What are the most common red flags for fraud?

fraud red flags

Last modified on November 24th, 2023

If fraud goes undetected, it can cost you millions. Toyota Boshoku Corporation lost $37M to a fraud scheme in 2019. Besides the financial loss, fraud also damages your reputation. Fraud red flags are easy to miss if you don’t know what they look like — that ends now! You will learn to recognize the most common red flags of fraud in this article.

Trustpair helps you prevent and detect payment fraud in your organization by constantly checking your vendor’s credentials. It means no unauthorized transaction can go through! We completely eradicate the risk of third-party fraud in your business. Request a demo to learn more!

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Employees living beyond their means

Warning Sign of: occupational fraud

According to Finance Online, 95% of businesses have problems with employee theft. The risks of internal fraud (or occupational fraud) are a reality for companies of all sizes.

Personnel living beyond their means is a behavioral red flag cited at 39% in the Association of Fraud Examiners’s (ACFE) report nations 2022.

Employees go to Fidji on holidays, sport a brand new car paid cash, show up at work with a fancy watch… Which doesn’t match their salary number.

Of course, there are ways this could be explained: they’ve just come into an inheritance, guessed the lottery numbers right, their family/spouse is wealthy, etc. But if it’s not explainable, and above all if it’s all very sudden: be on your guard!

They could be committing theft against your company in a number of ways:

  • Stealing cash,
  • Reselling inventory items,
  • Getting payments from suppliers for approving contracts,
  • Falsifying orders,
  • Changing the financial information on invoices,
  • Using their corporate credit card for personal purchases,
    etc.

 

Close association with a vendor

Sign of: vendor fraud, invoice fraud

Good business practices means knowing your business contact well, taking them out for lunch, etc. The problem starts when someone is unusually close to a supplier.

Here are some indicators of fraud:

  • They’re always contacting them, and seem to call in favors regularly.
  • They get quite defensive and protective over their business contracts and documentation,
  • They don’t want to include another person,
  • They also don’t want to address any procurement problems.

Collusion and bid-ridding are common types of procurement fraud, with cash exchanging hands when a contract is renewed for goods or services.

Your employee (or executive) may also work as an accomplice in invoice fraud:

  • Invoices are artificially inflated with high-volume purchases of goods or services,
  • Your company pays duplicate invoices.

 

Excessive control

Sign of: internal fraud, corporate fraud, accounting fraud

Likewise, any coworker who displays defensive behavior towards their work is included in our fraud red flags list.

Employees seem to be unnaturally protective of their duties, to the point of being the frequent sole source of decisions in their work.

For instance, they might refuse to:

  • Take their annual time off,
  • Leave the office early or arrive later than others,
  • Involve another team member in the management of their accounts,
  • Provide documentation or reports supporting for their decisions.

That’s a sign of fraud because it means they have something to hide: accounting fraud, corporate fraud, and internal fraud are easy to hide only as long as they’re in control.

Taking a step back could mean revealing some suspicious purchases, maybe made for personal use.

 

Unusual requests

Warning Signs of: BEC, wire transfer fraud

Imagine receiving an email from your CEO asking for an “urgent transfer for a strategic deal”, or asking for internal or contract-related information. What do you do?

Before you do anything, we urge you to confirm this! This is very likely a case of Business Email Compromise (BEC) that could lead to CEO fraud or wire transfer fraud.

Out of our fraud red flags list, this is probably the most commonly overlooked.

Sadly, cyber attacks like those are on the rise. Fraudsters can now impersonate pretty much anyone — from government officials to university professors — either by hacking into an email address, or by using social engineering techniques. They’ll include urgency and other intimidation methods to get you to wire money to an account.

By the time you realize what’s happened (which might be hours, or months later), the money and the perpetrators are long gone. That’s why fraud prevention should be required in any organization.

 

Change in vendor information

Sign of: vendor fraud, wire fraud

All requests from your supplier to change their payment information should be treated as fraud red flags.

It might be coming from a criminal who used spoofing to convince you you’re talking to your real supplier. If you don’t know that, you’ll go ahead and change their bank account information.

This means the next time your company wants to pay your supplier, it will not go toward them, but fall into the hands of criminals. If that happens, you’ve only got very limited time to react. But the scam might not be discovered before the end of the year, or during an audit.

That’s why account validation is mandatory in many countries, including the US. Such measures protect your organization from unknowingly committing money laundering.

The only way to ensure you’re not being tricked into sending unauthorized payments is by implementing anti-fraud measures and using fraud prevention software services.

 

How to detect and prevent fraud?

When it comes to fraud, it’s not a matter of if you’ll ever face it — but a matter of when. And, more importantly, if you’ll be able to spot fraud indicators before it’s too late.

To ensure your complete protection, here’s what we recommend at Trustpair:

Ongoing fraud awareness prevention training:

Your first layer of defense against fraud is your employees.

Make sure you provide up-to-date and regular training to everyone dealing with key operations — finance, accounting, procurement, and HR teams are particularly at risk of being targeted. Get security experts to teach them best practices so they know the fraud red flags to watch out for. The Association of Certified Fraud Examiners (ACFE) is a great source for that.

Giving regular training also helps keep the matter top of mind for everyone.

Ongoing account validation:

Checking your vendor’s credentials before any transaction is sent protects you completely against fraud.

It ensures that no one (employee or hacker) has changed their bank account information before the funds are transferred fraudulently.

As wire transfers aren’t reversible, it’s key to detect fraud attempts early. While it’s nearly impossible to do these checks thoroughly manually, automated solutions exist.

That’s where Trustpair comes in!

Our solution continually and automatically checks your supplier’s credentials before sending any transaction (learn more about account validation here). Our AI component includes predictive pattern recognition to spot any suspicious activity and block the transfer. We have access to otherwise hard-to-reach databases internationally, meaning you’re also protected when paying suppliers overseas.

It also sends a strong message to your employees thinking they could commit fraud with impunity.

We have 100% success rates with our clients, who can let fraud red flags take a step back in their minds! With Trustpair, you can trust you’re protected against fraud.

Key Takeaways:

  • There are many fraud indicators to watch out for, not limited to those red flags displayed above.
  • To detect and prevent fraud, provide ongoing training to your teams, and use anti-fraud software like Trustpair to be fully protected.

FAQ

It’s usually months before most frauds are identified. If fraud indicators are not detected early, you might only see them at the close of the financial year when money is missing. On the other hand, actively monitoring fraud through software reduces the duration of fraud by 56% according to the ACFE.

Our software continually audits your supplier’s credentials (bank account number, company ID, company address etc) in real-time. Any irregularities are spotted early and the transaction is blocked before it is sent. That ensures complete protection and prevention against third-party fraud. Financial loss and cash flow issues are therefore avoided.

We give your organization and financial team a complete overview of their fraud indicators thanks to detailed dashboards and payment analytics. They gain time to spend on high-added-value missions. Our services also include extensive customer support

Manage the risks related to corporate treasury.

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