What are Fraud Risk Factors and a Real Example of Fraud Risk

Fraud rarely shows up with a flashing warning light. It tends to look like small “workarounds” that stack up, a rushed approval, a missing receipt, a vendor change no one double-checks. Those moments create fraud risk, even in honest teams.

Fraud risk factors matter because most organizations aren’t built for perfect oversight. People get busy, roles overlap, and the same person ends up handling more steps than they should. That’s not a moral failure, it’s a design problem that can turn into a loss problem.

This article explains what fraud risk factors are, why they matter in any size business, what a fraud risk assessment looks like at a high level, and one practical example that shows how small warning signs can add up.

Fraud risk factors, what they are and why they matter

Fraud risk factors are conditions that make fraud more likely, or make it easier to hide. Think of them like wet floors in a hallway. A wet floor doesn’t prove someone will slip, but it tells you the odds just went up and you should act.

A risk factor is not proof of fraud. It’s a reason to look closer, ask better questions, and check whether controls are working as intended.

This is where a fraud risk assessment comes in. It’s a structured way to spot where fraud could happen, rate how serious it could be, and decide what to fix first. Done well, it turns vague concerns into a clear plan with owners and due dates.

People and culture risk factors

Fraud starts with people, but not always with “bad people.” Often, it begins when normal pressure meets a weak environment.

Common people and culture fraud risk factors include:

Financial pressure: Personal debt, gambling, addiction, or a sudden life event can push someone to “borrow” money. Many fraud cases start with the intent to pay it back.

Unrealistic targets: Aggressive sales goals, tight cash targets, or “make payroll no matter what” expectations can lead to lying about results, moving expenses, or recording revenue early.

Job insecurity: If someone believes layoffs are coming, they may justify taking what they think they “deserve” or hiding problems to protect their job.

Entitlement: “They underpay me” is a common story people tell themselves. It can turn into expense padding, payroll manipulation, or vendor kickbacks.

Weak ethics and mixed messages: If leaders say “follow policy” but celebrate people who bypass it to get results, the real rule becomes clear.

Power without challenge: A manager who blocks questions, rejects oversight, or punishes “difficult” employees creates silence. Silence is fuel for fraud risk.

Culture shows up in small moments. Does the team feel safe raising concerns? Does leadership make exceptions for favorites? If reporting feels risky, people stop reporting. Problems then grow in the dark.

Process and system risk factors

Even great employees can’t protect you from a process that invites abuse. Strong controls are not about distrust. They’re about making sure no one has the ability to create, approve, and hide the same transaction.

Common process and system fraud risk factors include:



No separation of duties: One person can set up vendors, enter bills, approve payments, and reconcile the bank. That’s a full fraud path in one job description.

Weak approvals: Approvals that are informal, inconsistent, or “verbal only” are easy to fake later.

Shared logins: If multiple people use the same account, you lose accountability. It becomes hard to prove who did what.

Manual checks with no audit trail: Paper checks and offline steps can be necessary, but they raise fraud risk if they aren’t logged and reviewed.

Poor vendor setup controls: If anyone can add a vendor with minimal details, fake vendors slip in.

Limited monitoring: If no one reviews exception reports, bank changes, or unusual transactions, warning signs don’t get caught early.

Overrides are a special category of risk. Anytime a system lets someone approve their own expense, change a vendor’s bank info, or bypass a required approval, the fraud risk rises fast.

Common fraud risk factors to look for in daily operations

Most fraud risk factors are visible in everyday work. You don’t need a full investigation to notice them. You need attention, simple routines, and the willingness to ask, “Does this make sense?”

Here are practical signs owners, finance teams, and department heads can watch for:

Ownership gaps: Tasks that “no one owns” (vendor changes, refund approvals, credit memos, write-offs) often become the easiest place to hide fraud.

Too much trust in one person: If one person is the only one who understands a process, or they won’t share it, that’s a risk factor. Cross-training reduces that risk.

Rushed exceptions: A steady stream of “do it now, we’ll fix it later” requests is a red flag. Temporary exceptions have a way of becoming permanent.

Missing documentation: Receipts, invoices, and approvals that are “somewhere” but never attached to the transaction make reviews weak and slow.

No vacations or coverage: Employees who never take time off, or insist no one can back them up, may be hiding errors or worse. This is not proof, but it’s worth attention.



Frequent overrides: When controls exist but get bypassed, the organization has the cost of controls without the protection.

Next, it helps to focus on the two places where fraud often shows up first: money reporting and vendor payments.

Money and reporting red flags

Financial reporting risk factors often show up at month-end, when teams are under pressure to close fast.

Watch for these patterns:

High cash activity: Cash is hard to trace. The more cash you handle, the higher the fraud risk, especially without daily logs and independent review.

