from occurring, it can help reduce scandals or at least improve the response to scandals that may occur. Teams that are more homogeneous may be less likely to detect fraud or might make poor decisions in the wake of fraud discovery that discredits the organization.
How to create an effective diversity recruitment program
By now, it’s clear that businesses that haven’t made a commitment to diversity are not only sacrificing potential innovation and revenue, they’re also leaving themselves more vulnerable to scandals. Diversity starts with hiring, of course, but organizations also need to have clear policies that protect employees and promote inclusion.
Creating a plan for building a more diverse team is the first step. You can’t just say “we need to hire a diverse team.” You need to build in goals and accountability to stay on track.
There are also factors outside your organization to consider. You need to think about what the job market looks like now and how that will affect your search for qualified, diverse candidates. You need to understand what today’s workers value so you can cater to those expectations.
Above all, a commitment to diversity needs to be just that, a commitment. It’s not always easy to build a diverse team and an inclusive corporate culture as things stand—if it was, we wouldn’t still be seeing the lack of diversity that is so common. But giving up on creating a diverse accounting team and a more diverse company can open your organization up to scandals that might have far-reaching consequences.