Warning Signs – The Red Flags of Fraud

Over the past year, Atlanta businesses have endured new and unexpected financial, operational, and safety challenges. The COVID-19 pandemic created unpredictable conditions which forced many to make difficult expense-cutting decisions while seeking assistance from one of the many Small Business Administration (SBA) relief programs. Given these challenges, it is unthinkable that employees, customers, or vendors would be engaged in a fraud scheme draining precious funds so desperately needed. The sad reality is many companies were the victims of fraud and often without knowing it. An important component of a comprehensive fraud protection program is the ability to identify behavioral red flags. The ACFE 2020 Report to the Nations,  provides important insights into work life, personal life, and job performance red flags which are often present when illegal activities are perpetrated. To help clients, prospects, and others, Wilson Lewis has provided a summary of key insights uncovered in the report.

Report Methodology

The report is based on the results of the 2019 Global Fraud Survey conducted online open to Certified Fraud Examiners from July to September 2019. Respondents were required to submit detailed information on the perpetrator, victim organization, and the methods of fraud. The primary occupation of respondents included fraud investigators, internal auditors, finance professionals, law enforcement, ethics professionals, risk control, and IT forensic specialists. There were 7,516 total responses received but only 2,504 cases met all criteria to be included.

Key Report Findings

• Behavioral Red Flags – There are often common work or personal life behaviors that act as red flags that fraud may be occurring. It was found that in 45% of cases the fraudster was living beyond their means, 26% experiencing financial difficulties, 19% had an unusually close relationship with a vendor/customer, 15% were unwilling to share duties, 13% acted suspicious or defensive, 13% had “wheeler-dealer” attitudes and 12% were experiencing divorce or other family problems. It is interesting to note that 85% of fraudsters exhibited at least one of these behaviors while committing crimes.
• Work-Related Red Flags – Across reported cases, there were several work-related red flags that were exhibited while the fraud was occurring. According to the report, 19% had an unusually close relationship with a vendor/customer, 15% had control issues, 8% complained about inadequate pay, 7% refused to take vacations, 7% faced excessive pressure from within the organization, 6% had past employment issues and 5% complained about lack of authority.
• Personal Life Red Flags – Often times there is a combination of red flags exhibited beyond just work life but also from an employee’s personal life as well. It was discovered that 42% were living beyond their means, 26% faced financial difficulties, 12% divorce/family problems, 9% addiction problems, 6% social isolation, 5% past legal problems, 4% instability in life circumstances, and 4% faced excessive family/peer pressure for success. The analysis found that in 63% of cases, one or more of these red flags were exhibited while crimes were committed.
• Job Performance Changes – When engaged in fraud it is common for work performance to suffer while schemes are being perpetrated. The report found that 13% of fraudsters had recently received a poor performance evaluation, 13% excessive absenteeism, 12% fear of job loss, 12% excessive tardiness, and 10% were recently denied a promotion or raise.

Contact Us

While each fraud incident is unique, these red flags provide important clues to Atlanta business owners and management that conditions are favorable for illegal behavior to occur. This information can be used as part of a comprehensive fraud prevention strategy for your business. If you have questions about the report findings, have concerns about a potential fraud incident, or need assistance with a forensic investigation, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.