The Behavioural Red Flags of Employee Misconduct

This article explains the behavioural red flags of employee misconduct and why leaders should not ignore warning signs. It draws on ACFE research showing most fraud cases have at least one red flag, then outlines the most common behavioural traits and why regular fraud awareness training helps organisations detect and respond to issues earlier.

Key takeaways

• Red flags are indicators, not proof, but they should not be ignored.
• ACFE research in the article says most fraud cases had at least one red flag, and many had two or more.
• Financial pressure, control issues, and supplier relationships are among the common warning signs.
• Fraud awareness training can help employees recognise risk earlier and speak up.
• Leaders need to treat fraud and misconduct as realistic risks in any organisation.

Summary

Behavioural red flags are warning signs that can indicate misconduct or other wrongdoing. The article argues that leaders should learn the common indicators, avoid complacency, and invest in fraud awareness training so people can spot risk earlier.

The behavioural red flags of employee misconduct

Behavioural red flags are common indicators employees exhibit that suggest they may be involved in some type of wrongdoing. Research 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 behavioural red 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 as being associated with wrongdoing in the workplace.

Behavioural traits associated with wrongdoing

1. Living Beyond Means: Employees who live beyond their means usually have a lifestyle that does not match their salary. These 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. These can 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 micromanage 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 spill over 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 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 that 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 recognise red flags. This can be supported by 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 exhibited by people committing fraud.

Educate your people to increase the likelihood that they detect fraud earlier and limit losses. You also support 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 is crucial that 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.

FAQ

What are behavioural red flags?

They are common indicators that may suggest an employee is involved in wrongdoing. They are warning signs that deserve attention, not proof on their own.

What are the red flags of misconduct?

Living beyond means, financial difficulties, close association with suppliers, control issues, marital or family problems, and a wheeler-dealer attitude.