Watch Out for the Red Flags of Fraud

In a time when businesses are struggling financially from the persistent COVID-19 pandemic, many continue to find new paths to profitability when managing government orders. For some this has meant a transition to a remote work environment while others have had to make more significant changes to operating hours, location layout, and employee/customer safety practices. Although the impact varies, it is no secret that the pandemic is exacting a toll on many companies. It is for this reason that more than ever, management’s focus is firmly set on the goal of driving revenue. Unfortunately, this also means less attention is being paid to issues like fraud prevention. While understandable, the risks of fraud during the pandemic increase as employees, and other would-be fraudsters, struggle economically. According to the ACFE’s 2020 Global Study on Occupational Fraud & Abuse, there are warning signs and other red flags management can monitor to help prevent fraud. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key points below.

About the Study

The study findings are based on the results of a global fraud survey, conducted by the Association of Certified Fraud Examiners (ACFE) from July – September. Participants were asked to provide detailed information on the largest fraud case they had investigated assuming it met certain criteria. There were 77 questions asked about the cases, perpetrators, victim organizations, fraud methods, and fraud trends in general. There was a total of 7,516 total survey responses of which 2,504 were deemed usable.

The Red Flags of Fraud

• Common Warning Signs – The study found there are several general warnings signs that an individual, or group of individuals, is likely committing fraud. According to the study, 42% of cases reported individuals living beyond their means as the most common red flag, 26% financial difficulties, 19% had an unusually close association with a vendor or customer, 15% had control issues and were unwilling to share duties, 13% exhibited irritability or defensiveness, 13% had a “wheeler-dealer” attitude and 12% has divorce or other family problems.
• Job Performance Warning Signs– It was also found that when an employee is engaging in fraud there is an adverse change in job performance. It was found that in 13% of cases of fraud poor performance evaluations were given, 13% had excessive absenteeism, 12% had a fear of job loss, 12% were excessively tardy and 10% had recently been denied a raise or promotion.
• Work Duty Warning Signs – In 52% of the cases included in the study it was found the fraudster exhibited red flags related to work duties. It was determined that in 19% of cases there was an unusually close association with vendors/customers, 15% had significant control issues, 8% complained about inadequate pay, 7% refused to take vacations, 7% had excessive pressure from within the organization and 6% had past employment problems.
• Personal Life Warning Signs – In 63% of the cases included in the study it was found the fraudster exhibited red flags with their personal life. It was determined that 42% of cases involved a fraudster living beyond their means, 26% were experiencing financial difficulties, 12% had divorce or family problems, 9% struggled with addiction issues, 5% had past legal problems and 4% had instability in life circumstances.

Contact Us

Understanding the common red flags of fraud is helpful to identifying when conditions are ripe for an individual to commit illegal behavior. Although individual signs alone are not indicative that fraud is occurring, they do serve as guideposts on where further investigation may be helpful. If you have questions about the information shared above or suspect fraud is occurring in your business, Wilson Lewis can help. For additional information call us at 770-476-1104 or click here to contact us. We look forward to speaking with you soon.