Rising refunds and credits: An increase can be normal, but it can also point to refund fraud, fake returns, or someone using credits to hide theft.

End-of-month rush entries: Last-minute journal entries can be legitimate. They can also be a way to “smooth” results or hide losses.

Round-dollar journal entries: Lots of entries ending in .00 can mean someone is estimating instead of supporting amounts.

Missing support: Journal entries with no backup, no explanation, or vague memos (“reclass,” “adjustment”) raise fraud risk.

Unexplained write-offs: Write-offs can hide theft, poor billing practices, or kickbacks. If write-offs are routine, they should be reviewed for patterns and approvals.

Frequent adjustments: If the same accounts are corrected every month, the close process may be weak. Weak close controls create room for manipulation.

A strong close process reduces fraud risk because it forces clarity. It also makes unusual items stand out instead of blending in.

Vendor and purchasing red flags

Accounts payable is one of the most common fraud areas because money can leave the business quickly, and vendor records can be messy.

Vendor and purchasing risk factors include:

Duplicate vendors: Two vendors with similar names, similar addresses, or similar tax IDs can signal a fake vendor, or a workaround that turned into a habit.

PO boxes or vague addresses: Not always wrong, but worth verifying, especially for service vendors.

Vague invoice descriptions: “Consulting,” “services,” or “project work” with no detail makes it hard to confirm the work was real.

Split invoices to avoid approval limits: If approvals are required over $5,000, fraud often shows up as two invoices for $2,500.

One-person control: If the same person sets up vendors and processes payments, fraud risk rises. This is true even with honest staff.

Sudden bank detail changes: Vendor banking changes are a common way to divert payments. Any change should be verified outside of email.

Rush payment requests: “We’ll lose the vendor if we don’t pay today” is a classic pressure tactic. Pressure is a risk factor.

Vendor master files often hide problems because no one reviews them. A monthly review of new vendors and vendor changes can catch issues early.

Fraud risk assessment, how to turn risk factors into action

A fraud risk assessment doesn’t have to be complicated. It should be clear enough that a manager can follow it, and strong enough that leadership can act on it.

Here’s a simple step-by-step approach:

1. Map where fraud could happen. Walk through how money comes in and goes out. Focus on who can create, approve, and record transactions.
2. Rate likelihood and impact. Ask two questions: How easy is it to do, and how much could we lose (money, reputation, legal exposure)?
3. Review current controls. Write down what controls exist today, not what you wish existed.
4. Test what’s really happening. Spot-check transactions, look at user access, review vendor changes, scan for duplicates, and confirm approvals match policy.
5. Fix gaps and assign owners. Every fix needs an owner and a due date. If no one owns it, it won’t happen.
6. Re-check and refresh. Risks shift when you change systems, add staff, or lose key employees. A fraud risk assessment should be updated, not filed away.

This is how risk factors become decisions, not just worries.

Scope the highest-risk areas first

If resources are limited, start where money moves quickly and often. High-volume areas tend to hide problems better.

Common high-risk areas include:

Accounts payable: Many payments, many vendors, and often limited review.

Payroll: Steady outflows, sensitive access, and a high chance of “ghost employee” or overtime fraud if controls are weak.

Expenses and reimbursements: Receipts can be faked, and approvals can become rubber stamps.

Revenue recognition: Complex rules and pressure to hit targets can lead to early revenue or fake sales.

Inventory: Theft and write-offs can be disguised as damage, shrink, or adjustments.

Vendor management: Vendor setup and bank changes are a frequent entry point for fraud.

Starting small is fine. A focused fraud risk assessment that leads to real fixes beats a massive project that never gets finished.

Match each risk factor to a control that teams can follow

Controls only work if people can follow them on a normal Tuesday. Practical controls reduce fraud risk without slowing the business to a crawl.

Examples that map well to common risk factors:

Separation of duties: Split vendor setup, payment approval, and bank reconciliation across different people (or add review steps if headcount is tight).

Dual approvals: Require two approvals for wire transfers, ACH batches, and new vendor setup.

Independent bank reconciliations: The person who cuts payments should not be the person who reconciles the bank.

Vendor verification: Confirm new vendors and bank changes using a call-back to a known number, not the number in an email.

Access reviews: Review who has admin rights, who can change banking info, and who can post journal entries.

Exception reports: Review duplicates, round-dollar invoices, payments just under approval limits, and vendor changes.

Surprise reviews: Short, random checks of refunds, credits, and manual payments keep people honest and reveal weak spots.

A clear reporting channel: Employees need a safe, simple way to report concerns without fear of payback.

Training ties this together. Teams need to know what “normal” looks like and what to do when it changes. For organizations that want practical instruction backed by forensic experience, the fraud prevention and detection training program from Turning Numbers is built around real warning signs, clear roles, and controls teams can use.

