If we all understand that workplaces are merely a microcosm of society, then just like society has its fair share of ‘bad eggs’, it’s inevitable that workplaces will have some too – the evidence of which is mostly seen in fraud/misconduct.
Fraud/misconduct can include everything from the trivial – such as stealing paperclips from the stationery cupboard – right the way through to serious fraud, embezzlement, at the other. In fact, all told, so-called ‘occupational fraud’ is a $3 trillion pa disaster.
The problem with this, is that of all forms of workplace misconduct, occupational fraud and theft is actually the most consistent, costly, and difficult for employers to identify or prevent.
According to a 2022 Report to the Nations from the world’s largest anti-fraud organization, the Association of Certified Fraud Examiners (ACFE), occupational fraud is “the costliest and most common form of financial crime in the world.”
It’s costly mainly because most fraud doesn’t tend to get noticed for a very long time. ACFE finds fraud has gone on for an average of 16 months before the funds involved are even noticed as having gone astray.
It’s costly too, because it isn’t just a problem impacting large organizations. Data reported by Forbes finds that more than 80% of theft cases happen in organizations with less than 150 employees.
All of which means that all-told, at an international level, occupational fraud and abuse causes annual losses totaling more than $3 trillion. Contributing to this is the cost to US businesses – which account for $50 billion of this each year.
Who’s doing what?
According to the ACFE, around 86% of fraud cases are related specifically to asset misappropriation, or employees stealing or misusing company funds.
This normally involves an employee stealing or misusing the employer’s resources with a median loss at $100,000 per case.
Other common forms also include financial statement fraud. This involves a perpetrator intentionally causing a material misstatement or omission in an organization’s financial statements (the least common at 9% of schemes) and is the costliest type – with a median loss of $593,000.
There is also straight out bribery – which includes conflicts of interest, and extortion, and has a median loss of $150,000.
What is Workplace Misconduct?
Workplace misconduct is a term used to describe any behavior exhibited by an employee or executive that is either illegal, unethical, or in direct violation of established company policies and/or codes of conduct.
These behaviors can take a number of different forms that have varying consequences, including (but not limited to):
– Occupational fraud or theft.
– Corruption, including bribery or extortion
– Harassment, bullying, and discrimination
– Threats and/or physical acts of violence
– Illegal/illicit drug use
In the most benign case, workplace misconduct may result in an employee being fired over inappropriate behavior. But in the worst case, it can cost a company millions in misappropriated assets and associated legal fees.
HRDs need to tackle the ‘why?
But from an HRDs perspective, what is arguably more important than the specific types of thefts that occupational fraud overs are the reasons it may be happening so frequently in the first place.
Given most organizations will all need to entrust staff with access to or control over its assets (from keeping the books, to managing bank accounts, or safeguarding its inventory), any instance of fraud is effectively a breach of trust.
How to prevent fraud & workplace misconduct:
Overall, fraud and workplace misconduct pose a clear and serious threat to businesses across industries.
And while there’s no way to erase the past, business leaders can still work proactively to prevent these kinds of issues in the future.
Here are just some of the measures HRDs can implement:
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Utilize “whistleblower” hotlines
An overwhelming majority of employees simply won’t feel comfortable reporting misconduct to their supervisors. To overcome this hurdle, HRDs should consider pointing employees toward public “whistleblower” hotlines like AllVoices, which allows workers to report workplace concerns through an entirely anonymous and encrypted platform.
STAT ATTACK: According to the ACFE, 40% of the information around occupational tips comes from internal tip-offs, but when hotlines are present, this increases to 46%.
Surprising ACFE data reveals that only 14% of tip-offs are anonymous. However, separate data from the likes of EQS reveal that 58% of reports are from anonymous whistleblowers, so HRDs must ensure this ability exists. The trouble is, EQS finds that just 60% of surveyed companies offer the option of anonymity.
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Implement mandatory PTO for employees
Surprisingly, in addition to improving wellbeing, giving employees a vacation can actually help uncover fraud or suspicious activity.
While this may require some cross-training to ensure an absent employee doesn’t fall behind, the FDIC claims that a mandatory, two-week paid vacation for workers has been shown to improve fraud and embezzlement prevention at banks, as an employee’s time away from the office “can help [employers] ‘suss out’ things that may be amiss.”
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Leverage advanced screening solutions
Understanding employees and potential new hires on a deeper level is critical to anticipating and preventing misconduct.
In addition to running traditional background checks, businesses can leverage advanced tools to compliantly screen for red flags that may be hidden in plain sight.
By screening and/or continuously monitoring staff, HRDs should be more able to prevent a poor-quality new hire, or preemptively reveal misconduct before it spirals out of control – like these companies recently experienced.
STAT ATTACK: According to the ACFE, 85% of fraudsters display at least one behavioural ‘red flag’ of fraud.
EMPLOYEE FRAUD – THE FACTS:
- As much as 5% of employer revenue can be lost by employee fraud (source: ACFE)
- White-collar crime is on the increase. in 2009, 30% of companies experienced fraud and corruption; in 2018, this number was 49%
Why do staff commit fraud?
Frontiers in Psychology looked into this very question in 2022, in a research paper into unethical behavior and white-collar crime.
It found:
- Employee fraud and unethical behavior are both violations of social ethics by employees, but their motives are usually different. Unethical behavior is not normally found to be motivated by self-interest but employee fraud is nearly always done for personal benefit, and/or to the detriment of the organization.
- Fraud is more likely to happen where there is a perception that there is a low-level of existing fraud.
- The greater the motivation for employee fraud, the longer it tends to occur for.
For more see: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9590450/