Why might high employee turnover be a red flag for potential fraud?

High employee turnover can be a significant red flag for potential fraud for several interrelated reasons.

First, a high turnover rate often signals a poorly managed company, which can create an environment where oversight and control are compromised. In such organizations, processes may not be consistently followed, and the lack of strong leadership can lead to exploitation by individuals who may feel they can act without scrutiny.

Fraudsters may exploit gaps in training as new employees are frequently brought in. New hires typically require time to acclimate to company policies and procedures, during which they might not fully understand their responsibilities or the internal controls in place. This lack of familiarity can lead to oversight and increase vulnerability to fraudulent activities.

Additionally, employees who perceive a transient work environment often feel less loyalty to the organization. This diminished sense of belonging can contribute to a willingness to engage in dishonest behavior, as they may rationalize that their actions won't have long-term consequences for a company they do not perceive as worth their commitment.

Each of these factors—poor management, training gaps, and reduced employee loyalty—collectively contribute to an elevated risk of fraud, making high employee turnover a critical indicator to assess in the context of a company's overall risk management strategy.