Occupational fraud continues to cost businesses, some quite severely. In most cases, the perpetrators exhibit several common traits and behavior patterns. Be on the lookout for these red flags.
Occupational fraud continues to plague businesses, as it has for decades, even during and after the pandemic. The Association of Certified Fraud Examiners (ACFE) reported in its 2024 report to the Nations on Occupational Fraud and Abuse that U.S. organizations lose an estimated 5% of their annual revenues to fraud, from misuse of an organization’s assets to fraudulent financial reporting and beyond. This percentage has remained constant for the last several surveys. The report also outlined that the median loss per case was $145,000, with asset misappropriation schemes as the most common frauds. In most cases — 84%, according to the survey — the perpetrators exhibit certain personal characteristics and patterns of behavior.
Fraudsters’ common behavioral red flags
Management and co-workers may see warning signs of “fraudsters.” According to the ACFE reports, the two most common red flags include living beyond one’s means and financial difficulties. Other warning signs include:
Getting too close to vendors or customers
Control issues
Defensiveness
"Wheeler-dealer" attitude
Family problems
Addictions
Bullying or intimidation
The two most common red flags include living beyond one’s means and financial difficulties.
While all of these behavioral red flags can be clues to help detect fraud, none should be considered in isolation. If someone in your organization exhibits several behaviors on this list, extra attention may be warranted but keep in mind: simply displaying one or more behavioral red flags isn’t absolute proof the staff member is committing fraud.
Likewise, consider assessing segregation of duties (SOD) at your organization. SOD — an effective and successful strategy to increase transparency and reduce fraud risk — won’t only give you greater oversight of these warning signs but can dramatically improve the way your organization manages risk beyond fraud.
Segregation of duties is a significant step toward strategic risk management. Start with our interactive SOD matrix.
Learn more
Traits of a typical fraudster
In addition to observed behavioral red flags, the ACFE 2024 report also analyzed the traits of fraudsters. Those traits include:
Gender. 74% of U.S.-reported fraud cases were committed by males. And the median loss of frauds perpetrated by males is 58% higher than fraud committed by females. The difference may stem from males holding more management and executive-level positions, which provide a greater opportunity to commit larger-dollar frauds.
Age. The survey concluded that 69% of the reported frauds involved a perpetrator between the ages of 31 and 50. The correlation between age and the amount of the loss appears to be strong; median losses involving fraudsters over the age of 60 caused the highest median losses.
Education level. 67% of the reported frauds were committed by individuals who attended or graduated from college. The median loss was also larger among this group. Staff with a college degree absconded with a median amount of $180,000, more than twice that of fraudsters with no college education.
Tenure. While the study showed no strong correlation between the length of time an individual worked for an organization and when that staff member was likely to begin stealing from it, the study did conclude that longer-term staff tended to commit larger frauds in terms of median losses per incident. This makes sense because longer-term staff have gained knowledge over time of processes and controls of an organization, including any gaps.
Position. More than 78% of fraud is committed by staff and managers. While owners and executives commit a smaller fraction of fraud (just 19%), the median loss from these reported incidents was over eight times greater than that of fraud committed by staff.
No prior record. The study found that a large majority of reported fraud involved offenders with no prior criminal record. However, keep in mind this doesn’t mean it’s the fraudster’s first time committing this type of scheme. It’s possible they weren’t caught the first time, that their previous employer chose not to take the matter to the authorities, or the prosecutor decided not to bring charges against the individual.
Collusion is common
It’s easier to commit fraud when you have a partner to help you cover your tracks. More than half of the occupational fraud cases reported by the ACFE involved more than one perpetrator, which can make it harder to detect. SOD, while vital, can be rendered meaningless when people work together to override them. As internal controls go by the wayside when staff collude to perpetrate a scheme, median losses reported increased with each additional perpetrator.
