Understanding Your Employees Is Key to Fraud Deterrence

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.

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 these questions are raising concern for you and the financial health of your organization, then maybe it’s time to learn more. 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 Anderson. “They are signs something might be wrong.  Understanding them is another fraud deterrence tool that can protect your organization.”

In its 2016 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, he said, for a significant change in lifestyle – a lower-level employee who suddenly starts driving a luxury car, wearing designer clothes or taking expensive vacations.  In more than 45 percent of fraud cases, the survey said, coworkers and others noticed the fraudster had adopted a more extravagant lifestyle.

Another off-the-job red flag is employees who are experiencing financial difficulties, Anderson said.  Perhaps a family member or close relative is suffering through an expensive illness.  Or, maybe the family’s primary breadwinner is unemployed.  Look also for an employee who complains about mounting debts or foreclosure proceedings on his or her house — or might actually have lost the home. In 30 percent of frauds, the perpetrator was struggling with personal financial difficulties.

On the job, look for employees, particularly those in purchasing or operations, who are unusually close to a vendor or customer, he 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 20 percent of fraud cases.

Another on-the-job red flag is employees with control issues, Anderson said. 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 15 percent of frauds involved an employee with these types of control issues.

Other important behavioral red flags identified in the report, he said, 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,” he continued, “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 2016 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 75,000 members in more than 150 countries worldwide.

Anderson said he believes the most effective protection for every organization comes from a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

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.