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 latest report of the Association of Certified Fraud Examiners.
In 81 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
35.6 %
2. Financial difficulties
27.1 %
3. Unusually close relationship with vendor/customer
19.2 %
4. Control issues, unwillingness to share duties
18.2 %
5. Divorce/family problems
14.8 %
6. Wheeler-dealer attitude
14.8 %
7. Irritability, suspiciousness, defensiveness
12.6 %
8. Addiction problems
8.4 %
9. Past employment-related problems
8.1 %
10. Complaints about inadequate pay
7.9 %
11. Refusal to take vacations
6.5 %
12. Excessive pressure from within organization
6.5 %
13. Past legal problems
5.3 %
14. Complaints about lack of authority
4.8 %
15. Excessive family/peer pressure for success
4.7 %
16. Instability in life circumstances
4.1 %
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.
This article was originally posted on June 26, 2014 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.
Unfortunately, it is often after the crime has been committed that these warning signs become apparent.