When Should You Start Looking for Fraud?

Kelly Todd

By Kelly Todd

December 4, 2013

Larger organizations are more likely to experience fraud by an employee’s misuse of influence in a business transaction in order to gain a direct or indirect benefit. Small organizations, however, typically fall victim to the rogue employee who directly steals the organization’s assets or misuses its resources.

Regardless of the type of scheme or size of the organization, many employees who defraud their employers either get themselves into a predicament or have personalities that are more prone to “cross the line” if given the opportunity. With that being said, there are common behavioral red flags that may be present and are indicative of unscrupulous behavior.

Life events and behavioral tendencies

Even honest employees can turn to fraud to alleviate personal life stressors. Remaining involved in office socialization and staying abreast of office murmurings can help identify some of these personal indicators of fraud:

  • Substance abuse, gambling habits and living beyond one’s means are the most common behavioral indicators of malfeasance.
  • Family instability like unsure employment (or spouse’s employment) and extraordinary medical expenses are all potential motivators to commit fraud.
  • Costly legal problems often create pressures that may lead an individual to desperate measures.
  • A cheating spouse who maintains an expensive affair might find himself or herself in a predicament to make up the shortfall.

Work attitudes

An employee’s personal financial woes can be a catalyst for fraud, but there are also common attitudinal characteristics among occupational fraudsters:

  • If a person displays a questionable code of ethics and is willing to engage in dishonest behavior in other aspects of their life, it will often follow that the same inclination exists at work. Do not ignore workplace “buzz.” Look for clues indicative of participation in unethical behavior.
  • Pay close attention to the employee who shows constant unhappiness with their job. Employees who feel unfairly treated can more easily rationalize their inappropriate actions.
  • Remain alert to employees who show tendencies to work around the system and who habitually try to find a way around established policies and procedures. These employees may have a propensity to attempt to “beat the system” for personal gain.
  • Dishonest employees are often reluctant to relinquish control, share information or swap tasks with colleagues. To conceal their improper activity, they may go to great lengths to ensure that sensitive documents or data are never out of view.
  • It can be tempting for employers to overlook the employee that comes in early, stays late and generally seems “too good to be true.” An employee who looks for opportunities to be alone in the workplace could pose a problem. The same is true for an employee who never takes a vacation. Numerous frauds have been uncovered when employees who, after extended periods of perfect attendance, suddenly have an unexpected illness and are unable to prevent incriminating evidence from coming to light.

We never know when an honest person will begin to commit fraud, but we need to be aware and watch for the telltale signs. If we look, we may find a spouse or child on drugs, in the hospital or even in prison. Any of these reasons, and many others, may indicate an employee’s need to raise cash.

Note: the existence of one or two indicators does not necessarily mean that an employee is stealing – but a red flag should always prompt a closer look.