Early Warning Signs Managers Should Not Ignore

Most internal fraudsters do not come out of nowhere. In data cited from the Association of Certified Fraud Examiners, 91% of fraud cases involved at least one observable behavioural red flag, and in 57% there were two or more. The same source estimates internal fraud costs the average organisation around 5% of annual revenue. That is not a marginal loss; it is a systemic risk. Yet the same research and commentary also caution that “covert” behaviour – holding information tightly, withdrawing, closing office doors – can be equally consistent with introversion, privacy or cultural norms. This distinction matters. When a line manager says “something feels off”, HR is often their first port of call – but many are left to choose between doing nothing, or over‑interpreting ambiguous signals, with little structured guidance in between.

When ‘something feels off’ is a governance issue, not a gut feeling

In most organisations, the first person to notice early warning signs is a frontline manager: a team member stops sharing work-in-progress, insists on handling tasks alone, or becomes defensive about scrutiny. One low‑reliability source describes this as “covert behaviour” and notes it is often an early warning sign of misconduct. Yet the same source stresses that such behaviour “does not necessarily indicate that something is wrong” and may simply reflect a private personality. It explicitly warns: do not jump to conclusions about people you do not know. The complication is obvious. If HR frames red flags purely as a matter of “managerial instinct”, cognitive biases and fear of being unfair can paralyse action. If, instead, HR treats weak signals as conduct‑risk data points, there is space for proportionate, evidence‑based responses that protect both the business and the individual.

Managers are already juggling performance, wellbeing and DEI expectations. Adding “fraud sentry” to that list without precision is unfair. The ACFE‑linked statistics show that behavioural red flags are common and financially material, but they do not tell a manager what to do with a single awkward interaction, a closed laptop, or a sudden preference for working late. Here, HR’s role is to change the unit of analysis. Rather than asking “Is this person a risk?”, the question becomes “What pattern, over what timeframe, would justify structured concern?” Some organisations now treat early warning signs less as personality judgements and more as prompts for documentation and consultation. This is where a mental fitness lens helps. Platforms such as Leafyard, rooted in behavioural science and habit‑formation logic, show how small, repeated observations can be turned into constructive action rather than quiet anxiety.

From suspicion to structured response: what HR should standardise

A practical way forward is to give managers a simple, standard framework: notice, neutralise bias, escalate. Notice begins with permission. HR can explicitly connect conduct risk to day‑to‑day behaviour by sharing the ACFE‑derived evidence: most internal fraud is preceded by multiple observable flags and costs about 5% of revenue. That legitimises paying attention when patterns emerge. To support this, managers need tools that make observation manageable. Leafyard’s mental fitness framing is instructive here: its microlearning and guided video coaching break complex skills into small, repeatable steps. HR can mirror this by offering short, scenario‑based learning on early warning signs, so managers learn to log what they see – time‑stamped, factual, free of labels – rather than relying on hazy recollection when a crisis hits.

Neutralising bias is the second, often missing, step. The same commentary that links covert behaviour to early misconduct also insists it “does not necessarily indicate that something is wrong” and might simply describe a private person. That is a DEI issue as much as a risk issue. Cultural norms, neurodiversity and previous experiences with discrimination all shape how “openness” shows up at work. HR can require that before any escalation, managers review their notes against a short bias checklist: have I confused unfamiliar style with risk? Am I reacting to one event, or a pattern? Leafyard’s structured journalling offers a useful parallel: it prompts individuals to separate events from interpretations over time. A similar reflective structure for managers can reduce snap judgements while still respecting genuine concern. Fairness and vigilance can coexist – but only if they are both designed in.

Escalation is where governance either works or fails. Too often, escalation pathways are informal: a quiet word with HR, a side conversation with another manager. That informality breeds inconsistency and, sometimes, perceived targeting. HR should define explicit thresholds for escalation based on observable patterns: frequency, duration and impact. Documentation should focus on behaviours (“refused peer review on three consecutive high‑value transactions”) rather than character (“secretive”). This is also where intelligent systems can help. Leafyard’s behavioural analytics and board‑ready reports show how wellbeing data can be translated into pounds‑and‑pence ROI without exposing individuals. A similar analytical mindset can be applied to conduct data: aggregated patterns of late approvals, policy overrides or access anomalies can flag hotspots for HR attention, reducing reliance on individual suspicion and supporting more objective decisions.

There is a wellbeing dimension here too. Managers asked to hold unspoken suspicions carry their own stress load, which can distort judgement. A preventative, mental‑fitness approach – using multi‑month journeys and five‑day experiments, as Leafyard does – helps managers build resilience before they are tested by a potential misconduct case. Evidence from organisations using Leafyard shows that when mental fitness is treated as a long‑term, trainable skill rather than a crisis response, leaders are better able to stay calm, document clearly and escalate proportionately. Training such as Mental Health First Responder programmes, which explicitly teach people to spot early warning signs and offer safe first‑line support, shows what good looks like: clear scope, clear limits, and clear hand‑off to professional help. Conduct risk needs the same architecture. The goal is not to turn every manager into an investigator, but to make early, structured escalation a normal part of leading a team. When HR provides that disciplined framework, “something feels off” stops being a private worry and becomes a shared, governable signal – one that protects both organisational integrity and individual dignity.