An inside job

  • 26 May 2021
  • Blog | Managing People | Financial Crime Prevention | Leadership & Strategy | Blog

The financial services sector is among the most highly-regulated and risk-conscious in the corporate world – and with good reason. But while attention is rightly focused on mitigating the risks to firms from external hostile actors, efforts to dig deeper into the propensity for misconduct and criminal behaviour within these firms are building a better understanding of how to avoid the ‘inside job’. 

There’s no doubting the 24/7 challenge that exists in protecting large firms from threats to their integrity due to cybercrime and fraudulent activity. That challenge becomes more complicated, however, when assessing and mitigating those risks from within. 

Using HR best practice to set acceptable norms, workplace expectations, and appropriate disciplinary systems are all very well in bringing the workforce into line – but how do you maintain the morale and loyalty of your employees across multiple divisions, departments and locations while putting tools in place to root out those likely to cause significant harm, in a preventative manner? 

Many standard psychometric tests are available in the market for companies to turn to in building a picture of the employees’ mindset. There’s a growing awareness, however, that the parameters are either too limited, or that they are framed too heavily in terms of general workplace conduct and who is more or less likely to perform well under certain circumstances. 

Qualitative behavioural analysis is therefore where the hard yards need to be made to accurately pinpoint those that could cause real criminal danger to the team. Regulated sectors such as banking are expected to operate on the basis that their staff are (as far as possible) beyond reproach. Yet senior stakeholders also need to distinguish between those who fall into the category of opportunists whose misconduct can be dealt with via the usual HR procedures, and those whose fundamental behavioural traits have hardwired them with a propensity to commit significant fraud against the business. 

Throw a coronavirus pandemic into the mix, and there is a whole new set of risk variables to confront, as employees retreat to the privacy and comfort of their homes to carry out their roles – whether legally or illegally. 

Philip Corr, a Professor of Psychology at City, University in London, has been developing models of behavioural science in the workplace that have a significantly higher likelihood of pinpointing the employee type who can commit serious misconduct or fraud. His take is that we cannot afford to view employees simply as an homogenous group that does (or does not) fall in line with a company’s culture and expectations. 

“We all differ in our systematic ways of thinking, feeling and behaving,” he explains. “And these differences have important real-world consequences – personality is a crucial psychological domain when it comes to the increased likelihood of dishonesty, misconduct and even outright fraud.” 

Professor Corr uses the Fraud Diamond theory, among other models, to demonstrate four key factors that may set the conditions for employee fraud to occur. The incentive is typically one of financial gain but could also relate to something they need to prove to themselves.  The opportunity may be there thanks to their seniority and access to sensitive information. The person then rationalises the act as financially insignificant to a company that might not care about them anyway; and the fact that they have the capability to commit the fraud shows that they have the intelligence required to take advantage when the situation presents itself. 

While companies have a significant job on their hands to mitigate such high-stakes internal risks, the good news is that Professor Corr’s research already forms the basis for real-world corporate personality tests – something which firms are already taking up in the fight against those who would do them harm. 

More information on his research can be found here

Read more about the fraud landscape on pages 13-23 of the Winter 2021 issue of Chartered Banker magazine.