The Warning Signs of Fraud

Fraud is an unwelcome visitor that many business owners and managers don’t expect to happen in their business. After all, most companies offer competitive salaries and benefits and invest in employees to refine skills, enhance education and help grow their careers. Keeping employees engaged and happy is one of the essential variables to a successful company. Despite these efforts, some employees engage in and commit dishonest acts designed to steal from the company and benefit themselves. Although the initial reaction to fraud by many is disbelief, the unfortunate reality is that it happens more than most would like to admit. According to the 2018 ACFE Global Study on Fraud and Abuse, there are common trends, behaviors and warning signs common to many fraud cases. Becoming familiar with this information can help companies with fraud awareness and aids in providing insight into the most effective protective measures. To help clients, prospects and others understand the potential impact of fraud on their company, Wilson Lewis has provided a summary of key points below.

About the Survey

The 2018 report is based on information collected by the Association of Certified Fraud Examiners (ACFE) through an online survey which was conducted between July 2017 and October 2017. Participants were asked to provide information on the largest fraud case they investigated that met four key criteria. The case must have involved the following:

• Occupational fraud
• An investigation occurring between January 2016 and time of survey
• The investigation must be complete
• Surveyors must be certain the perpetrator/s were identified.

Questions focused on the case, perpetrator/s, victims and methods of fraud used in the crime. There were 7,232 global responses received but only 2,690 were used in the report.

Key Fraud Warning Signs

• Behavioral Red Flags – While not everyone who displays certain behaviors is going to commit fraud the study identified the six most common behaviors that were common among fraud cases. It’s interesting to note these behaviors have been consistently identified in the ACFE report since 2008. The behaviors include: individuals living beyond their means; experiencing financial difficulties; someone with an unusually close relationship with a vendor/customer; ongoing divorce or family problems; and someone displaying a “wheeler dealer” or slick attitude. What makes this information more interesting is that it was reported that in 85% of cases the fraudster reported exhibiting at least one of these behaviors and in 50% of cases they displayed two or more.
• Red Flags by Role – The type of red flag behavior changed based on the person’s role in the company – owners versus employees. In the reported cases, owners displayed unusually close association with vendor/customer 24% of the time, control issues and unwillingness to share 21% of the time and a “wheeler dealer” attitude 22% of the time. In the reported cases, 35% of cases with employees were motivated by financial difficulties and 11% by inadequate pay or benefits.
• Red Flags by Gender – The study also examined how gender plays a role in the red flag behavior displayed. 24% of males had an unusually close association with vendors/customers, 24% were experiencing financial difficulties and 16% displayed a “wheeler dealer” attitude. 39% of females were experiencing financial difficulties, 20% were experiencing ongoing divorce or family issues and 11% had an unusually close association with vendors/customers.
• Human Resource Red Flags – In some cases there were negative events surrounding a person’s employment that caused financial stress or resentment towards the company. Circumstances of this nature often impact a person’s decision to commit fraud. According to the study, 39% of fraudsters had experienced HR red flags prior to or during the fraudulent activity. This included negative performance evaluations (14% of cases), fear of job loss (10% of cases) and reduction in benefits (4% of cases).

Contact Us

While no one wants to believe that fraud can happen within their company the sad reality is that it can and does. It’s important to be aware of the behavioral and situational red flags that can compel someone to take these actions. If you have questions about fraud or would like to discuss developing and implementing a fraud prevention program for your company, Wilson Lewis can help. For additional information please call us at 770-476-1104 or click here to contact us. We look forward to speaking with you soon.