Behavioural Red Flags of Fraud: An Ex Post Assessment of Types and Frequencies

Abstract

A number of researchers and professional fraud examiners have emphasized the need for early detection of frauds. Though there are many ways in which frauds can be detected, a particularly effective and inexpensive way is to identify fraudsters by scrutinizing personnel behaviour for peculiarities typical of fraudsters. Towards this end, the present study compiles a checklist of behavioural red flags of fraud based on data collected with the help of 41 semi-structured interviews. The interviewees constitute people who have personally investigated or closely observed a fraud in the last 3 years. A mixed methods triangulation approach is used to quantify the qualitative data collected from the interviews. Data analysis reveals 16 different behavioural red flags exhibited by fraudsters. An examination of frequencies indicates that strong ambition, extended working hours, social aloofness, dissatisfaction with current job and living standard disproportionate to current means are the most frequently displayed behavioural red flags of fraud. The study also shows that fraudsters exhibit three or four behavioural red flags in a majority of cases. Implications for anti-fraud practitioners are discussed.

Red flag behaviors in financial services frauds: a mixed-methods study

“…Empirical evidence reveals that at least one behavioral red flag can be identified in 85% fraud cases, and multiple behavioral red flags are conspicuous in 49% fraud cases [Association of Certified Fraud Examiners (ACFE), 2020]. Typically, three or four red flag behaviors are noticeable in a fraud case (Sandhu, 2020a).…”

“…Identification of red flag behaviors does not guarantee fraud and vice-versa (Grabosky and Duffield, 2001a). It just suggests that fraud risk is high, and the situation warrants investigation (Sandhu, 2020a). Empirical evidence reveals that at least one behavioral red flag can be identified in 85% fraud cases, and multiple behavioral red flags are conspicuous in 49% fraud cases [Association of Certified Fraud Examiners (ACFE), 2020].…”

“…From the perspective of the topic, this study examines a phenomenon that has not been categorically explored in previous studies. Methodologically, examination of intended behaviors is the norm in existing research on deviant behaviors (Carpenter and Reimers, 2005; Gillett and Uddin, 2005; Sandhu, 2020a). This research overcomes this limitation of previous studies and documents actual behaviors displayed by fraud perpetrators.…”

Behavioral red flags of fraud: a gender-based ex post analysis

“…Available literature on behavioral red flags of fraud indicates that 92% fraud perpetrators exhibit at least one behavioral red flag and 57% fraud perpetrators exhibit at least two red flags (ACFE, 2016). The number of behavioral red flags most frequently displayed by fraud perpetrators is three (in 36.6% cases) or four (in 24.4% cases) (Sandhu, 2020a). It may be noted that exhibition of one or even two behavioral red flags by an individual may not indicate the individual's involvement in fraud.…”

“…Third, this study was conducted in India. Most available fraud research has been conducted in the Western countries (Sandhu, 2020a). Fourth, the ratio of male:female fraud perpetrators, whose behavior is examined in this research is 14:27.…”