The Behavioural Red Flags of Employee Misconduct

Far too often employers say “not on my watch” or “it can’t happen here”. Statements which hold true, but may cause leaders and management to overlook and ignore red flags and warning signs of misconduct in the workplace.

As an executive or business owner you need to be realistic when it comes to employee fraud and misconduct. Regardless of the size of your organisation, it would be naïve to think that your business is immune to the risks posed by internal fraud or misconduct. Rather than believing your organisation is unsusceptible to these risks, it pays to educate yourself and your people on common fraud risks and behavioural red flags.

The behavioural red flags of employee misconduct

Behavioural red flags are common indicators employees exhibit that suggest that they may be involved in some type of 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. Moreover, internal fraud costs the average organisation five per cent of its annual revenue.

While “living beyond means” and “financial difficulties” make up the key red flags, there are many other warning bells that an employee might be committing fraud. Below are the most common behavioural traits or characteristics that the ACFE identified to be associated with wrongdoing in the workplace.

Behavioral traits associated with wrongdoing

  1. Living Beyond Means: Employees who live beyond their means usually have a lifestyle that does not match their salary. This increase in external pressures to meet lifestyle needs may drive a person to commit fraud to keep up appearances.
  2.  Financial Difficulties: There are various reasons why employees experience financial pressure, and those are typically beyond an employee’s control. The higher the financial stress level, the more distracted and desperate an employee may become. The more desperate, the more likely an employee is to rationalise unconscionable behaviours like fraud and misconduct.
  3. Close Association with Suppliers: Replacing existing vendors or clients with contacts that have an existing relationship can increase the opportunity for fraudulent behaviours. They come in the form of unusual expenses, supplies, reimbursements, or unexplained transactions.  
  4. Control Issues: People who demonstrate controlling behaviour in the workplace are generally unwilling to share duties. They are likely to skip approval processes and micro-manage others without sharing information around their own work. The lack of a ‘third eye’ increases the opportunity to hide or falsify documents, or records.
  5. Marital or Family Problems: Marital or family issues can sometimes create feelings of sadness, anger, and betrayal. These feelings can transcend into a person’s professional life and create a sense of hopelessness. Employees who feel hopeless may justify behaviours that are typically out of character.
  6. “Wheeler-Dealer” Attitude: Employees with a “wheeler-dealer” attitude advance their own personal interests through a canny, aggressive, or unscrupulous behaviour. This poor attitude causes employees to excuse their actions through a sense of entitlement and disdain.

The presence of one or two red flags does not necessarily imply the presence of wrongdoing. They may highlight some other external pressure or challenge exists in a person’s life. Equally, we should not ignore those red flags. They exist for a reason and may indicate that something more sinister is occurring.

Educating employees with fraud awareness training

It is an important fraud prevention strategy to understand and recognize red flags. Unlock it through investing in regular fraud awareness education for your employees. These training sessions help educate your employees on what constitutes internal fraud, corruption, and employee misconduct, as well as the common red flags that are exhibited by those committing fraud.

Educate your people to increase the likelihood to detect fraud earlier and limit losses. You also provide support to the person committing fraud. Often fraudsters are first-time offenders and are committing fraud due to pressure within their lives.

When was the last time you invested in face-to-face training to educate your employees? It’s crucial your people know what constitutes fraud and corruption, what red flags to look-out for and most importantly, how to speak up and report any concerns.

If you are interested in learning more about fraud awareness training and how we can tailor these programs to suit your industry, get in touch.

Your reputation is everything. Do you have an integrity partner to help you make the right decisions? We can help.

About Darren Murphy

Darren Murphy’s expertise spans his 25-year career in law enforcement as a detective in the Fraud Squad with the NSW Police Force and within the corporate sector. Across his career, Darren has managed hundreds of complex and sensitive whistleblower investigations, including transforming a traditional whistleblower hotline into a full-service Speak Up Hotline at one of Australia’s largest financial institutions. From internal and external fraud, bribery, corruption and employee misconduct, Darren is an industry leader in integrity and conduct risks. Darren is passionate about protecting an organisation’s reputation, people and bottom line, and looks to help senior executives implement a proactive approach to how they manager their fraud, corruption and integrity risks.

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