The Warning Signs of Fraud

Fraud is an ever-present threat that Atlanta businesses need to carefully guard against to ensure the organization does not lose thousands of dollars to bad actors. Although it can be difficult to believe a manager or employee would commit such activities, the unfortunate reality is that it happens more than most want to admit. To limit the potential for criminal activities, it is essential for organizations to implement anti-fraud controls and conduct periodic reviews to ensure maximum effectiveness. This is especially important when one considers the findings in the ACFE’s Occupational Fraud 2022: Report to the Nations. In nearly half of the analyzed cases, fraud occurred either because of the lack of internal controls or due to deceptive efforts to override existing preventative measures.

Establishing internal and other fraud controls is only one part of the equation. Management also needs to pay attention to the behavioral warnings signs that something illegal may be occurring. Since the average length of most fraud is 12 months or longer, it is likely that one, or more, of the behavioral red flags, will present. When an employee suddenly starts living beyond their means, faces financial difficulties, has a close relationship with a vendor, or exhibits control issues, it is often a bad sign. To help clients, prospects, and others, Wilson Lewis has provided a summary of key details below.

Key Fraud Warning Signs

• Top Behavioral Warning Signs – It was found that in 76% of reported cases, the fraudster exhibited one or more of the top behavioral warning signs. Outside of the ones listed above, it was found that 12% were irritable, suspicious, or defensive, 12% were bullying and intimidation, 11% experienced divorce or other family problems, and 10% had a wheeler-dealer attitude. Honorable mentions include social isolation, refusal to take vacations, past legal problems, excessive tardiness, and instability in life circumstances.
• C-Suite Red Flags – The behavioral red flags amongst executives and owners are different from those exhibited by traditional employees. This is often because the level of access and control is significantly higher for these individuals. It was found that in 23% of cases bullying or intimidation occurred, 18% had control issues, 17% had a wheeler-dealer attitude, 13% faced excessive pressure from within the organization, and 11% had past legal problems.
• Gender-Based Red Flags – There were also red flag behaviors that correlated to a perpetrator’s gender. For females the most common behavioral red flags included living beyond their means (47%), experiencing financial difficulties (34%), and recent divorce or family problems (17%). For males, the most common red flags included an unusually close association with vendors (23%), wheeler-dealer attitude (13%), and bullying or intimidation (13%).
• Common HR Issues – The study also investigated the most common HR issues experienced by fraudsters. It was found that 16% had a fear of job loss, 15% received poor performance evaluations, 12% denied a raise or promotion, 7% cut in benefits, 6% cut in compensation, 4% reduction in work hours, and 4% experienced a demotion. It was also found that in 50% of reported cases, fraudsters had experienced prior performance or work-related behavioral issues.
• COVID-19 Related Job Uncertainty – The study also wanted to uncover whether job uncertainty as a cause of fraud increased during the pandemic. It was found there was a relationship as the number of cases reporting fear of job loss, denied raises, cuts in benefits, cuts in pay, and involuntary reduction of hours as reasons for fraud all increased.  

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Ensuring an organization is protected from fraud is a complex process that involves formal prevention controls and reporting mechanisms. Concurrently, special attention should be paid to unusual behavioral activities as it may indicate something illegal is occurring. If you have questions about the information outlined above or need assistance implementing a fraud prevention program, 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.