Everyday ethics: How to handle a colleague’s misconduct

As told to Susan Muldowney

Question: “I’ve discovered that a colleague has been misclassifying expenses to inflate departmental performance. Reporting it could damage their career and fracture team trust, but staying silent feels complicit.

As an accountant bound by confidentiality and ethical standards, when does internal misconduct justify escalation — and how do I protect both the organisation and my professional obligations?”

Answer: Reporting a colleague’s misconduct is an unenviable task. It can be immensely complex, and highlights how ethical dilemmas usually fall into two distinct buckets.

The first contains non-complex dilemmas. These are generally matters of moral temptation, where the choice is a relatively black-and-white decision between self-interest and the interests of the client or society.

Choosing the right path here is generally more straightforward: for example, where there is a conflict of interest between you and the client, you put the client’s best interest first.

However, the second bucket — the complex dilemmas — is where we find ourselves choosing between two options where neither feels entirely “right”. Moreover, when we are personally involved, the ethical waters become significantly muddier.

Your colleague has clearly done the wrong thing by falsifying the performance data, but reporting them may have an impact on their career and even their livelihood. However, you cannot stay silent, because falsified data may mislead lenders or investors to have an inaccurate view of the performance of the department. 

As a member of CPA Australia, you have an ethical, professional and often legal obligation to act. We must also recognise that your colleague’s unethical behaviour is unlikely to be a one-off occurrence. What begins as a small step, such as slightly inflating performance figures, can rapidly escalate as people attempt to hide their tracks or become emboldened by their initial success. 

History provides us with sobering examples where small beginnings have led to the collapse of organisations and the impact on countless people. Unchecked, your colleague’s misconduct may only get worse. 

To navigate these pressures, we must build what I call “ethical muscle memory”. This involves enhancing our moral competency and vocabulary through constant education so that we have a strong moral character that is ready to withstand professional pressure. 

I often point to a four-component framework created by American psychologists Darcia Narváez and James Rest: moral sensitivity, moral judgement, moral motivation and implementation.

Moral sensitivity is the essential gateway to the broader moral ecosystem. If we do not stop to think and recognise that a situation has ethical elements, we cannot begin to address it. 

While moral sensitivity is essential, the final step in Narváez and Rest’s framework — implementation — is perhaps the most daunting. It requires immense moral courage to speak up.

Ultimately, accountants are the independent arbiters of truth. We hold the “stamp” that confirms a true and fair view of financial health. Public trust is the paramount requirement for a sustainable profession. 

When we recognise unethical behaviour, if we fail to act, the cascading effect can be devastating. By engaging in critical ethical thinking and strengthening our moral courage, we do more than just report a colleague — we protect the integrity of our entire profession and the broader society.

I would encourage you to seek out mentors with high ethical standards. Someone who is not directly connected to the situation may be able to provide valuable counsel and support. In doing so, you must also be mindful of your obligations of confidentiality to both your clients or the business with which you are employed.

You face a challenging task, but it cannot be ignored. The misconduct cannot go unreported, so I suggest you inform the relevant senior member of staff. In doing this, you will protect your organisation and meet your own professional obligations.