The red flags of employee misconduct

employee misconduct

It’s one thing to set out to create the right culture for your business, but it’s even more important to ensure you invest in protecting that culture. A positive workplace culture where your people genuinely “buy in” to the organisation’s culture improves teamwork, raises morale, increases productivity and efficiency and enhances job satisfaction, writes Darren Murphy, Managing Director of Core Integrity.

“Not on my watch”, “it won’t happen to me” and “I trust our team”. Well-intentioned statements that may cause leaders and management to overlook and ignore red flags and warning signs of misconduct in the workplace. The reality is 36 per cent of fraud in Australia is carried out by an organisation’s own management, according to research from MGI’s Audit and Assurance Team.

Behavioural red flags are indicators identifying potential employee wrongdoing. Recent data from the Association of Certified Fraud Examiners (ACFE) suggests 91 per cent of fraud cases had at least one red flag identified and, in 57 per cent of the cases, the fraudster exhibited two or more behaviour flags.

Ultimately, failing to respond appropriately and consistently to misconduct within your business is just as damaging as turning a blind eye.

While “living beyond means” and “financial difficulties” make up the most common red flags, there are many other warning signs that an employee may be committing fraud. Below are the most common behavioural traits or ‘red flags’ associated with wrongdoing in the workplace.

1. Living Beyond Means
2. Financial Difficulties
3. Close Association with Suppliers
4. Control Issues
5. Martial or Family Problems
6. “Wheeler-Dealer” Attitude

Fraud costs the average organisation five per cent of its annual revenue. The presence of red flags doesn’t necessarily imply fraud is being committed, however understanding and recognising these behaviours can help your organisation detect fraud earlier and reduce potential losses.

How can we address red flags?
In an ideal world, a proactive approach to protecting your organisation’s culture can anticipate and act on instances of misconduct before the small stuff becomes big stuff. There are three simple yet important actions a business can take to address red flags.

1. Set the tone from the top down
Setting the right culture comes from the top down. As a senior executive or business owner, you have the obligation to not only set an example for your organisation, but ensure others set and maintain that example. It’s one thing to say what you expect from your people, but it’s another thing to take action when you see people deviating from the expected behaviour.

2. Make it easy for your people to report potential issues early and safely
Make it safe and easy for your employees to speak up by providing a range of reporting options – both internally and externally. This can be through traditional internal channels such as speaking with your manager, approaching a senior leader or someone in the HR team or external channels like an independently managed hotline. Research from the Association of Certified Fraud Examiners shows 45 per cent of occupational frauds are detected via an internal ‘tip’ – this is 3-times more effective than other detection methods.

3. Foster a positive work environment
It’s one thing to set out to create the right culture for your business, but it’s even more important to ensure you invest in protecting that culture. A positive workplace culture where your people genuinely “buy in” to the organisation’s culture improves teamwork, raises morale, increases productivity and efficiency and enhances job satisfaction.

However, when something goes wrong, you must respond quickly and effectively. Investigate and respond to allegations of fraud and misconduct in a considered and timely manner. Ultimately, failing to respond appropriately and consistently to misconduct within your business is just as damaging as turning a blind eye.

Employee misconduct during the WFH revolution
While many have thrived and flourished in the switch to a remote or hybrid work environment, the new normal can increase the risk of fraud and misconduct in your business. The lack of visible supervision, reliance on effective information technology systems and the disconnected nature of remote working may increase the opportunity for employees to engage in unethical or unlawful behaviour.

As a senior executive or business owner, you have the obligation to not only set an example for your organisation, but ensure others set and maintain that example. It’s one thing to say what you expect from your people, but it’s another thing to take action when you see people deviating from the expected behaviour.

Adding to this risk is for those employees who are experiencing challenges due to the pandemic and economic situation. Increased financial pressure from a spouse or partner losing a job can place enormous pressure on the sole bread winner – coupled with remote working and poor internal controls creates a perfect storm for fraud to occur.

Here are some useful tips to consider to help reduce fraud and misconduct occurring in a remote workplace:

• Policies and Procedures: Ensure your policies and procedures are up to date, being shared with your people and tracked accordingly. Your people need to know and understand the obligations upon them as an employee. With remote working, there comes new challenges and that’s why centralised risk and compliance platform’s such as Corethix (www.corethix.com) can ensure your people know and understand what’s expected of them.

• Upgrade your IT Security: Invest in upgrading your IT Security to ensure your people are working safely within your network whilst at home through a VPN and firewall. Working from home creates increased risks for cyber-attacks on your intellectual property and confidential information. It’s important you can monitor and track employee behaviour in the event you need to respond to an incident.

• Education and training is the new black: Now, more than ever, organisations are seeing the value of investing in education and training to keep their people engaged and connected. At Core Integrity, we help clients to educate their people about fraud, corruption and how to create safe speak up cultures through delivering online training to remote teams.

Whilst we may not return to the office full-time, now is the time to take the lead in structuring a return to work plan that not only suits your organisation but each individual employee.

• Inspect what you expect: Maintain regular one-on-ones with your direct reports and take the time to inspect their outputs from a work perspective. Be aware if any of your people exhibit some of the red flags, which may indicate the person is under stress. Control issues, defensiveness, unwillingness to share duties or unexplained absences are all signs something more could be going on.

• Return to the office plans: As the number of new COVID cases remains low across Australia, organisations are now slowly returning to the office. Whilst we may not return to the office full-time, now is the time to take the lead in structuring a return to work plan that not only suits your organisation but each individual employee.

Key Takeaways
Recent data from the Association of Certified Fraud Examiners (ACFE) suggests 91 per cent of fraud cases had at least one red flag identified and, in 57 per cent of the cases, the fraudster exhibited two or more behaviour flags.

While “living beyond means” and “financial difficulties” make up the key red flags, the most common behavioural traits or characteristics associated with employee misconduct and wrongdoing in the workplace include:

1. Living Beyond Means
2. Financial Difficulties
3. Close Association with Suppliers
4. Control Issues
5. Martial or Family Problems
6. “Wheeler-Dealer” Attitude

The presence of red flags doesn’t necessarily imply fraud is being committed, however understanding and recognising these behaviours can help your organisation detect fraud earlier and reduce potential losses. As the old saying goes, sooner or later you have to pay the piper. The best way to manage fraud and employee misconduct – is to prevent it.

Image source: Pexels