Red Flag Series (1 of 5) – Behavioral Red Flags

In this series, we will cover five categories of red flags related to the individual and the behaviors of people who commit fraud. Behavioral red flags are the most basic type of red flags we will cover.

When I was growing up, my uncle shared some wisdom with me and it stuck. I was complaining to him about a negative experience I had with another person. He told me, “You learn something from everyone you meet. It is easy to see the good qualities in people, and you will want to be like them. It is great to identify and duplicate their good behaviors. On the other hand, there are a lot of negative people in this world too. You can learn just as much from them. If you pay attention, you can identify the behavior that makes them negative and focus on NOT doing it.” This wisdom has guided me and contributed to my becoming a successful adult. It also shows how the behaviors of others may impact us personally.

The following categories relate to behaviors people have developed over time, how they may respond to a given situation, and the way they live.

• Some people are more prone to addictive behaviors such as gambling, using drugs, or engaging in sexual promiscuity. This behavior seems to be more about their lack of self-control, rather than their tendency to be addicted to any certain activity.
• Character traits, such as being defensive, domineering or autocratic, can be strong behaviors that a person has formed over years and years and usually relate to how they treat other people in their lives.
• Kindness is probably the one red flag that most people question me about, but there are a lot of fraudsters who are overly kind at times. I guess it is easy for them when they are using someone else’s money. They may buy donuts for the office or gifts for co-workers or make large charitable contributions. In some ways, it is probably another way to rationalize their fraud activity.
• A life changing event such as an illness or a loved one losing their job can happen to an owner/executive or an employee and may turn the employee into a fraudster. This is a situational change that may impact the way a person behaves by:
  • Creating an opportunity for a fraudster because an owner/executive has less time to monitor an employee’s activity; or
  • Increasing the stress in the fraudster’s life because they need more money.
• Finally, some people decide to live beyond their means, indicated by excessive shopping, traveling, or racing for example, which can be a huge red flag, especially when they need to steal to supplement their normal salaries.

These red flags are clues that an individual may be committing fraud. We all have some of these behaviors and that doesn’t mean we are all committing fraud. When evaluating red flags, you should look at the quantity and magnitude of the behaviors, along with the presence of any other types of red flags. Next week, we will cover the types of red flags that could be indicators of fraud in any business. 

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