Opinion: Keeping an eye out for top fraud red flags is a good idea for any business

Brittany K. Hopp

In recent years, the U.S. economy has been a confusing roller coaster. Employment statistics are up and down, inflation is on what seems like a never-ending upward trajectory. The war in Iran has laced uncertainty everywhere you turn, and consumer confidence has declined. Meanwhile, the S&P 500 has hit a new “all-time high” at least 25 times this year to date, according to Bloomberg. AI is driving unprecedented growth and excitement, while stoking fear and anxiety at the same time. As CPAs, we often have a front row seat to what is happening at the small business level. In recent years, we’ve seen some clients have record-breaking years and some clients quietly close up shop, unable to sustain profitable operations in the current economy. 

This is the perfect environment to encourage fraudulent activity. The widely recognized “fraud triangle” theorizes that three things must be present for fraud to occur: financial pressure, rationalization and opportunity. An unstable business climate can heighten the chance of all three of components. In my practice, I’ve noticed a definite uptick in fraud cases this year. The ease of AI assistance only makes fraud easier, both in terms of scams and in everyday small business fraud.

In the Association of Certified Fraud Examiners’ Report to the Nations for 2026, it is estimated that organizations lose 5% of revenue to fraud each year. The most common fraud schemes are theft of noncash assets and billing schemes, but the most costly schemes are check/payment tampering and billing schemes. A typical fraud scheme lasts 12 months before detection. No organization is immune to fraud, but small businesses experience the highest median losses.

The average honest person might ask “what type of person would do this?” The answer is unsettling. The ACFE’s Report to the Nations gives the following “profile of a fraudster”:

• 41% of fraudsters are employees

• 41% of fraudsters are managers

• 71% of fraudsters are men

• More than 60% of fraudsters had a university degree or higher

• More than 2/3 of fraudsters were 31-50 years old

Keeping an eye out for the top fraud red flags is a good idea for any business owner or manager, especially in an economic climate like today’s. The most frequent red flags include:

• Living beyond means

• Financial difficulties

• Unusually close association with vendor or customer

• Control issues or unwillingness to share duties

• Bullying or intimidation

• Irritability, suspiciousness or defensiveness

The best way to fight fraud is to design your operations, procedures and systems with fraud prevention in mind. Unfortunately, in the organizations most susceptible to fraud, small businesses, staff is often limited, and proper internal controls and segregation of duties can be a challenge. However, with a commitment to prevention and creativity, small businesses and nonprofits can set themselves up for success in the fight against fraud.

The most effective anti-fraud programs are anti-fraud training, an effective fraud reporting system and ensuring the tone at the top is one of honesty and integrity. In addition, anti-fraud controls to consider include proper separation of duties, use of authorizations, physical safeguards, job rations and mandatory vacations.

Setting up a good anti-fraud system in your workplace at first glance may seem like a symptom for lack of trust. However, if done properly, these systems can demonstrate care for all stakeholders. The sad but true reality is that hard times will come and may already be in your business, as you often don’t know what’s going on in an employee’s private life. If we can take one leg of the fraud triangle – opportunity – out of the picture, our people are more protected when financial pressure strikes, or some other motivation to commit fraud.

It’s easy to get distracted when things are going well in your business and also when business is slow – in both cases, it’s important to keep your eye on fraud risks. In every fraud case I’ve worked with, the perpetrator started out as a trusted employee and oftentimes, a friend. Sometimes, the betrayal is worse than the monetary loss.

In these uncertain times, it is vitally important to stay fraud-aware and protect yourself and your employees.

Brittany K. Hopp is a partner at Elliott, Robinson & Co. She can be reached at bhopp@ercpa.com.