Were Wells Fargo Employees Pressured to Commit Fraud?

Posted by Amanda Nieweler

on September 9, 2016

Were Wells Fargo Employees Pressured to Commit Fraud?When pressure to meet targets ends in a wide-spread scandal

Customers should be able to trust their banks.

In many scenarios, ‘did you make your numbers’ translates to finding creative ways to make the numbers. And in many cases being creative takes precedence. Nobody understands that more than Walt Pavlo.

As the Sr. Manager in billing collections, he felt the pressure to grow the company’s revenue and ended up being caught up in one of the largest accounting frauds in American history.

When it comes to fraud committed by executives and employees, three factors play a major role in enabling this to happen:

  • The degree to which the preoccupation with meeting expectations permeates the organization’s climate
  • The compensation and incentive plans that may encourage unacceptable, unethical, and illegal conduct
  • The degree of fear and pressure associated with meeting numerical goals and targets

So how does a bank that is supposed to have robust internal controls permit the creation of over a half-million dummy accounts?

There are plenty of customers asking this very question over Wells Fargo’s creation of millions of unauthorized bank and credit card accounts.

These fake accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.

It’s a classic case of pressure to make sales goals!

The three factors listed above force employees and their superiors together to discuss ways to manipulate records in order to meet expectations. It doesn’t just happen over night, but rather over time, in an evolutionary process.

Wells Fargo employees have been setting up fake accounts since 2011.

Employees learn as they go, and as they need to, in order to make numbers look how upper management want them to look – better.

More than likely, management was asking ‘did you make your numbers?’, not ‘how are you going to make your numbers?’

What do leaders need to do to create a truly ethical climate in their organization? Set the tone from the top:

  • Lead with integrity, and by example. People take their cues from the top, believing their leaders are there for a reason. Employees will inevitably follow the lead of their leaders. If a leader says ‘let’s do this accounting switch now and rectify it next quarter’, then it may not look quite as bad, or unethical, to an employee. The problem is, the fix never happens and the bad behaviour continues to escalate. It was unethical the moment the conversation happened.
  • State clearly (and make it convincing) what the values are for the organization. Too often leaders will ‘talk’ but they don’t ‘walk’. Or they ‘talk’ but aren’t convincing. Employees will model the dishonesty of their superiors. Leaders should let their employees know that these ethical requirements and goals are not just random words, but are the organization’s values and all employees need to live by them.
  • Ensure there is a place for employees who are witnessing misconduct within an organization to be able to report that misconduct. They also need to know that there will be no retaliation and that their concerns are valued by the company. The organization should create a safe environment for employees to report misconduct if they learn of anyone who might be involved in fraudulent or unethical activities. Also, employees should be informed that what they are reporting is valued by the company and will be protected within organization.
  • It’s important that the company not just be focused on short term profits. If it is and this is important, it needs to be communicated to the employees as such, and the employees should act accordingly and ethically to ensure this short term goal is met. Because short term goals may create a heightened sense of panic to get the job done in time, it’s important that ethical behaviour, particularly ethical behaviour that was difficult and a tough choice for an employee to make, is rewarded.

Wells Fargo is being slapped with a very large penalty – $185 million in fines, along with $5 million to refund customers.

They will also be working on making changes to their sales practices and internal oversight.

May we recommend ethics reporting?