Fraud is rarely a single event. It is usually the result of pressure, opportunity and weak controls coming together over time. Understanding those warning signs can help you protect your clients before losses escalate.

Fraud remains one of the biggest financial and operational risks facing organisations of every size. While technology has changed how some frauds are committed, many of the underlying causes have stayed the same. Weak internal controls, poor oversight and opportunities to conceal transactions continue to feature in many investigations.

During a recent webinar, forensic accountant Juan Carlos Venegas explored why people commit fraud, how it is commonly detected, and the practical steps accountants can take to reduce risk.

Fraud is more than theft

Fraud and theft share important characteristics. Both involve an intentional act that results in someone obtaining an unjust advantage.

The key difference is deception.

Fraud relies on concealment. Perpetrators often manipulate accounting records, alter documentation or create false transactions to make fraudulent activity appear legitimate. That deception makes fraud significantly harder to detect than straightforward theft.

Understanding this distinction helps accountants focus on the controls most likely to expose fraudulent behaviour.

Why do people commit fraud?

Financial gain is rarely the whole story.

Many fraud cases begin with personal or financial pressure. Common motivations include:

• personal debt or financial difficulties
• gambling addiction
• maintaining an expensive lifestyle
• pressure to achieve performance targets
• fear of losing employment or bonuses.

These pressures alone do not create fraud. They become dangerous when combined with opportunity.

The well-known Fraud Triangle identifies three conditions that commonly exist in fraud cases:

• Pressure – a motivation to commit fraud.
• Opportunity – weak controls or access that make fraud possible.
• Rationalisation – convincing yourself that the behaviour is justified.

More recent models expand this by adding factors such as capability, incentives and arrogance. Not everyone presented with an opportunity will commit fraud, but individuals who believe they can avoid detection may be more likely to act.

Weak controls create opportunities

One consistent theme across fraud investigations is that internal controls often fail before the fraud begins.

Common weaknesses include:

• inadequate segregation of duties
• poor management oversight
• ineffective monitoring
• management overriding existing controls
• excessive reliance on trust rather than verification.

Trust is important in any organisation, but it is not an internal control.

Even well-established controls should be reviewed regularly. Business processes change, staff responsibilities evolve and new risks emerge over time.

Most fraud is uncovered by people

Technology plays an important role in fraud detection, but people remain the strongest defence.

According to the industry research discussed during the webinar, whistleblowing and employee tip-offs continue to be the most common way fraud is initially detected.

Internal audit and management review follow closely behind.

This highlights the importance of creating an environment where concerns can be raised and investigated appropriately.

Small warning signs should not be ignored. Repeated expense irregularities, unexplained adjustments or minor policy breaches may indicate broader control weaknesses.

Learn to recognise red flags

A single warning sign does not prove fraud.

However, multiple red flags occurring together deserve investigation.

Behavioural indicators may include:

• living beyond apparent means
• sudden financial difficulties
• reluctance to take annual leave
• refusing to rotate responsibilities
• significant changes in behaviour.

Transactional warning signs may include:

• vague transaction descriptions
• unusual supplier relationships
• unexpected manual adjustments
• duplicate payments
• unusual approval patterns.

System activity can also reveal unusual behaviour, such as transactions processed outside normal working hours or unexpected access to financial systems.

Looking at these indicators collectively provides a stronger basis for further investigation than relying on any single factor.

Data analysis is a powerful fraud detection tool

Modern fraud detection combines accounting knowledge with analytical techniques.

Useful approaches include:

• trend analysis across reporting periods
• ratio analysis
• transaction testing
• duplicate payment reviews
• identifying missing sequences or gaps
• reviewing unusually large or unusual transactions
• analysing approval patterns.

Juan Carlos also highlighted Benford's Law, a statistical technique that examines the frequency of leading digits within naturally occurring datasets.

When transaction values deviate significantly from expected patterns, it may indicate manipulation requiring further investigation. While Benford's Law does not prove fraud, it helps identify anomalies that warrant closer review.

The key principle is simple: analytical tools help narrow the focus, but every anomaly still requires a reasonable explanation before conclusions are reached.

Understanding the business matters

No analytical technique replaces understanding how an organisation actually operates.

Effective fraud detection begins with questions such as:

• How does the business process work?
• Who authorises transactions?
• Have responsibilities recently changed?
• Where are the highest-risk points in the process?

This broader understanding helps investigators distinguish genuine business activity from suspicious behaviour.

It also makes fraud risk assessments more meaningful.

Fraud risk assessment should be ongoing

Fraud prevention is not a one-off exercise.

An effective fraud risk assessment is a continuous process that identifies vulnerabilities, evaluates existing controls and responds to changing risks.

Regular reviews help organisations:

• improve fraud awareness
• identify high-risk areas
• strengthen internal controls
• prioritise monitoring activities
• support compliance with professional and regulatory expectations.

The objective is not to eliminate every possible risk. It is to identify weaknesses before they become costly problems.

Practical takeaway

Fraud often develops gradually rather than appearing overnight. Weak controls, limited oversight and behavioural warning signs can exist for years before significant losses are discovered.

For accountants, the greatest value comes from combining strong internal controls with regular review, analytical testing and an understanding of how the organisation operates. Detecting one unusual transaction may not uncover fraud, but recognising patterns and asking the right questions can make all the difference.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.