Can You Spot a Fraud Perpetrator?

A recent study provides an extensive look at occupational fraud – its cost, mitigating factors, and the best ways to detect and prevent it. Perhaps one of the most interesting parts of the study, however, is a section on the behavioral characteristics of those who commit fraud.

So, do you think you would know a fraudster in your midst if you saw him or her? Probably not right away, though there would likely be a few clues. According to the ACFE’s report:

It is very common for people who are engaged in an occupational fraud scheme to display certain behavioral traits or characteristics associated with fraudulent conduct. In 92% of the cases in our study the perpetrator exhibited at least one of these behavioral red flags, and in 57% of cases multiple red flags were observed before the fraud was detected. Understanding how these behavioral clues are linked to fraudulent conduct can help improve the chances of detecting occupational fraud early and minimizing fraud losses.

The red flags referred to above are many, but a few stand out above the rest. Let’s look at some of the leading indicators that someone might be involved in fraudulent behavior.

Living Beyond Means. That person in an entry level position just drove up to the office in their new Corvette, or is showing you pictures of a luxurious new home they just purchased? There could be perfectly reasonable explanations for such acquisitions, but they tend to raise eyebrows.

Financial Difficulties. Are creditors calling the office? Does the co-worker complain often about coming up short on bills or generally needing more money? Financial need is one of the legs of the Fraud Triangle. A person in financial stress might be more apt to commit fraud.

Unusually Close Association With Vendor/Customer. We all build relationships through our work connections. However, if an individual seems too chummy with a particular vendor or customer, and appears to put their interests above those of the company, it can raise suspicious of fraud.

Wheeler-Dealer Attitude. We all know someone like this … they talk a great game and will do almost anything to make a deal. Part of that comes with being a good salesperson, within reason. But if an individual is too caught up in such an attitude, they might stretch to the rules to get what they want.

Control Issues/Unwillingness to Share Duties. Someone who is committing fraud will be very careful to control their “turf,” and try to decrease the chances they will be caught. They will be resistant to sharing job duties, as this increases the likelihood of detection.

Divorce/Family Problems. Someone who is committed fraud is likely feeling some stress. Deception is not always easy, and this stress can bleed over into marriage and family life. Someone embroiled in personal problems might have hidden problems at work, too.

Irritability, Suspiciousness or Defensiveness. As noted above, the stress of hiding a fraud will affect behavior. A person may become paranoid, or they might rationalize their behavior through a feeling of being treated unfairly at work. Which in turn causes them to lash out.

To see the full list of behaviors, check out the report – but also keep in mind: no single one of these behaviors means a person is committing fraud. Nor does even a group of them together mean that someone is breaking the law. It is the totality of circumstances that determines if fraud is taking place.

Knowing these behaviors simply increases the ability to be on guard and watchful for behaviors that might indicate a possibility of fraud.