The 6 Most Common Behavioral Red Flags of Fraud

AUTHOR'S POST

Mandy Moody, CFE
ACFE Content Manager

Tim Harvey, CFE, head of global chapter development for the ACFE, recently shared a story with me about a networking event he held for the U.K. Chapter called "Find a Fraudster." The objective of the event was to move around the room and network with as many people as possible all the while trying to identify a fraudster in the room. Harvey said that they created a fictional history for their fraudster (a detective in real life), and she was told to lie to any question which would directly reveal that she was the fraudster, but to answer questions as agreed in her background. By the end of the night, three people had successfully identified the fraudster based on red flags or inconsistencies they had noticed. The same type of "clues" exist when preventing and detecting fraud. 

Individuals who are engaged in occupational fraud schemes often exhibit certain behavioral traits or warning signs associated with their illegal activity. In the ACFE's 2018 Report to the Nations, survey respondents were presented with a list of 17 common behavioral red flags and asked to identify the red flags that had been displayed by the perpetrator before the fraud was discovered.

These six behavioral red flags have been the most common in every one of our studies dating back to 2008, with a remarkably consistent distribution:

  1. Living beyond one's means
  2. Financial difficulties
  3. Unusually close association with a vendor or customer
  4. Excessive control issues or unwillingness to share duties
  5. Recent divorce or family problems
  6. A general “wheeler-dealer” attitude involving shrewd or unscrupulous behavior

While the presence of these red flags doesn't imply that fraud is being committed, understanding and recognizing the behavioral red flags displayed by fraud perpetrators can help organizations detect fraud and mitigate losses. Read more findings from the world's largest global fraud study at ACFE.com/RTTN.