Beware of Behavioral Red Flags That May Indicate Fraud


For most business owners, the idea that a trusted employee would steal from the company is almost unthinkable. After all, many employees have been with the company for years, and some may even be family members.

But the truth is that occupational fraud is a serious threat to businesses of all sizes. According to the 2016 Association of Certified Fraud Examiners (ACFE) Report to the Nations on Occupational Fraud and Abuse, fraud perpetrators tend to display certain behavioral warning signs. These are red flags that all employees should be looking out for to help reduce fraud.

In fact, the ACFE says that at least one red flag was exhibited in 91 percent of the fraud cases they analyzed in the report. And in 57 percent of cases, multiple red flags were observed before the fraud was detected.

Top Warning Signs

Here are the top five red flags identified by the ACFE:

  1. Living beyond means: As much as they know they should be careful and hide their ill-gotten gains, many fraudsters can’t help but indulge themselves in lavish lifestyles.

    In almost 44 percent of cases reported, fraudsters lived above their means. This includes taking extravagant vacations, living in luxurious homes, driving expensive vehicles, and generally spending more than would be expected based on their normal salaries. 

  2. Financial difficulties: Personal financial difficulties often lead to desperate choices. Whether caused by unexpected bills, bad investments or litigation, financial difficulties often provide the incentive a perpetrator needs to justify his or her criminal actions.

  3. Unusually close to vendors or customers: The potential of fraud is one reason companies don’t want employees doing business with their relatives or friends. It’s often just too tempting — and easy — to create false invoices or shadow accounts, or overcharge and split the difference. 

  4. “Wheeler-dealer” attitude: Everyone has encountered this type of person: someone whose demeanor is characterized by shrewd, unscrupulous behavior. These operators often feel that they’re working the system or outsmarting company executives by stealing right under their noses. 

  5. Control issues: Employees with a high need for control might be hiding something. For example, be wary of an employee who sets himself or herself up as “irreplaceable” or is unwilling to share duties. This is one reason many companies force employees to take vacations — an extended absence sometimes reveals a fraud scheme. 

Who Are Fraudsters?

According to the ACFE, men account for nearly one-third (69 percent) of all fraud perpetrators. Male fraudsters also generally cause larger fraud losses. 

A little over half (55 percent) of all fraudsters are between the ages of 31 and 45, and nearly half (47 percent) have a college degree. Fraud losses generally rise with age and education level. Almost half of the fraud cases in the ACFE report involve collusion, with multiple perpetrators working together to commit fraud. 

Interestingly, just 5.2 percent of fraudsters had been previously convicted of a fraud-related offense. And 83 percent had never been terminated or punished for any form of fraud-related conduct prior to the crimes in the ACFE study.

You Are Not Immune

No business is immune to fraud, so pay close attention to behaviors like these that could be red flags for fraud. Also talk with your financial advisors about how to strengthen your internal controls to help further detect and deter fraud. 

Our accountants have seen it all. We can help you decrease the likelihood of fraud in your company — visit our litigation support team here.


Related Posts

Saltmarsh CPA - Who We Are

Who We Are

Our professionals have the depth of experience, industry knowledge and worldwide resources to help you reach your goals. We put your success above all else as your trusted advisor.

Saltmarsh CPA - What We Do

What We Do

Saltmarsh offers a full range of professional services to accommodate your needs – from tax planning and accounting services to information technology and employee benefits consulting.

Saltmarsh CPA - Who We Serve

Who We Serve

Saltmarsh serves individuals and businesses. Personal attention, access to the right professionals and rapid response is how we serve.

Contact Us

(850) 243-6713

(407) 203-8990

(727) 821-9200

(615) 661-0885

(850) 435-8300

(813) 287-1111
(800) 477-7458

Stay Connected

Sign up to receive updates and important information from Saltmarsh!