How to identify a fraudster and build an anti-fraud environment?

How to identify a fraudster and build an anti-fraud environment?

At a time of geopolitical uncertainty, staff are often anxious about their futures, resulting in the temptation to commit fraud or more vulnerable to falling victim to scams. It was reported by a recent Brexit survey, where 80% of UK business leaders are fearful of job losses as a result of Brexit, with 66% of them being concerned about employees committing fraud due to the lack of job security.

Data also shows that employees are more likely to be able to commit fraud, compared to people outside of the organisation. This is because employees are more familiar with the internal system and points of vulnerability, as well as unchallenged opportunities within an organisation.

Fraud can bring negative impacts to the organisation’s financial health, image and reputation. $7 billion was reportedly lost globally in 2018 due to corporate fraud. Therefore, by recognising and understanding behavioural red flags can help organisations to detect, prevent fraud and avoid monetary and reputational damage.

The Association of Certified Fraud Examiners (“ACFE”) outlined 6 behavioural red flags of fraud in their Report to the Nations in 2018. In 85% of the 2,690 cases of occupational fraud studied by the ACFE, it was identified that fraudsters exhibited at least one behavioural red flag and that multiple red flags were evident in 50% of cases. These include the following:

• living beyond one’s means – lookout for lifestyle changes, purchasing of expensive cars, houses, and luxury goods
• financial difficulties – check for the history of debt and be aware of any arising financial problems, consider addictive behaviours such as gambling
• unusually close association with a vendor/customer
• excessive control issues or unwillingness to share duties
• divorce or family problems
• “wheeler-dealer” attitude involving shrewd or unscrupulous behaviour

Gender and positions dependent

The report also stated that these warning signs varied by perpetrator’s position within the organisation, as well as gender. To illustrate:

• 24% of owners or executives were found unusually closed with vendor or customers, compared to 14% of employees
• ‘’Wheeler- dealer’’ attitude is more commonly found in owners or executives than employees, as well as in women than men
• Financial problems are generally discovered in male fraudsters than female
• Instability in life circumstances is a more common behavioural flag found in men than women
• However, more women were found in a close relationship with vendors or customers

However, simply meeting the profile outlined above does not mean that an individual is going to commit fraud, nor should someone who falls outside the profile be immune from suspicion.

Build an anti-fraud environment

50% of all reported corporate fraud in 2018 was caused by deficient internal control. To avoid corporate fraud from happening in the long run, it is important to take some of the following steps to create an anti-fraud environment and culture to limit fraud risk:

  1. employee training – create awareness of what constitutes fraud, and promote education in fraud detection and prevention methods
  2. employment and pre-employment screening – prevent the organisation from hiring people who have a greater tendency to commit fraud
  3. regular risk assessments – gauge the nature of risks to your organisation
  4. open communication- beating fraud should be everyone’s business. Establish convenient and secure methods for employees to report fraud concerns
  5. internal and external controls – setting policies and procedures

Fraud prevention becoming the first line of defence as bad news travel fast

Lastly, in this era of absolute transparency, organisations are often in a passive position when an issue becomes a crisis. Public opinions have been a deal-breaker to an organisation’s reputation. An efficient crisis response was rated highly by 76% of the employees surveyed by a US Marketing firm. This suggests how crucial reputation is to an organisation and how an effective fraud risk management can help.

Therefore, traditionally fraud prevention and detection has progressively become an organisation’s first line of defence. Identifying fraudsters with the above signposts are the first of many steps in creating a comprehensive prevention method.

If you think your organisation might be a victim of fraud, please get in contact immediately. We can help you to analyse the evidence, circumstances surrounding the suspicion and set out clear objectives in an investigation plan. We can also help strengthen your defence model.

Alternatively, you can utilise our due diligence service, where our analysts conduct thorough background checks into senior executives and new hires, looking for adverse information and risk, including undisclosed red flags, conflicting findings, false or exaggerated statements. All of which can prevent corporate fraud from happening.

For further information, visit www.tenintel.com/investigations, where you can find out how we support clients with fraud investigation and digital forensics support.

Email us at info@tenintel.com and follow us on LinkedIn and Twitter @TenIntelligence for all updates.

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