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Managing misconduct during the COVID-19 pandemic

November 13, 2020

Recent reports and trends show that bad behaviour has increased during the COVID-19 pandemic. The changed circumstances and unprecedented events we've experienced have not only increased the opportunity for misconduct, they have also led to an increase in the emotional states that drive individuals to commit it.

Nurturing our people, implementing better internal controls, and carrying out fair and effective investigations of misconduct are critically important to protect our employees, our assets, and our brand.

How has the Pandemic affected employee behaviour?

Misconduct involving fraud and other bad behaviour has three main elements: pressure, opportunity, and rationalisation, often called the Fraud triangle. The unprecedented economic and social conditions resulting from the COVID-19 pandemic have intensified the effect of these factors:

Pressure can arise from personal or family health or financial issues and desire to maintain lifestyle or relationships, as well as organisational norms and expectations such as complying with policies and procedures and meeting KPIs and targets. These factors or perceptions about them can cause people to act dishonestly or irrationally. During the pandemic, there have been added pressures, including:

  • High levels of anxiety about well-being and job security
  • Stresses that arise from continually being with partners and family and being distracted by them (divorce rates are reportedly rising worldwide)
  • Social isolation and boredom have also taken their toll. In April, the SMH reported a 17 per cent increase in mental health-related claims in Q1

Opportunity can arise when there are financial or other pressures on employees and system weaknesses or inadequate internal controls. Working remotely, reduced supervision and time to research ways to defraud present many such opportunities. Working from home increases the use of work-related communication through email and instant messaging. The seeming informality and intimacy of these channels frequently lead to staff communicating inappropriately with their colleagues. Sometimes employees also access sexually explicit or other offensive material and share it with co-workers and others using their employer's equipment and systems.

Rationalisation completes the triangle. It was recently noted in a Board Agenda article that "the chaos and uncertainty of the Pandemic is likely to motivate individuals and businesses to rationalise their nefarious activities"'. Decreased wages or commissions and lack of positive interaction with and support from supervisors may lead to employees feeling that their employers do not care about them. Conversely, in some cases, increased or intrusive supervision can be oppressive. Either of these can lead to disaffection and a sense of entitlement.

What forms of misconduct are at risk of increasing?

Due to the pandemic and its many implications, each of the three elements of the fraud triangle have created the right environment for some forms of misconduct to increase within organisations. Some of these include:

Dishonest intentions
In April, the Washington Examiner reported that data compiled by Google showed that in late March, the number of users looking for information on how to start a fire grew by 125%. The article drew from this that there was an increasing number of people who were contemplating arson and fraudulent insurance claims as a way to alleviate financial pressures. It can therefore be assumed that dishonest intentions have increased generally.

Payroll fraud
Payroll fraud is common and often goes undetected in ordinary times. But we are now living in extraordinary times, where remote working is the norm. Working from home increases the opportunity for staff involved in payroll to make payments to terminated or fake new employees.

Theft of time
Remote working also facilitates the most common type of payroll fraud, stealing time during working hours. Examples of this are:

  • Starting late or finishing early
  • Taking long breaks without accounting for them
  • Spending excessive amounts of time on social media or online shopping
  • Doing personal or domestic tasks
  • Engaging in secondary employment

Rationalisation plays a large part here. The dishonest employee tells themself that they do outstanding work, contribute more to their organisation than they get from it and that they have made up or will make up the time spent on non-work activities.

Procurement fraud
The pandemic has created unprecedented disruption and challenges in maintaining supply chains, particularly in the health sector. The need for emergency purchase of life-saving medications and personal protective equipment (PPE) has created significant opportunities for circumventing procedures and delegations and possible collusion in obtaining overpriced, substandard, or non-existent goods and services. Payments made by staff working remotely using credit cards create a further vulnerability and simple schemes such as creating fake suppliers and invoices are made easier.

Sexual harassment
On 27 August, ABC News reported: "Victoria's equal opportunity Commissioner has reported that sexual harassment complaints are up about eight per cent since the COVID-19 Pandemic hit Australia."

On the face of it, working remotely would seem to reduce opportunities for workplace sexual harassment. But sexual harassers have adapted to technology. They use work-related online meetings, telephone calls, text messages and instant messaging and to reach out to, groom and eventually harass their victims. If their advances are rebuffed, or their inappropriate comments are called out, some desist, but others deluge their targets with continual sexually explicit images and abusive messages. Some victims report hundreds of such messages each day for sustained periods.

