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The Indicators of Fraud and How to Spot them.  

The Indicators of Fraud and How to Spot them.  

The scale and impact of fraud is vast. It is estimated that organisations can lose between 2% and 5% of their expenditure as a result of fraud. The loss of money can result in reputational damage for a company at best. At worst, it can result in the loss of investment opportunities, loss of employment, business failure and company liquidation.  

In our article Recognising Fraud and the Fraudster Personas , we discussed multiple behavioural red flags of fraudsters. However, according to the Fraud Advisory Panel, there are several different types of indicators that could reveal some form of fraud in your organisation.  

These indicators can be sorted into six categories:  

  1. Behavioural  
  2. Financial  
  3. Procedural 
  4. Lifestyle 
  5. Product 
  6. Personal 

Behavioural Indicators

Behavioural indicators refer to any unexpected conduct demonstrated by employees and members of staff. This could refer to an employee that consistently works longer hours for no apparent reason, is very resistant to taking time off, and act very secretively. They may also demonstrate a sudden change in lifestyle.  

Other behavioural indicators include reacting badly to being questioned and challenged and requesting for internal audits and compliance inspections to be delayed or cancelled often under the guise of wishing to fully prepare for them.  

Financial Indicators 

Financial indicators are demonstrated through unexpected business trends, such as a high level of cash transactions, unexpected and unexplained rising costs, and a disproportionate commission going to certain types of sales.  

Unusually large stocks and unusual transactions are also financial indicators to watch out for.  

Procedural Indicators

Unexpected business activities are procedural indicators of fraud. This could be an employee that makes queries into company databases they have no business accessing, or an employee that exclusively deals with certain customers or suppliers.  

Procedural indicators may also include an unusual number of customer complaints, or managers who bypass the purchasing department.  

Lifestyle Indicators

Lifestyle indicators are some of the more obvious indicators of fraud and refer to unexpected increases in personal wealth. They include carrying large sums of cash on their person, and signs of cash rich activities such as gambling and drugs.  

Other examples of lifestyle indicators include significant debt and credit problems and requesting to borrow money from colleagues.  

Product Indicators

One product indicator is an unexpected reduction in stocks, but they can also include a large growth in stocks despite no associated growth in sales.  

Other product indicators include a high level of complaints with regards to specific products or services the company offers, unduly large amounts of cash sales, and a lack of supporting documents for unexpected expenses.  

Personal Indicators

Finally, personal indicators of fraud in a company are high levels of peer pressure and stress for prolonged periods of time which leads of feelings of animosity and disgruntled employees. Additionally, they can also be members of staff and employees who see their pay is too low for their job.  

 

Recognising and understanding how these indicators could apply to your organisation is crucial as it will allow you to implement policies and strategies to prevent and disrupt fraud, such as creating a fraud response plan. This will outline the company policies and procedures to follow if any fraudulent activity is discovered within the company. Educating your employees to recognise the various indicators of fraud will enable them to recognise any suspicious behaviour and report it to a senior member of staff. Additional strategies that can be implemented include taking into account any new changes in business activities that may result in new fraud risks, as well as implementing regular monitoring to ensure compliance with fraud prevention policies.  

 

TenIntelligence Thoughts 

We at TenIntelligence are fraud fighters and are committed to raising awareness on the dangers of fraud, and how to prevent it. If you have experienced fraudulent activity, or suspect that fraudulent activity has occurred within your organisation, please contact our team for further information about how we can help.  

Written by

Rachael Legg | Senior Analyst