Be alert: Don’t overlook suspicious behavior
Organizations both large and small face threats of loss related to occupational fraud, and all companies should remain aware of the behavioral red flags. Remember: the most effective fraud prevention programsincorporate knowing who and what to look for, always being on the lookout for telltale signs, digging deeper to gather the facts when fraudulent activity is suspected, and taking swift actionwhen fraud is detected.
Non-characteristic, sudden, abnormal deposit of checks, often electronically, followed by rapid withdrawal or transfer of funds. Examination of suspect checks reveals faded handwriting underneath darker handwriting, making the original writing appear overwritten.
Excessive control issues or unwillingness to share duties: A lack of transparency and reluctance to delegate can be red flags for fraudulent activity. Irritability, suspiciousness or defensiveness: Behavioral changes such as increased aggression or defensiveness can be a sign of underlying fraudulent behavior.
Developing and maintaining strong internal controls: Implement appropriate checks and balances, such as segregation of duties, regular independent audits, and proper approval processes.
Transactions that don't match a customer's typical or likely activity can indicate many fraud typologies. Examples include account takeover, stolen payment information, check kiting, scams, and public benefits fraud.
Management and co-workers may see warning signs of “fraudsters.” According to the ACFE reports, the two most common red flags include living beyond one's means and financial difficulties. Other warning signs include: Getting too close to vendors or customers.
False Information: One of the common warning signs of tenant fraud is the provision of false information by the tenant. This could include falsifying their income, employment status, or rental history. For instance, a tenant might provide a fake pay stub to show that they earn more than they actually do.
The number one best way to uncover fraud within your organization is through tips. This has been an ongoing trend over the past decade. In 2022, 42% of the cases studied by ACFE were discovered through tips – nearly three times as many cases as the next most common detection method.
Red flag indicators signal criminal activity. Companies need to establish policies and procedures to ensure their ability to detect and report red flags to respective authorities in a timely manner. The Financial Action Task Force (FATF) provides companies with guidelines on what can be considered a red flag.
To anticipate occupancy fraud, lenders should be on the lookout for appraisals that include expected rent payments, buyers who provide evidence of living “rent-free” in their residence, and very large down payments.
Fraud indicators related to false, inflated, or duplicate invoices include, but are not limited to: Missing or copied purchase order or receiving documentation for invoiced goods/services. Submission of other than original or verified invoices. Invoice payment is a round number or is unusual in its circ*mstances.
The Red Flag emoji 🚩, officially known as Triangular Flag, depicts a triangular red flag on a pole. Because a triangular red flag is often used to signal danger, this emoji is commonly used to refer to dangerous situations or to warn people of bad ideas or potential problems.
The Red Flags Rule requires that each "financial institution" or "creditor"—which includes most securities firms—implement a written program to detect, prevent and mitigate identity theft in connection with the opening or maintenance of "covered accounts." These include consumer accounts that permit multiple payments ...
The Red Flags Rule requires specified firms to create a written Identity Theft Prevention Program (ITPP) designed to identify, detect and respond to “red flags”—patterns, practices or specific activities—that could indicate identity theft.
Fraud indicators related to false, inflated, or duplicate invoices include, but are not limited to: Missing or copied purchase order or receiving documentation for invoiced goods/services. Submission of other than original or verified invoices. Invoice payment is a round number or is unusual in its circ*mstances.
The check lacks perforations. The check number is either missing or does not change. The check number is low (like 101 up to 400) on personal checks or (like 1001 up to 1500) on busi- ness checks. (90% of bad checks are written on accounts less than one year old.)
Unsolicited offers: Don't respond to unsolicited cold calls, emails, junk mail, late-night commercials or infomercials, or social media posts that are either overly attractive or fear-inducing. These are all common tactics scammers use to entice you to engage.
appear to be forged or altered; Personal identifying information (i.e., photograph, physical description) on the identification does not match the individual presenting the information; Address or name does not match the information on the identification and/or insurance card(s), credit card(s), etc.
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Introduction: My name is Amb. Frankie Simonis, I am a hilarious, enchanting, energetic, cooperative, innocent, cute, joyous person who loves writing and wants to share my knowledge and understanding with you.
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