Additionally, anecdotal evidence suggests that working from home and the distance from the office this creates, as well as being separated from the alleged perpetrator, has seen an increase in the number of historic complaints of sexual harassment in the workplace.

Cyber smearing
Cyber smearing is a further danger. This involves disaffected employees or other malicious actors anonymously posting or disparaging rumours and statements about an organisation.

How do we manage the risks?

Benevolent and robust leadership that is committed to and exemplifies ethical behaviour is critical during crises such as the pandemic. Good recent examples include executives forgoing salary and benefits and continuously engaging with their workforce during the pandemic. Conversely, recent instances of extravagant rewards to executives have brought community and government criticism of the recipients.

Ethical Culture
An ethical culture will reduce the risk of fraud and corruption. The Ethics & Compliance Initiative states: "There are people who act with integrity regardless of the situation they are placed in, and others will always act out of self-interest. The vast majority of people are somewhere in the middle, guided by those around them. In ethical cultures, they will hold the line, and in ethically compromised companies, they will violate the norms. Company culture makes an enormous difference in employee conduct."

Ethical framework
Organisations need to provide their employees with clear policies setting out acceptable standards of ethical behaviour, clearly defined fraud control responsibilities and adequate resources for managing fraud. Employees must be trained to a level that they can articulate their obligations of ethical behaviour and their organisation's position on fraud. The NSW Audit Office publishes a useful Fraud Control Improvement Kit.

Nurture our employees
Employees who feel they are valued and supported are less likely to engage in fraud or bullying and harassing behaviour. We need to promote a positive work environment and treat everyone fairly and with respect. Most organisations have employee assistance programs (EAP). Ideally, those programs should do more than provide crisis intervention. The better ones proactively engage with employees and provide resources to promote wellness.

Proactive fraud prevention measures
The NSW Independent Commission Against Corruption (ICAC) has provided guidance on measures that Government agencies should take to reduce the risks of fraud during the pandemic while employees are working remotely. These measures would also be useful for private sector employers. They include:

  • Managers making occasional telephone or video contact with their staff
  • If emergency procurement is necessary, insisting on involving at least two people in the process
  • Using existing management accounting reporting and data analytics to identify split invoices or payments, unusual transactions, or unusual suppliers
  • Directing accounts payable staff to challenge any suspicious request for payment
  • Reminding staff not to open emails or attachments or click on links from untrustworthy sources

Proactive detection measures
Passive detection methods take longer to bring fraud to attention. Internal audits, management reviews, whistleblower hotlines and effective employee monitoring mechanisms are vital.

Effective and fair investigations of misconduct
In situations such as the pandemic, there can be a tendency to postpone investigations of allegations of misconduct due to other competing priorities and resource constraints or even to take no action. Early triage of all allegations is essential to determine what if any investigation action to take. Only competent and objective investigators should be assigned to make the necessary enquiries, and procedural fairness must be accorded to all parties. It is also important that the investigations are substantively fair (based on objectively ascertainable facts) and would appear so to any reasonable observer.

Start promoting ethical & safe workplaces

COVID-19 pandemic has not only changed the incidence of organisational misconduct but has also impacted the Fair Work Commission's process of decision making when handing down judgments. as well as their approach to unfair dismissal. There has already been at least one occasion this year where the FWC has delivered a significant message to an employer that the industrial relation landscape has changed as a result of the pandemic.

It's safe to say that COVID-19 has not only changed the work environment but the whole framework of organisational operation in which we sit. And this is not something that will end when 2020 does.

Implementing better internal controls, creating an ethical culture and a supportive organisation will be especially important for reducing misconduct and improving business outcomes well into the future.

Centium has over 30 years' experience working with private and public organisations in investigating ethical conduct issues and assessing or implementing new frameworks to effectively manage and mitigate risks. Click here to see our range of services. Click here to talk to us about how we can help.

About the Author
Peter Mulhall is Centium's Director of Ethical Conduct and Investigations. He is a former government regulator, people and culture director, mediator and lecturer in human resources management. He has been conducting and managing investigations into high profile and sensitive matters for the last 25 years.

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