7 telltale signs of internal fraud

Today, fraudulent activity is widespread and well-practiced, and it could legitimately be committed by anyone with the right motive.

Unfortunately, in our eagerness to be aware of external threats, many people often overlook fraudsters within our own organisations, who leverage interpersonal relationships (and other means) to avoid suspicion.

Here are 7 ways you can spot internal fraud within your business:

1. Staying late and working overtime, or on weekends.

The ACFE Report to the Nations highlights that 84% of internal fraudsters display behavioural ‘red flags’ before detection. Working unusually late or in isolation was a common theme. A fraudster will welcome the opportunity to not be overlooked while they work.

2. Spending beyond their means.

Buying fancy watches, luxury holidays and expensive cars are classic indicators. However, people have become smarter around hiding this and may be investing in cryptocurrency, businesses, or property instead. Be aware of any staff sinking large amounts of money into any of these. This accounted for 39% of the behavioural red flags in the ACFE report.

Where AP or procurement staff are involved, lifestyle red flags can correlate with unauthorised supplier creation, invoice manipulation, or credit note diversion.

3. Not taking annual leave.

Often wary of keeping their dealings to themselves, people who commit internal fraud don’t like to share their workload – just in case their ruse gets uncovered. Therefore fraudsters often avoid taking leave, especially for extended periods. They may also display control issues and be unwilling to share duties with others.

4. Over-ordering of goods.

This can be a sign that some of these goods are siphoned off at some point for resale on their own terms (and prices!). Continuous monitoring and checks against your invoices, statements and goods in notes are essential here.

5. High expenses claims, especially in gifts and hospitality.

This could be a sign that someone is buying non-expensible items for themselves, so thoroughly checking what they’re claiming is important.

6. A new employee, a contractor or on a short term contract.

Organised crime groups are now targeting and entering organisations as employees, specifically to harvest data. Therefore new employees on a short-term contract, or yet to complete their probationary period, could be a higher risk.

7. Employees with personal struggles. 

Personal financial pressure can increase risk exposure, and organisations should ensure strong controls exist to prevent opportunity-based fraud.

These may stem from from role instability, separation, another child on the way, a partner being made redundant, legal troubles, or addiction, for example.

Attitude is an extremely important red flag that goes hand in hand with these personal struggles. Look to those that may bully or intimidate, those with an unusually close relationship with a supplier, irritability and defensiveness, complaints about inadequate pay or their own lack of authority and social isolation. 

Conclusion

As always, context is important when considering these indicators – they are not, by themselves, definitive proof or grounds to accuse someone of internal fraud. However is someone is exhibiting a few of these red flags, it is prudent to inform the right people in order to investigate further.

Lack of internal controls contributes to 32% of internal fraud, according to ACFE’s 2024 Report to the Nations. Is it time to tighten up yours? 

Read about how FISCAL can help you with fraud detection here.