Signs which point to the possibility that a violation of compliance or integrity may occur are called red flags. It is important for employees, and leaders in particular, to recognise them, because in this way they can prevent harmful practices or respond to or reduce the consequences of harmful practices that are already taking place in a timely manner. Red flags relevant for the individual organization will be dependent on particular product lines, business channels, geographic and supply chain considerations, among others. Companies are urged to develop and frequently revisit common red flags that are relevant to their businesses and products. Leadership needs to ensure that employees on the front lines including the sales force and order intake employees, among others are included in the development process and continuously educated on spotting red flags and knowing what to do when identifying them.

Below are some examples of characteristic red flags developed by internationally recognized institutions and proven in practice. They should be reviewed as guidance, but each company should develop red flag indicators that are specific to their business.

“The first dishonest act is the most important one to prevent.”
– Dan Ariely

“Good leadership based on ethical principles will always bring results in the sense of the company’s success.”
– Boštjan Gorjup

Indicators of bribery and other corrupt practices:

[Source: The Best Egmont Case Award Publication, 28 BECA Publication, p. 10] 

*Note: Similar indicators may also be signs of money laundering (or fraud), as money intended for or received as a bribe must be made legitimate.

  • unusual cash withdrawals and payments, or payments of large amounts with cash;
  • buying expensive items with cash;
  • pressure exerted for payments to be made urgently or ahead of schedule;
  • using offshore companies, politically exposed persons;

  • payments being made through another country, for example; goods or services supplied to country  ‘A’, but payment made, usually to a shell company, in country ‘B’;
  • unusually high commission paid to a certain intermediary; payment may be distributed between two or more accounts of the same intermediary, usually in different jurisdictions;

  • employee who never takes time off even if ill or on holiday, and insists on dealing with specific customers themselves (this is characteristic of the financial sector);
  • invoices being authorized in excess of the contractual agreement, without reasonable cause;
  • payment of, or making funds available for high value expenses or school fees (or similar) on behalf of others.

Experience shows that also the following red flags occur in the case of corruption:

  • close ties of sales personnel or persons with high powers with state or local officials;
  • personal relationships (friends and family) between the supply personnel or persons with high powers and suppliers, intermediaries, agents, etc., and tying the company’s operations exclusively to these suppliers;
  • high dependence on intermediaries in high-risk countries who have close ties with foreign public officials (for example, to obtain various permits, expand business, etc.);
  • a sudden increase in expenses for counselling and marketing services, market and similar studies, legal services etc., without a reasonable cause (sham contracts);
  • excessive or frequent exceeding of limits, budget or powers, counterfeiting of documents (including antedating).

Various forms of white-collar crime often intertwine in practice. Corruption and fraud is often accompanied by money laundering, conflict of interest (network of personal connections), abuse of power or office, extortion, counterfeiting of documents, etc.

“The higher an individual is on the social ladder, the greater the weight of their attitude to the moral and ethical norms. And managers are very high on these ladders. The position they hold provides them with power and influence because their decisions affect the position of the company they lead, and of all who are connected with it, including owners, employees, clients and suppliers. The indirect circle is, of course, much wider. They maintain and improve their reputation not only with the business results they achieve, but also with their ethical stance, which is an important insignia on their career path and, because they are public figures, in their private lives.”
– Vojko Čok

Indicators of deteriorating ethical culture and fraud, which may cause high financial and psychological losses, damage your reputation and destroy your brand:

  • unusual cost items; absence of invoices and other documents which prove or justify business expenses;
  • costs for items or services characteristic of personal use in official payment card slips;
  • a sudden, noticeable increase in the standard of living of an employee, which is disproportionate with their income;
  • signs of addiction or other financial distress in an employee…;
  • loss, disappearance of the company’s assets, a sudden increase in consumption of material, etc.;

  • poor organisational climate, spreading of negative rumours;
  • highly authoritative practices of a certain leader; absence of controls and audits;
  • isolation or punishing of persons who speak up about problems; creation of a hostile working environment;
  • absence of disciplinary measures for violations, concealment of information;
  • bad, immoral behaviour of a certain leader or employee, spreading of bad behaviour;

  • widespread practice of making departures from internal rules is widespread, systemic tolerance of minor violations (which start extending the boundary of the permissible and constantly lower the standard of acceptable conduct!);
  • crisis of leadership, strong financial and market pressures, major changes in organisation;
  • fragmenting the consumption of funds to multiple smaller amounts, which are just below the limits…;
  • an unexpectedly increased revenue item in a segment or in relation to a client…