Economic downturns create workplace misconduct
If you haven't been to a gas station lately to fill up your vehicle, consider yourself one of the lucky ones. For those of us needing to fill up our vehicles, it's definitely hitting us harder in the wallet. Have you noticed how much quicker the dollar amount gauge moves when pumping gas (and how little is actually going in).
Let's not talk about the price of avocadoes either. My favourite fruit has become a little too expensive.
The majority of us are reluctantly experiencing the higher cost of living, food and gas prices as we emerge from the south end of COVID.
Table of Contents
- Fraud in the workplace during a recession
- The fraud triangle may be enhanced during economic hardship
- Whistleblower hotlines help fight fraud
- How whistleblower hotlines create less stressful workplace cultures
Are we in a recession? Is there more to come? Surging costs are everywhere and times like these do have an impact on businesses and the wellbeing of their employees.
Fraud in the workplace during a recession
Businesses today need to understand what fraud and other misconduct looks like during an economic downturn and plan for how to prevent disastrous results later. The fact is, many employees are feeling squeezed, have lost jobs, or feel pressure to pick up the slack from previously let-go co-workers. It's one part of the fraud triangle - perceived pressures - that creates justification for committing fraud.
Businesses still need to make money, yet pressures are put on employees to perform, with little to no compensation, and many employees may see a time like now as an opportunity to bend the rules out of a feeling of desperation - little compensation does not afford rising food and living costs.
A pandemic, like we see now, can trigger a financial crisis, which can trigger a recession. Canada is headed for a recession in 2023, but experts believe it will be short lived. Well let's hope so. But we can't be completely sure because we don't know the lasting impacts COVID will have on the global economy.
During the 2008-2009 recession, the ACFE published a study on the impact of an economic recession. It concluded that financial stresses during the crisis lead to an increase of fraud related misconduct. Let's learn from that and prepare now.
Some ideas suggest that in many organizations, middle management is often the first to be let go leaving the door open for fraud to occur. Middle management tends to be a first line of defense in fraud prevention and with this layer gone during an economic slowdown, the higher the chance of fraud slipping through the cracks. And we have our next section in the fraud triangle - perceived opportunities, made possible by less oversight.
You only have to look at past fraudulent behaviour. Fraudsters commit their crimes by rationalizing their behaviour. Fraudsters will rationalize their behaviour by comparing their acts to those more egregious, and thinking their act is nothing to worry about, or less harmful. This way they attempt to diffuse personal responsibility. We have our third and final component to our fraud triangle - rationalization.
Smaller businesses face the same recession risks as larger companies, yet for them, the same risks have an even more severe impact on them. Many small businesses don't have the resources to provide the necessary internal controls to mitigate risk.
Many regions are seeing rising unemployment, an increase in personal debt, and supply chain issues that are increasing costs of food and other necessities. This adds more pressure for us to make ends meet. Those committing fraud are seeing increased motivation to act unethically and break the rules. And of course rationalizing their behaviour when doing so.
The fraud triangle may be enhanced during economic hardship
Let's talk about stressors and mental health in the workplace. LifeWork's Mental Health Index shines a spotlight on the current state of mental health of employed adults, during COVID, in Canada, USA, UK, and Australia.
- 33% of working Canadians have a high mental health risk
- 25% of working Americans have a high mental health risk
- 35% of working Britons and Australians have a high mental health risk
One trigger of rising mental health is financial stressors. For employees, financial stress is a bigger worry than work, health, and family. Stresses like this can affect a company’s bottom line because there will be a decline in productivity, which will trigger action from upper management to push for more productivity. And this could be a catalyst for employees to get the job done in less than ethical ways. "This company is financially well off and won't notice if I break some rules to get the commission".
We can see how this can play into the fraud triangle - motivation, opportunity, and rationalization. This endless cycle will kill a workplace culture. For businesses, putting additional controls in place to help mitigate risks like stealing cash, altering spreadsheets, or bribing co-workers or clients, can help in the fraud fight.
Whistleblower hotlines help fight fraud
While a company can put in place the best processes and policies to fight fraud, they really have little control over an employee who ultimately decides to commit fraud. But there are steps that can be taken to detect misconduct sooner, and create a more trustworthy workplace environment.
- Whistleblower hotline: a whistleblower hotline is an effective way to identify fraud. It allows employees to anonymously report any type of misconduct without fear of retaliation
- Separation of duties: a smart business practice is to never have a single person handling all aspects of bookkeeping and business accounts. Separate financial and accounting duties among a few individuals
- Tone from middle and top: management needs to lead with honesty and integrity. Employees are good at detecting who really has character and integrity and leads with honour, and who doesn't
- Red flags: look out for bullying and intimidation, living beyond means, or never taking vacation days that could indicate an escalating behaviour partial to fraudulent activity
How whistleblower hotlines create less stressful workplace cultures
Whistleblower hotlines can be particularly helpful and insightful during times of economic stress. Not only do they provide a safe space to voice concerns, they capture important data that can be used to stop misconduct:
- Reduces Employee Stress - when good employees know something bad is happening, it can be stressful not knowing what to do about it. A whistleblower hotline can remove the decision-making stress by providing employees with a concrete, clear, and easy course of action to speak-up with purpose. A hotline also provides employees with a way to be honest, even about difficult-to-discuss issues.
- Cultivates Corporate Culture of Honesty - during a time of economic downturn, companies may find themselves dealing with issues such as declining employee morale, a decrease in revenue, and trying to prevent the loss of key personnel. Creating a culture that values workplace open communication and honesty is crucial to a safe workplace culture.
- Insight Into the Workplace - No matter how good their relationships might be, employees still may not feel comfortable coming face to face with management about certain things. This leads to misconduct potentially being missed and evolving even more. By bridging the gap between employees and management, whistleblower hotlines provide safe and secure intake of sensitive matters.
- Increases Employee Connectedness - During more stressful times, employees may feel disconnected or checked-out. When a company puts a whistleblower hotline in place, and affectively promotes its use, the workplace will start so see positive change reflected in the act of speaking up.
Ultimately, creating a culture where employees are able to speak up without fear that their reports won't remain confidential and they know their reports will be taken seriously is will help build an open and honest workplace culture.
Sources:
https://globalnews.ca/news/8973129/recession-royal-bank-canada-prediction/?utm_medium=Facebook&utm_source=GlobalNews&fbclid=IwAR11YBYG7_ln7uaXtjr18nZQtGXoHgERLcBNo6JTD1ACuR6c3g7NSxeShFI
https://www.mnp.ca/en/insights/directory/understanding-fraud-in-economic-downturns-and-recessions#:~:text=During%20an%20economic%20downturn%20or,individuals%20to%20make%20ends%20meet.
https://kornfeldllp.com/2020/04/why-fraud-increases-during-an-economic-recession/
https://lifeworks.com/en/mental-health-index
https://graystone.morganstanley.com/the-parks-group/articles/graystone/thought-leadership/financially-stressed-employees
