Recognizing the Red Flags of Fraud


People who steal from their employers often exhibit telltale characteristics that could tip off management that they’re likely to commit fraud. These characteristics include attitudes on the job, daily work habits, and personal lifestyle issues. A few of these traits alone do not indicate fraud, but the potential for fraud to occur rises with more of the characteristics in an employee.

Often when a victim of occupational fraud reflects on the work history and personal life of the perpetrator, a light bulb comes on. The perpetrator exhibited many of these characteristics, but those things were overlooked in the normal course of business. Awareness of these characteristics can help reduce internal fraud.

A lack of personal ethics is one of the most common red flags of fraud. Those employees who exhibit low moral character in their personal lives are also likely to do so at work. Someone who is willing to cheat on small matters might be inclined to cheat on more significant things if the opportunity arises.

Another indicator of the potential for fraud is a persistent negative attitude. This can include dissatisfaction with the job and company, as well as resentment of peers and supervisors. Employees who feel underpaid, underutilized, or underappreciated run a higher risk of committing fraud. Those who don’t feel fairly treated can more easily convince themselves that they are justified in stealing from the company to even the score.

Employees who exhibit sudden or unusual changes in behavior and work habits should be eyed carefully. While such a change could be an innocent result of something happening at home, other times it is a red flag of fraud, signaling an attempt to conceal dishonest activities.

Work Habits
Some of the most common suspicious work habits include arriving before and leaving after everyone else. Employees who attempt to be alone at work may be creating an opportunity to access data without supervision.

To the untrained eye, this behavior signals a dedicated employee who is getting more work done. To the person with a healthy level of professional skepticism, this might indicate someone trying to conceal her or his activities.

An unusually dedicated employee may attempt to do everything alone or volunteer for additional responsibilities. This person is possessive about her or his work duties and documents. While this could be an ambitious worker, it could also signal an employee dedicated to scheming and devising ways to beat the system.

On the flip side is the employee who is constantly fighting the rules and regulations. This employee frequently objects to following company policies and procedures, is constantly bucking the system, and refuses to follow the rules. Changes in procedures may also be unusually disturbing to this employee, as the changes may impact a fraud scheme in progress.

Personal Lifestyle
A number of factors outside one’s work life can signal problems of which employers need to be aware. Criminal backgrounds are naturally problematic, and anyone convicted of a financial-related crime might not be the best employee for a finance position.

Personal financial problems have the potential to spill over into the workplace, especially if the employee sees an opportunity for theft. Companies need to be aware of bankruptcy filings, a poor credit history, and high personal debts.

It’s impossible to monitor all the personal financial dealings of employees, but it is prudent to pay attention when relevant information is discovered.

Employees who have lifestyles that exceed their known means should draw the attention of management. Expensive cars and flashy jewelry owned by people with modest salaries should raise questions. Is the employee quickly running up debt, which might lead to theft? Or is the employee committing theft in order to directly fund the lifestyle?

Habits such as gambling, alcohol, and drugs can also indicate the potential for fraud. These habits are expensive and can lead to a host of other problems, from financial pressures to criminal records. Dishonesty often plays a part in addictions, and that doesn’t bode well for employers.

Instability in an employee’s personal life can spill over into the workplace.

Frequent changes in residence, romantic relationships, and family situations are problematic because they cause financial stress. Instability at home can negatively impact job performance, and an employee might turn to fraud to cover up poor performance.

Big Picture

It’s important to remember that a few of these characteristics by themselves don’t mean that an employee is stealing from the company. However, a convergence of several of these risk factors and red flags signals a problem.

Identification of red flags of fraud is the first step in stopping a theft in progress. The red flags themselves may not be cause for an employer to take action against an employee. They are, however, cause for increased scrutiny and possibly further investigation

Leave a Reply