Understanding Employees Key to Fraud Deterrence

Do you know your employees?  Do you understand how they function on the job or the scope of their interpersonal relationships at work?  Do you know what personal challenges or difficulties they face at home?  If not, perhaps it’s time to learn.  Understanding your employees is a key component to an effective fraud deterrence program.

“There are certain behavioral signs and personal situations that are red flags for fraudulent activity,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  ” “They are signs that something might be wrong.  Understanding them is another fraud deterrence tool that can protect your organization.”

In its 2014 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) identified some of the more frequently occurring behavioral signs and personal situations that should raise red flags at companies, non-profits and government offices.

The report, a biennial global survey on the costs, schemes, perpetrators and victims of fraud, found that a key red flag is employees who live beyond their means, Anderson said.  Look for a significant change in lifestyle – a lower level employee who suddenly starts driving an expensive car, wearing designer clothes or taking expensive vacations.  In more than 43 percent of frauds, coworkers and others noticed that the fraudster had adopted a more extravagant lifestyle, the survey noted.

Another off-the-job red flag is employees who are experiencing financial difficulties, according to Anderson.  Perhaps a family member or close relative is suffering through an expensive illness.  Or, maybe the family’s primary breadwinner is unemployed.  Note also an employee who complains about mounting debts or foreclosure proceedings on their house (or actually lost their home).  In 33 percent of frauds, the fraud perpetrator was struggling with personal financial difficulties.

On the job, look for employees, particularly purchasing or operations employees, who are unusually close to a vendor or customer, Anderson said.  Perhaps they regularly socialize with that person or receive tickets to baseball games, the theater or other events.  Look for a salesperson who spends an inordinate amount of time with a customer’s employee.  Fraud investigations found this type of activity in almost 22 percent of fraud cases.

Another on-the-job red flag is employees with control issues, Anderson added.  Perhaps the employee insists on being the only one to perform certain duties or gets overly defensive when a coworker tries to get involved in his or her job.  In one case he investigated, Anderson said the fraudster was the only employee in the company who could process payroll.  The employee actually had to be taken from the hospital in an ambulance in order to run payroll on one occasion, Anderson said.  The ACFE report found that nearly 22 percent of frauds involved an employee with these types of control issues.

Other important behavioral red flags identified in the report include a “wheeler-dealer” attitude; divorce or other family problems; substance or gambling addictions; and constant complaints about inadequate pay or lack of authority.

“This is not to say that every employee who displays one of these signs is intent on defrauding the company,” said Anderson, a Certified Fraud Examiner and an ACFE member.   “They may be suffering through a difficult personal situation, but managing it nonetheless.  Or they may have hit it off really well with their customer or vendor and developed a mutually beneficial, but perfectly above-board, relationship.  But it would benefit you to know whether that is the case or not.  You could end up helping your company, your employee or both.”

In upcoming posts, Anderson will continue to share results from the ACFE’s 2014 Report to the Nations.  The Association of Certified Fraud Examiners is the world largest anti-fraud organization, dedicated to fighting fraud through its more than 70,000 members in more than 150 countries worldwide.

A comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley is highly recommended for every type and size of organization.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.