Behavorial Red Flags of Fraud

Today we're going to talk about behavioral red flags that employees might exhibit in your business or anybody really around you may exhibit that could be an indication that there is fraud occurring somewhere. This is not an exclusive list. There are many other behavioral um so this has got I've got a list of six right here off to the side. Six behavioral red flags that you should be looking out for in your business. People you may know, someone you may go to church with may be exhibiting some of these um signs. Those six behavior red flags are living beyond one's means, financial difficulties, unusually close with a vendor or customer, excessive control issues or unwillingness to share duties, irritability, suspiciousness, or defensiveness. and a general wheeler dealer attitude involving unscrupulous behavior.

Those are very specific but not specific at the same time. I'll go a little more into detail. I'll start with where did I get this list of six from. I did not just make this up off top of my head. This is from the ACFE, which is the Association of Certified Forensic Examiners. they um went ahead and have compiled every year they look at cases that forensic accountants have worked on and in 2024 this is based off their 2024 reports. This is globally too, not just based here in the US. So we'll go ahead and hit the first one first.

The first behavioral red flag that you can look for whether that's an employee, co-worker, whatever it might be, is living beyond one's means. What that means is if you know, especially if you're the business owner and you know what you pay your employees and maybe you pay your front desk person $45,000 a year and one day they pull up with a brand new Porsche and you know like this person's worked for you for a long time and you know that their spouse also maybe makes $40,000 a year and for them to pull up with a brand new Porsche and maybe she takes big extravagant vacations, goes on cruise cruises, travels the world, all these things.

You may start to question where are they getting all this money from? Like, did they win the lottery? Did they, I don't know, did someone pass away in their family and leave them inheritance? Or are they stealing money, whether it's from your business, the spouse's business, or somewhere else? That is one red flag if someone's living very obviously beyond their means. So, no, they may not come in and brag about, oh, I went on this fancy vacation, but also look at their social media that people love to post things like that on social media.

People love to post the new toys they're buying or the new house they just bought. Especially if you are the owner and maybe you're not in the office every day. You may not have a relationship with that employee depending on how big your business is. If you've got 500 employees, you're not going to be able to keep tabs on everybody, what they're driving, how much they make, but social media is going to be a big a big tip as well. Let me back up a little bit more. These behavioral red flags, when you see them, what do you do? And this is not just owners looking at employees. This is across the board.

If your coworker sitting in the cubicle next to you starts exhibiting some of these signs, you should probably say someone to say something to someone. Same thing if your neighbor all of a sudden starts exhibiting some signs like this, you might want to say something to someone. So, this is everybody's responsibility to know these behavioral red flags. And I'm not saying if someone buys themselves a new Porsche because they saved a bunch of money or got a family inheritance, that doesn't make them a criminal. Do not call the cops. That is not the first thing you should do because someone bought a brand new car. You should take that into consideration with a bunch of other things and put it through the proper channels and that eventually might get to law enforcement depending on where it goes from there. Just know the first step, your neighbor buys a new car, do not call the cops and say that they're stealing money from a business because that may not be happening. But this mixed with other signs, not just behavioral signs, but many other things all kind of compiled together. The first sign is living beyond one's means.

The second sign is financial difficulties. So those financial difficulties, financial difficulties are a big one that really push people to commit fraud. Someone that is generally a good person that never would have thought about committing fraud before, if something major happens in their life, they may feel like they have no choice but to commit fraud to survive. And that is probably one of the scariest places to be in. It is all about knowing your employees, knowing your co-workers, knowing your neighbors, knowing your family, knowing all of that, and helping in any other way that you can, talking things through with them, helping provide and find other resources for them. Financial difficulties can look like a lot of things to a lot of people. Maybe they are gamblers and racked up a lot of gambling debt. It could be loss of a loved one, maybe loss of a spouse and that was the bread winner of the family. It could look like losing a house to foreclosure. Could there's so many things that could trigger financial difficulties. Natural disaster comes through. They didn't have flood insurance and their house is flooded and now they don't know what to do. Like there are so many things. Kid is a drug addict and needs to be put in a special rehab and they can't afford it and they're having financial difficulties.

There are so many things that can be financial difficulties that I can't provide you with an exclusive list. And in all honesty, you may not get to know them well enough where they'll feel comfortable to talk to you about it. whether you're a co-worker, neighbor, owner, employee relationship, but also social media helps because social media, they may be tagged in other people's posts about financial things that will raise some flags for you.

The third behavioral piece here is unusually close association with a vendor or a customer. Now, this employee, maybe the vendor or customer is a really good friend of theirs. Just because one of their best friends is a vendor does not mean that they are stealing money from you. But know that if there is a close relationship there, there might be ways to provide kickbacks. The employee tells their best friend, "Hey, if you pad that invoice by $500, I'll give you half. you keep 250 and send me 250 and nobody would know. Same thing if there's an unusually close relationship there. Not only can kickbacks like that occur, there's so many things, so many rabbit holes that I could go down as to why that's maybe not the best. It can be that piece is collusion.

It can also just be a conflict of interest. Maybe they circumvent if you have a system in place to grant contracts. they're if that employee is really close to a vendor, they might be able to circumvent your system that you have in place to give contracts the correct way. And by doing that, that vendor may get a contract in a way that they should not have. So, so many ways that this can play out. You definitely don't want an unusually close association for an employee to have with a vendor or a customer.

The fourth one here is excessive control issues or unwillingness to share duties from here. It's a lot of this is a lack of transparency and they don't want to delegate tasks to other people. That can be a red flag for fraudulent activity. So you might be thinking but why? Like, so yes, not being able to delegate is a skill set problem by itself, but why does that mean fraud? Because if one person is in control of everything, it's easier for them to manipulate your data, to steal things from you. And if you bring in a second person to work with them, they've lost control. They have lost the ability to take whatever they want from you in your business. They don't want that to happen. So then they become very controlling and they are unwilling to share duties with this new person you're bringing on.

The next one is irritability, suspiciousness or defensiveness. So this isn't to say if somebody is in general a suspicious person or if somebody in general is just irritable. Maybe someone in general is just offensive. Like that just could be their personality type. But what you're looking for is a change. What you're looking for is somebody that was happy go lucky and is maybe having financial issues in their business. If they're having financial is not in their business, in their personal life. Look for behavioral changes. Behavioral changes are things that you should look for with potential fraud with employees. If someone becomes more aggressive or defensive, this can be a sign of their underlying fraudulent behavior that you need to look out for.

The last one I have on here is a general wheeler dealer attitude involving unscrupulous behaviors. What that means is individuals who are constantly consistently cunning or unethical to doing things in business may be more likely to to do fraud to commit fraud against your organization. So somebody, yes, you want people to think outside the box, but if they are thinking outside the box, maybe in questionable ways, they may be doing that to your business without you knowing.

I want to recap really quickly the six behavioral red flags that you should look out for for employees that you may have. And it's not just employees, but whether that's neighbors, co-workers, whatever might be. The six behavioral red flags of fraud. Living beyond one's means, financial difficulties, unusually close association with a vendor or customer, excessive control issues or unwillingness to share duties, irritability, suspiciousness or defensiveness, and a general wheeler dealer attitude involving unscrupulous behavior. Hopefully this helps. Hopefully you'll be able to look at a few things differently with your co-workers and employees. maybe have some of these conversations about what you should be looking out for.