Carol manages the billing department at Universal Hospital. Hired while the hospital was downsizing, she is aware of resentment toward her as an outsider, even though she excels at her job and is generally well-liked. Since downsizing, the staff has wondered "Where the ax will fall next," and "Why no one recognizes the hard work of those who are left." After a lengthy search, Carol finds a candidate to fill a key vacancy in billing. William, a long-time Universal employee, is the best applicant, and she believes promoting him will improve department morale.

Carol's secretary asks to speak with her confidentially, and tells Carol when she worked for William he falsified monthly travel vouchers by claiming expenses for gas and mileage when he was only a passenger. "I know I should have reported it," she says, "but I had been out of work eighteen months before coming here and I was afraid." Universal has a fraud policy under which William's behavior, if substantiated, is grounds for termination.

Carol discovers that William has been submitting fraudulent travel vouchers for years. In spite of Universal's policy, no irregularity has been reported. This becomes especially disturbing when she learns that most of William's current colleagues in billing are aware of his conduct.

This case presents a number of important organizational ethical issues. While Universal's fraud policy appears to incorporate core values, the question remains whether these values have been implemented via appropriate internal mechanisms. Of particular interest is whether the strategy for departmental standards is driven by legalism or integrity. Legalistic organizations tend to focus on bad behaviors and punitive measures, educating employees to be "law abiders," without encouraging leadership or a sense of responsibility for institutional values at all organizational levels. Overemphasis on reporting and punishment may actually encourage cover-ups.

An integrity strategy takes a more preventive approach, providing a sounding board for employees to come forward with questions and concerns. Greater emphasis on teamwork, accountability, and core values rather than "crime and punishment" encourages personnel to take responsibility for errors before they become patterns of misconduct.

While William is primarily responsible for his own wrongdoing, his colleagues and Universal as an organization bear moral responsibility for maintaining a climate where fraud is ignored and potentially rewarded, as will be the case if Carol also looks the other way.