If it was easy to spot a fraudster at first sight, then I would have retired a long time ago! However, there are certain traits that are common to many of those who commit fraud and certain warning signs that employers should be aware of. Of course the presence of these warning signs does not automatically mean that you have a fraudster within your organisation, it should just raise your awareness of the fraud risks that might exist.

The impact of the credit crunch has been felt by businesses across the globe, but it can be easy to forget the effect it has had on individual employees in your organisation. Examples include the fear of redundancy felt by those who may have previously considered their jobs extremely secure; record levels of personal debt resulting in increased financial hardship and personal bankruptcies and the fall or stagnation in house prices resulting in negative equity. Such factors put financial pressure on individual employees which ultimately might lead them to commit fraud.

In the 1950s criminologist Dr Donald Cressey came up with the Fraud Triangle to help explain why people commit fraud. He identified three key factors that contribute to an increased likelihood that an employee will commit fraud; pressure, rationalisation and opportunity.

There is often some sort of pressure that pushes an employee into committing fraud. This pressure could be caused by personal financial difficulties or by a desire to meet seemingly impossible targets in order to gain promotion or, potentially, to avoid losing one's job. A difficult economic situation will only serve to increase the pressure on individuals, and therefore increase the motivation to commit fraud.

Fraudsters will frequently seek to rationalise or justify their actions. They may feel they were passed over for promotion or are not paid what they are worth and that, in defrauding their employer they are only "taking what is rightfully theirs". The tone at the top in an organisation is vital in addressing the rationalisation of fraudulent acts. If management are seen to condone dishonest acts (even if aimed at entities outside an organisation) then it is easier for employees to rationalise any fraud they may commit, "if they can do it, why can't I?"

An effective way to demonstrate this tone from the top is to establish a clear code of ethics or anti-fraud policy, provide all staff with regular training on that policy and ensure that senior management lead by example, creating a zero tolerance environment for fraud and dishonesty.

Employees may be motivated to commit fraud and may have been able to rationalise such an act in their own mind, but if they do not have the opportunity to commit fraud no fraud will occur. This is the area organisations can have the most impact on, specifically by the implementation and monitoring of anti-fraud controls.

Anti-fraud controls can range from simple separation of control to sophisticated IT transaction monitoring. It is important to consider an organisation's individual fraud risk profile and tailor the controls to address these risks. Controls that are not properly tailored could result in a false sense of security and an open door for the fraudster.

There are a number of warning signs to look out for when considering employee fraud risk. Not all these indicators will exist in every case of employee fraud. Where they do exist it does not necessarily mean that your employee is a potential Nick Leeson or Jérôme Kerviel! However, experience tells us that fraudsters often display some of the following traits:

• Working excessive hours for no clear reason.
• Avoiding taking holidays.
• Expensive lifestyles or living beyond their means.
• Very close relationships with clients and/or suppliers.
• Unexpected resignations or leaving without good reason.
• Character changes in employees.
• Unusual protectiveness/reluctance to delegate.
• Too much authority in the hands of one employee.
• Employees who can overrule, delay or fail to perform certain controls.

When you do suspect an employee is involved in some sort of fraud, it is important that you respond quickly and decisively. Having in place a robust Fraud Response Plan is the most effective way to ensure that actions are taken by management in the critical first 24 hours after a fraud is first suspected or uncovered.

This is the first of three articles related to employee fraud. The next two articles will deal with how to respond to employee fraud, learning lessons from the past and forensic memory.

The author is a senior manager, Fraud Investigation and Dispute Services (FIDS), Ernst & Young Channel Islands. She was recently in Malta to deliver a talk on the changing landscape of fraud.