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Don't Wait Too Late to See the Red Flags of Fraud

3/30/16

There are definite red flags of fraudulent behavior.

Unfortunately, it is often after the crime has been committed that these warning signs become apparent.

Financial pressure is the biggest motivator of financial fraud by employees, according to the 2014 report of the Association of Certified Fraud Examiners.

In 92 percent of cases reported to fraud examiners, at least one behavioral red flag was displayed, and in many cases, several were observed.

What are the red flags of employee fraud? Regardless of the year of the study and different groups of perpetrators studied, the behavior displayed remains very consistent.

Red Flags Percent of Cases
1. Living beyond means 43.8 %
2. Financial difficulties 33.0 %
3. Unusually close relationship with vendor/customer 21.8 %
4. Control issues, unwillingness to share duties 21.1 %
5. Wheeler-dealer attitude 18.4 %
6. Divorce/family problems 16.8 %
7. Irritability, suspiciousness, defensiveness 15.0 %
8. Addiction problems 11.6 %
9. Complaints about inadequate pay 9.4 %
10. Past employment-related problems 8.9 %
11. Refusal to take vacations 8.6 %
12. Excessive pressure from within organization 8.4 %
14. Complaints about lack of authority 6.5 %
15. Excessive family/peer pressure for success 6.0 %
16. Instability in life circumstances 5.9 %
17. Past legal problems 5.6 %

Based on the position and level of authority within the company, owners and executives committing fraud are more likely to exhibit a wheeler-dealer attitude, have control issues and an unwillingness to share duties, and feel excessive pressure from within the organization.

Non-managerial employees are much less likely to exhibit these red flags, but are more likely to be motivated by financial difficulties, divorce and family problems, unstable life circumstances and complaints about inadequate pay.

Managers committing fraud are more likely than others to have an unusually close relationship with a vendor or customer, refuse to take vacations, complain about lack of authority and have addiction problems.

The No. 1 red flag for all groups was living beyond their means.