Red flags to monitor for internal fraud

“There was no way we could have seen it coming.”

Business leaders are often blindsided by occurrences of financial fraud, particularly if the perpetrator was someone they knew and trusted. But experts who study fraud for a living know that there are employee profiles, patterns and behaviours that create red flags for potential breaches.

Below, we list the major red flags and explore how online anti-money laundering (AML), bankruptcy, credit default and credit history checks can help protect your organisation against financial fraud.

Behavioural red flags

In isolation, most of these behaviours do not indicate a fraud risk. There are plenty of employees, for example, who are not particularly happy with their employers, but this doesn’t mean they are likely to defraud them. The thing to watch out for is when employees exhibit a combination of two or more of the following red flags.

An unwillingness to take leave or share duties

Territorial behaviour is not an uncommon occurrence in workplaces, but an unwillingness to share duties can be an indication that an employee doesn’t want anyone else looking too closely at what they’ve been up to. This becomes particularly apparent when an employee seems unwilling to take leave, perhaps because they don’t want a colleague accessing their files or talking to their stakeholders.

Close relationships with suppliers

Plenty of opportunities exist for fraudulent behaviour in procurement, which is why many organisations in both the public and private sectors have strict procurement policies and controls. IBAC lists dozens of red flags to watch for in the bidding process, supplier selection process, payment, delivery and contract management.

Skipping approval steps

Skipping approval steps to avoid others looking over their activities is another way fraudsters can get away with falsifying or hiding records. Look out for employees who consistently lose records and receipts.

Living beyond means

It can be difficult to tell if someone is living beyond their means – after all, they may have other sources of income beside their job which is nobody’s business apart from their own. But the pressure to meet expensive lifestyle needs can drive someone to commit fraud to keep up with spiralling payments.

Financial hardship

Again, not every employee experiencing financial difficulty will turn to criminal behaviour, but financial difficulties (potentially caused by addiction or gambling problems) can lead to desperation and cause employees to rationalise fraudulent behaviours.

Unhappiness with employers

In the U.S. comedy film Office Space, unhappy workers rationalise stealing from the organisation because they hate the company and particularly dislike their overbearing manager. Unhappiness, in combination with other red flags listed above, may make an employee more willing to commit fraud.

Jobs and tasks with higher opportunity for fraud

While most fraud is committed at the employee level, fraud committed at the executive level tends to be much more harmful to organisations. Executives may also find it easier to override controls.

Longevity may be another factor. While long-term employees are typically regarded as more loyal, their in-depth knowledge and experience of the organisation can make it easier for them to commit fraud.

Certain jobs and activities provide more opportunity than others to steal or defraud the organisation, including:

  • People in positions of financial responsibility
  • Procurement and vendor management
  • Accounts payable and cash handling
  • Contract management
  • Administrators with privileged system access
  • People with access to sensitive data

How CVCheck can help

Fraud prevention requires a complex, multi-pronged approach including awareness training, IT system countermeasures, creating an ethical culture, and role-based system access. But one of the most effective ways to prevent fraud is through due diligence during the hiring process.

CVCheck specialises in online anti-money laundering (AML), bankruptcy, credit default and credit history checks in Australia. Our financial checks protect your company from fraud and theft and ensure that you comply with all licensing requirements by identifying conflicts of interest, questionable credit history and other potential risk factors for staff in positions of responsibility.

To cut hiring delays and ensure your peace of mind, make the smart choice and choose CVCheck for your personnel screening. Our credit checks in Australia can be completed online with fast turnaround times. Learn more.

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