Example of fraud risk, a realistic scenario and how it starts small

A good fraud example doesn’t start with a huge theft. It starts with a process that makes theft easy to attempt and hard to catch.

Vendor payments are a common place to see this. The steps are routine, the volume is high, and “just pay it” pressure shows up often.

Example scenario, fake vendor and diverted payments

A growing company has a lean accounting team. One employee, Alex, handles vendor setup, enters bills, releases ACH payments, and helps with the bank reconciliation when the controller is busy.

That structure creates several fraud risk factors right away: one-person control, weak review, and the ability to hide activity.

Here’s how the fraud unfolds:

1. Vendor creation with a similar name. Alex sets up “Acme Industrial Supply LLC” even though the real vendor is “Acme Industrial Supplies, Inc.” The names look close enough to pass a quick glance.
2. Bank details go to a personal account. The vendor’s bank account is Alex’s account under a different bank product name. No one verifies bank changes by phone.
3. Small invoices test the system. Alex submits two invoices for $480 and $620 with vague descriptions like “parts” and “services.” These amounts sit under an approval threshold that doesn’t require a second review.
4. Shared logins blur accountability. The team shares a generic AP login. Even if someone notices later, it’s hard to prove who entered what.
5. Payments slowly increase. The next month, invoices become $1,800 and $2,200. The amounts still don’t trigger a deeper review because the close is rushed.
6. Month-end pressure hides the pattern. The controller is focused on deadlines, not vendor master cleanup. No one reviews a monthly new vendor list or bank changes report.
7. A real vendor complains. The real Acme calls about late payment. That’s when the team realizes they have two Acmes in the system, and money went to the wrong place.

Nothing about this is flashy. It’s basic. That’s what makes it common.



Missed warning signs include: similar vendor names, vague invoices, repeated payments just under approval limits, bank detail changes with no verification, and lack of a monthly vendor master review. Any one sign might be explainable. Together, they form a clear fraud risk pattern.

How to reduce the fraud risk in this scenario

This type of fraud can often be stopped with a few disciplined changes.



Split duties, even if the team is small. If headcount is tight, add a required review step. For example, one person sets up vendors, another approves the setup, and a third reviews the monthly vendor changes.

Use vendor onboarding checks. Require a W-9 (or local tax form), a physical address, and a call-back verification to a known phone number. If the vendor is new, confirm ownership and service scope before the first payment.

Set approval rules that match real risk. Consider tighter approval requirements for new vendors, bank changes, and first-time payments, even if the dollar amount is low.

Lock down bank detail changes. Restrict who can change vendor banking info, then review every change weekly. Treat bank changes like cash.

Run duplicate vendor checks. Look for similar names, shared addresses, shared bank accounts, and vendors with missing tax IDs.

Review exception reports monthly. Focus on payments just under limits, round-dollar invoices, and vendors paid more than expected.

If you’re seeing these risk factors, don’t wait for a vendor complaint to force action. Call us or fill out the form for a forensic consultation so the process can be reviewed and tightened before money walks out the door.

This type of fraud can often be stopped with a few disciplined changes.

Split duties, even if the team is small. If headcount is tight, add a required review step. For example, one person sets up vendors, another approves the setup, and a third reviews the monthly vendor changes.

Use vendor onboarding checks. Require a W-9 (or local tax form), a physical address, and a call-back verification to a known phone number. If the vendor is new, confirm ownership and service scope before the first payment.

Set approval rules that match real risk. Consider tighter approval requirements for new vendors, bank changes, and first-time payments, even if the dollar amount is low.

Lock down bank detail changes. Restrict who can change vendor banking info, then review every change weekly. Treat bank changes like cash.

Run duplicate vendor checks. Look for similar names, shared addresses, shared bank accounts, and vendors with missing tax IDs.

Review exception reports monthly. Focus on payments just under limits, round-dollar invoices, and vendors paid more than expected.

If you’re seeing these risk factors, don’t wait for a vendor complaint to force action. Call us or fill out the form for a forensic consultation so the process can be reviewed and tightened before money walks out the door.

How to reduce the fraud risk in this scenario

Small gaps in approvals, access, and review can lead to real losses, even in trusted workplaces. Training plus simple, consistent controls lowers fraud risk and protects trust with customers, donors, and stakeholders.

If you want help assessing your risk factors, strengthening controls, or training your team, contact Turning Numbers to discuss fraud prevention training and request a forensic consultation. Call us or fill out the form to get started.Fraud risk factors are warning signs, not verdicts. They point to conditions where fraud is easier to commit and harder to spot. A clear fraud risk assessment turns those signals into a plan, with prioritized fixes that real teams can follow.