Fraud in Your Workplace

Looking for Red Flags: How to Spot and Stop Real-Life White-Collar Criminals

Photo by Jefferson Santos on Unsplash

Ominous music. Dark lighting. A menacing aura. These are just a few of the cues that help us determine when a film character may be up to criminal activity. However, when trying to identify a wrongdoer in our day-to-day lives, the task becomes much more difficult. Could you point out a criminal on the street? What about in your workplace?

Unfortunately, many company leaders haven’t learned this crucial skill. According to the Association of Certified Fraud Examiners (ACFE), an estimated five percent of annual revenues from companies just like yours are lost to financial crime, including fraud. In 85 percent of cases, fraudsters display at least one behavioral red flag — and in 50 percent of cases, they display multiple. And yet, fraud continues to have a devastating impact on businesses across the country. In order to get ahead of this disturbing trend, management must understand the red flags that fraudsters display, and be empowered with knowledge on how to combat the potential threat.

But first, leadership must understand why employees are driven to commit fraud.

Why Good Employees Become Fraudsters

Often, an individual’s temptation to commit fraud begins while working in an environment with lax internal controls. These employees are often left in a position to check their own work, have broad access to money going in and out of the business and have unfettered access to company cards.

While being in this position does not a fraudster make, when combined with external stressors — such as bad economic times, a divorce, an illness, a gambling habit or the failure of a business — lenient internal controls provide the opportunity for employees to commit fraud, then rationalize their actions by saying, “I’ll only take a small amount, then return it later when I’m in a better situation.”

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As evidenced here, fraud is often committed in desperate times, and even trusted, longtime employees can fall victim to temptation. This means they often won’t seem like criminals from the movies. In order to discover these fraudsters, management must be vigilant about watching for potential warning signals.

Habits of Typical Perpetrators

Remember the book series Where’s Waldo? Each page would ask readers to find the striped-shirted hero among highly detailed scenes. Finding workplace criminals is very similar to playing a game of Where’s Waldo. You must use attention to detail and be able to pick out anomalies within the actions of your employees.

Behavioral anomalies often manifest in the same patterns, and can include showing consistent unhappiness with their job, habitually finding ways around established procedures to “beat the system” or showcasing an extreme reluctance to relinquish control or share information with colleagues or management. These actions all serve as red flags of potential involvement in fraud.

It is important to note that the existence of one or two of these indicators does not always correlate with guilt. However, if these signals are present, it is a good idea to take a closer look to ensure that a larger threat is not occurring. If it is, you must be prepared with an action plan to stop the plot before it causes irreparable damage to the company.

Appropriate Responses to Fraud in the Workplace

If you suspect fraud in your workplace, immediately secure any evidence that could be helpful to your investigation team. This includes computers, flash drives, cell phones and digital accounts. “Secure” is the operative word — don’t tamper with the evidence. An act as simple as attaching an external device to a computer can render the evidence useless. Instead, assemble a team of forensic experts to investigate as soon as possible.

Of course, the natural response when a situation like this is discovered is to fire the employee. However, you should not do so at the initial discovery point. Employees have a duty to cooperate with employers during a lawful investigation. Consider keeping them on payroll until the evidence has been sufficiently developed by the investigation team. Once the employee is aware they are the subject of an internal investigation, restrict their access to their office and company information systems. This will prevent them from covering their tracks, encrypting programs, stealing confidential information and deleting incriminating evidence.

Finally, you should contact your insurer as early as possible. Many policies have a 30- or 60-day notification provision, beginning from the first day that you discover a loss may have occurred. Failing to notify insurance may void your coverage, making an already difficult loss even greater.

Preventative Measures to Take Now

Even if you do not currently suspect wrongdoing in your workplace, take precautionary measures to deter future fraudsters from committing financial crimes.

Preventative measures include segregating duties, placing daily and monthly limits on company cards, and monitoring electronic audit trails. Also, be sure to maintain strong employee recruiting controls to check the background of all potential new hires, helping to avoid hiring those with a questionable past. Finally, if possible, try to rotate staff within critical financial areas such as cash management, accounts receivable or purchasing. This ensures that no one employee can gain too much power or become secretive about a segment of your business.

While the extra workload of putting these preventative measures in place can be time-consuming, it pays off to protect yourself from the threat of fraud within your office.

Discovering fraud in the workplace isn’t easy. Unlike the movies, criminals don’t wear suspicious clothing and aren’t accompanied by a sinister theme song. However, with the right tools, you can identify real-life criminals in your office, one red flag at a time.

Kelly Todd is a managing member and the member in charge of forensic investigations at Forensic Strategic Solutions. Todd has a broad range of forensic experience, including financial and whitecollar investigations, fraudulent financial reporting, accounting malpractice, and the calculation of economic damages. For more information on how fraud can affect your company, email her at [email protected] or visit

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