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How is Occupational Fraud detected? List of Behavioural Red Flags 2024

How is Occupational Fraud detected? List of Behavioural Red Flags 2024

The ACFE published its latest report, Occupational Fraud 2024: A Report to the Nations. The study’s findings focused on the costs and effects of occupational fraud. The report covers fraud cases investigated between January 2022 and September 2023, with data from 1,921 cases across 138 countries and territories. An aspect of occupational fraud analysed in the report was the behavioural red flags demonstrated by fraudsters.

 

Some of the significant findings taken from the study include:

  • Organisations lose approximately 5% of their annual revenue due to fraudulent activities.
  • Total losses of more than $3.1 billion.

We previously discussed these red flags during Fraud Awareness Week 2023. With the publication of the ACFE’s latest findings, now is a better time than ever to revisit this topic.

 

What are the behavioural red flags based on occupational fraud? 

The behavioural red flags refer to the characteristics exhibited by individuals that may indicate the existence of fraud. 

 

The ACFE asked their survey respondents whether any perpetrators demonstrated any of the 20 behavioural red flags. The eight most common behavioural red flags demonstrated are:

  • Living beyond means
  • Financial difficulties
  • Unusually close association with vendors/customers
  • Control issues/unwillingness to share duties
  • Irritability, suspiciousness, or defensiveness
  • “Wheeler-dealer” attitude
  • Bullying or intimidation
  • Divorce/family problems

 

The Study’s Findings

 

In 84% of fraud cases, perpetrators exhibited at least one behavioural red flag, and 52% displayed multiple red flags.

 

The most common behavioural red flag demonstrated by fraudsters is Living Beyond Means, such as living in houses they cannot afford, purchasing expensive cars and luxury goods, and going on expensive holidays. The red flag was observed in 39% of cases, the same as in the 2022 report findings. Living beyond means has been the most common red flag in every ACFE study since 2008. It is also more commonly seen in female fraud perpetrators.

 

The second most common behavioural red flag is Financial Difficulties, which occur in 27% of cases. Financial difficulties can be a history of debt, borrowing money, or the inability to pay essential bills. This figure has increased from 25% in the 2022 report findings and is hardly surprising given the costs of living crisis occurring in many countries worldwide.

 

The third most common behavioural red flag is a close association with a vendor/customer, demonstrated in 20% of cases. It remains unchanged from the 2022 findings and is seen more often in male perpetrators.

 

Despite being the most common red flags, they are not responsible for the highest losses. According to the study, the behavioural red flag associated with the highest median loss is excessive pressure from within the organisation at $617,000. Other red flags associated with high losses include past legal problems, a “Wheeler-dealer” attitude, and Bullying or intimidation. 

 

While recognising behavioural red flags is an excellent way to identify fraudulent activity, organisations must be vigilant and think outside the box when applying them to cases within their own businesses. 16% of cases reported no red flags, and 4% of cases reported “Other.”

 

How can you prevent your business from Occupational Fraud?

 

The behavioural red flags provide insight into the perpetrator’s motivations for committing occupational fraud. Recognising these red flags can help organisations implement measures to detect fraudulent activity. Therefore, it is essential to include behavioural red flags in employee anti-fraud training to help staff members recognise them. Additionally, consider engaging a team of experts for comprehensive due diligence services for informed decision-making. This entails conducting international background checks, ensuring financial crime compliance, and providing strategic intelligence.

 

The initial step of identifying fraudulent activity is critical, but it is equally crucial to prevent such activities and disrupt them when they occur. To achieve this, organisations must implement fraud prevention techniques such as:

  • introducing risk assessment strategies, 
  • implementing internal controls, 
  • segregating duties and responsibilities within your organization, conducting employee training and awareness, 
  • improving your identity verification and authentication systems, 
  • regularly monitoring and conducting internal audits,
  • fostering a company culture of transparency, integrity, and accountability.

TenIntelligence Thoughts

We at TenIntelligence are committed to raising awareness on how to detect, disrupt and prevent occupational fraud. Please contact our team if you suspect you have experienced fraudulent activity, and we can help you create an investigation or fraud response plan tailored to your business.

 

Written by

Rachael Legg