Five common behaviors that may be red flags of fraudsters. Lindquist works with businesses to understand fraud and embezzlement.

Five Red Flags of Fraud

We’ve all seen the newscasts of a neighbor being interviewed after someone is arrested for building bombs in his garage.  “Gee, he was such a quiet guy, kept to himself mostly, I just can’t believe it ...” 

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Forensic

Often, when an embezzler is caught stealing and news of the scandal makes its way around the office and community, coworkers, friends, neighbors and even immediate family will show genuine surprise and disbelief that this person could, or would, ever do such a thing.  The truth is, however, there were signs that people had seen, but those suspicions were either dismissed as having another “logical” explanation, or they were just ignored, because observers didn’t want to know what was happening.

To accentuate this point from a forensic accounting and fraud standpoint, I am addressing five common circumstances or behaviors that may be red flags of fraudsters:

  1. They never take vacation – Isn’t that because they love working so much?  Sorry, but recurring fraud is all about control and keeping the plates spinning on the poles without everything crashing down.  I’ve known of embezzlers returning to work the next day after major surgery against doctor’s advice.  Why?  Because they have to be there to keep the fraud train moving forward and intercept or defuse anything that might draw suspicion in their absence.

  2. They are experiencing financial hardships – A spouse loses his job, a divorce occurs or unexpected medical bills are piling up—at times when pressures are mounting and there seems to be no way out, desperate times may call for desperate measures.

  3. They may have addiction issues – When addictions enter the equation, financial situations will get worse before they get better.  Like the majority of all frauds, addictions start small but only escalate over time, as does the money needed to support those addictions. All addictions are not easily identified and while most addictions are painstakingly concealed due to guilt, embarrassment or taboos, people still love talking about another weekend in Vegas, the VIP treatment and all the comps they get, don’t they?  

  4. They enjoy a champagne lifestyle on a beer budget – People steal not only to support habits or addictions, but lifestyles that they desire as well.  New cars, new jewelry, designer clothes, dining out every night … don’t we both make the same salary?

  5. They are resistant to change – If someone new takes over responsibility in one of the accounting roles, another gets crossed-trained, or new procedures are proposed, an employee stealing will always resist changing policies or internal controls.  Change equals a threat to ending or identifying the theft.  Ongoing frauds continue to succeed because weaknesses exist in the system of controls that allow them to be perpetrated and go undetected.  Fraudsters will always fight new implementations that pose any threat in ending or uncovering their crime.

Of course, there may be legitimate reasons or answers for the signs and behaviors above; they do not in and of themselves prove that fraud is occurring, but they do represent the actions and patterns most often seen when an employee is committing theft within an organization.  They are warning signs, and the sooner they can be identified and addressed, the better.  Pressure/motive is something to always be aware of, since it is one point on the ‘Fraud Triangle’ that must be present in order for fraud to occur. 

By: Rich Gordon, Director of Forensic and Valuation Services

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Forensic