Top 10 Fraud Red Flags Every Executive Should Recognise

Occupational fraud — fraud committed by people against the organisation they work for — is one of the most costly and least visible business risks. The Association of Certified Fraud Examiners (ACFE) estimates in its Occupational Fraud 2024: A Report to the Nations that organisations lose around 5% of revenue to fraud each year, and that tips remain the most common way schemes are detected.

The good news: fraud almost always leaves traces. A red flag is not proof of wrongdoing, but it is a signal that deserves a closer look. Below are the ten we see most often in practice.

1. Living beyond apparent means

The single most common behavioural red flag. A sudden lifestyle change — cars, holidays, property — that does not match a person’s known income is worth noting, especially when combined with other indicators.

2. Unusually close relationships with vendors or customers

Employees who insist on handling a particular supplier personally, resist rotation, or receive gifts and hospitality beyond policy limits may be part of a kickback or conflict-of-interest scheme.

3. Reluctance to share duties or take holidays

People who never take leave, refuse to delegate or guard “their” process may be concealing an ongoing scheme that would unravel without their constant attention. Mandatory vacation and job rotation exist for a reason.

4. Control override by management

Approvals granted “just this once”, manual journal entries near period end, or a senior manager who bypasses the purchase-order process are classic warning signs. Management override is especially dangerous because it defeats controls that otherwise work.

5. Duplicate, round-sum or just-below-threshold payments

Payments of exactly 5,000 or repeatedly just under an approval limit, duplicate invoice numbers or the same amount paid twice to a vendor deserve analysis. These patterns are easy to find with basic data analytics.

6. Vendors that look like employees

A supplier sharing a bank account, address or phone number with an employee is one of the strongest indicators of a shell-company scheme. Matching the vendor master file against HR data takes hours, not weeks.

7. Missing or altered documents

Photocopies instead of originals, invoices without purchase orders, unsigned contracts, and documents created after the transaction date should never be accepted without explanation.

8. Unexplained inventory shrinkage or margin erosion

When stock losses, write-offs, credit notes or discounts rise without an operational explanation, someone may be diverting assets — or manipulating prices, rebates or channel incentives.

9. Complaints and tips

Customer complaints about payments not credited, vendors asking about overdue invoices that were “paid”, or anonymous internal reports are often the first concrete lead. Every organisation needs a safe, trusted way to report concerns.

10. A weak control environment

Excessive system access, lack of segregation of duties, no reconciliations, and a culture where questions are unwelcome do not prove fraud — but they create the opportunity for it. Opportunity is the one side of the fraud triangle management can directly control.

What to do when you see a red flag

1. Do not confront anyone prematurely. Alerting a suspect can lead to destroyed evidence.
2. Preserve evidence. Secure documents, emails and system logs before they can be changed.
3. Keep the circle small. Involve legal counsel and only the people who need to know.
4. Get an independent view. A forensic review establishes facts objectively and protects everyone — including people who turn out to be innocent.

Red flags are most valuable when you look for them systematically, not by chance. A fraud risk assessment maps where your organisation is exposed, and targeted data analytics can test thousands of transactions for the patterns above.

If you are facing a situation that does not add up, contact us for a confidential conversation.