Background

Behavioral red flag is one of the fraud indicator in an organization. One needs to understand the significance of red flags and take appropriate action on time.

As in the case of profit making organizations, risk management is equally important in nonprofit organizations. Occupational fraud causes huge losses to different countries every year.

Fraud in Organization

It is almost unthinkable to you that your trusted employee that too at higher level and especially with your organization for longer time steal money. So, you need to be aware that occupational fraud and corruption is nowadays a great threat to your organization. This holds equally got not only in business, trading, financial institutions but also in NGOs, INGOs, government organizations.

Source: Association of Certified Fraud Examiners
Source: Association of Certified Fraud Examiners

Association of Certified Fraud Examiners (ACFE) conducted survey in 2018 about people with behavioral red flag. As per the survey report, private sectors were mostly affected by occupational fraud while not-for-profit sector also affected significantly by occupational fraud. Also, small, medium as well as large organizations were affected by occupational fraud

Announced intentions far from reality

According to the study made by Ernst & Young (one of the leading global accounting firm) in 2018, 97% of the organizations think that they operate with integrity. However, study shows that people perceive fraud as a persistent global issue. According to the survey, 11% of the organizations globally experienced a significant fraud in the last two years whilst 38% of the respondents believed that bribery/corrupt practices happen widely in business in their country.

Top Red Flags

In every organization, you may come across several people with “red flag”. Although there could be numerous red flags, management may seriously focus over top red flags. Hence, focusing on top 5 red flags helps to address the issue.

Top five red flags identified by the ACFE include living beyond means, financial difficulties, close to vendors or customers, unwilling to share duties, and family problem. Please refer following picture:

Source: Association of Certified Fraud Examiners

Are You Immune?

Various research and studies reveal that organizations of any type and size are prone to fraud and corruption risk. Therefore, you need always to pay close attention to behaviors of people around you that could be red flags for fraud and corruption. Al last, you need to build/improve robust fraud risk management system to immunize your organization.

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