Some workplaces operate as if they are fully engulfed in a five-alarm fire. Employees consistently scramble to meet deadlines, the team is stressed, the work is intense, and far from helping to put out the blaze, managers contribute to the disarray with poor communication and toxic behavior.
A “five-alarm fire” environment can play havoc with staff morale and an organization’s financial performance and overall culture. It can also provide sustenance to something even more sinister— workplace fraud.
After all, fraud thrives on chaos. A deeply disorganized workplace can encourage fraudsters to act and give them cover when they do. Employees engaged in a fraud may even fuel the five-alarm fire environment to help cloak their schemes.
Five Fraud Risk Warning Signs
When daily work responsibilities are approached with panicked intensity or stress as a matter of routine, business owners and leaders should be on the lookout for signals that may indicate something is amiss. Here are five common symptoms of an eroding company culture that can increase the risk of fraud:
1. Poor Communication of Company Values.
In the workplace, management influences the behavior of employees through spoken or unspoken communication of the company’s beliefs, values, and attitudes. Ultimately, the expectations management communicates to staff influence the resulting behavior. The problem arises when management fails to communicate appropriate expectations. Think about it: If your manager is routinely late to work, is your team likely to emphasize timeliness? When managers are failing to communicate the company’s culture through word or deed, employees may rationalize their own bad behavior—even to the point of committing fraud.
2. Toxic Leadership.
A manager who is self-centered, arrogant, unreceptive to outside opinion, or abuses their position of authority can quickly erode the workplace culture and create an environment where employees are motivated to get back at the company. Further, a manager who shows such toxic tendencies might be tempted to succumb to greed themselves—which can be particularly worrying from a fraud prevention standpoint because managers can often override internal controls.
3. High Turnover.
Employees are often driven away from poor company cultures. If management fails to provide adequate support, especially in already understaffed departments, a handful of employees could end up responsible for the performance of critical tasks that involve company assets. When duties are not separated, financial fraud risk dramatically increases. For example, an employee with total control over the payroll process may be tempted to approve payments to fake employees and siphon funds to their own bank accounts.
4. Unrealistic Expectations.
Employees unduly burdened with work responsibilities are likely to prioritize deadlines over quality. And management focused solely on sales performance or revenue generation can drive employees to use aggressive sales tactics to meet unrealistic goals. If this attitude is encouraged or overlooked by management, an organization could be vulnerable to fraud—such as a salesperson recording bogus sales to meet performance targets.
5. Lack of Transparency.
Team members who refuse to be transparent about their work may stoke the five-alarm fire workplace, sowing mistrust and inefficiency (such as meeting project deadlines). Where an employee or manager insists upon total control of key financial duties or fails to provide access to financial records such as bank statements, they may be trying to conceal something—such as embezzlement fraud.
A Case Study: Sales Pressure and Deception
In 2020, Wells Fargo & Co. and its subsidiary Wells Fargo Bank, N.A., agreed to pay $3 billion to resolve federal criminal and civil investigations into fraudulent conduct that centered on the opening of millions of accounts without authorization from customers.
Over the course of nearly two decades, Wells Fargo increased its focus on sales volume and annual sales growth. As a result, according to the U.S. Department of Justice, “onerous sales goals and accompanying management pressure led thousands of its employees to engage in unlawful conduct – including fraud, identity theft and the falsification of bank records – and unethical practices to sell product of no or little value to the customer.”
As a result of the deception, Wells Fargo collected unentitled fees and interest from millions of accounts, and customers suffered damage to their credit ratings and misuse of personal information.
While toxic cultures are often dismissed as faulty systems or necessary evils, the decision to ignore cultural rifts ends up aiding the fraud and leaving employees to fend for themselves. Indeed, in the case of Wells Fargo, top managers of the bank were aware of unlawful and unethical practices as early as 2002, and internal investigators had called the problems a “growing plague.” The bank’s leadership minimized the problems to the parent company’s management and its board of directors, and described the problem as driven by individual misconduct instead of the sales model itself. The bank’s senior managers, the DOJ said, viewed negative sales quality and integrity as a necessary byproduct of the increased sales and as merely the cost of doing business.
Takeaway
If your organization is experiencing one or more of the symptoms described above, consider performing a culture audit to systematically analyze your organization’s values, beliefs, behaviors, communication patterns, and overall work environment for weaknesses that could contribute to future fraud.
It’s important to act quickly if you believe fraud is occurring. We can assist in investigating a potential fraud. Contact us today for a consultation.