How Bias Impacts Due Diligence and Fraud Investigations?

How Bias Impacts Due Diligence and Fraud Investigations?


Bias is defined as “a disproportionate weight in favour of or against an idea or thing”. Sometimes, bias can be a good thing. It is a natural and learned process that can help people make decisions and protect themselves from potential threats. However, the role of due diligence analysts and fraud investigators is to be fair and objective and to pursue all reasonable lines of inquiry. Therefore, it is essential to recognise the various types of bias, the risks they pose, and how to avoid them.


The Different Types of Bias on Due Diligence:

The following are seven types of bias that can affect due diligence procedures and investigations:

  • Confirmation bias involves analysts and investigators relying too heavily on information that is consistent with their pre-existing beliefs.
  • Verification bias involves analysts deliberately searching for information that aligns with their preconceived notions of the subjects and neglecting to thoroughly investigate all leads.
  • Availability bias relying on data that is readily available or more memorable, rather than considering a broader range of information.
  • Unconscious bias when a decision or judgement is made on the basis of previous experiences, or deep-seated societal stereotypes and prejudices.
  • Experience bias relying too heavily on past experiences or perceptions and viewing these as the objective truth.
  • Personal bias beliefs and opinions that have been learned and affect the decision making process.
  • Halo bias involves the tendency to let one positive attribute influence the overall perception of the subject.


The Impact of Bias:

The Association of Fraud Examiners (“ACFE”) refers to confirmation bias as the most dangerous type of bias for fraud examiners. However, allowing any type of bias to impact fraud investigations and due diligence procedures can result in a waste of time and resources at best, and legal and ethical concerns at worst.

For example, if analysts and investigators do not check their biases, it could result in crucial information being disregarded during the procedure, which can then lead to an incomplete or inaccurate understanding of the subject or situation. It can also manifest in unfair treatment and unintended discrimination against certain individuals or groups of people.

Finally, the credibility of the procedure and the reliability of the findings could be undermined and result in reputational damage for their organisation.


How to Mitigate Bias on Due Diligence:

Despite the various types of bias and the risks they pose, they can be eliminated from investigations through careful planning and following processes. Due diligence analysts and investigators must be able to recognise the different types of bias, whether they have any biases of their own, whether they affect their decision-making process, and make a conscious decision to leave these biases out.

Other steps that organisations can take to avoid bias include:

  • Adopting a devil’s advocate approach, and utilising structured methods to ensure all aspects of the investigation are covered.
  • Utilising a verification process and cross-referencing multiple sources of information.
  • Utilising historical data to provide context to more recent findings.
  • Promoting diversity, as well as provide training to their teams.
  • Encouraging critical thinking and awareness that past experiences might not always be relevant.
  • Encouraging team members revealing any potential conflicts of interest, as well as rotating team members to ensure a fresh perspective.
  • Incorporating peer reviews to provide an additional layer of scrutiny and objectivity.
  • Keep detailed records of the due diligence or investigation process, including the rationale for decisions and sources of information to ensure transparency and accountability.


TenIntelligence Thoughts

Our due diligence analysts strive to be fair and objective at all times. We pursue all reasonable lines of enquiry, and do not treat due diligence or investigations as a “tick-box” exercise. Our analysts present the data and information as we find it without adding our interpretation.  We aim to ensure objectivity and focus on identifying all potential risks so you can make assured decisions.

If you need assistance or have queries on background checks and due diligence, please contact us here.


Written by

Rachael Legg