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How to Spot a Liar

Fraud? Deception? Flat-out lying? Here’s how to know when you’re being duped. By Selena Chavis | Fall 2015

Summer pinocchio

From little white lies to all-out fraud, organizations of all sizes and across all industries can fall victim to deceit. And research suggests that the financial impact is significant.

According to the 2014 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of revenues annually to fraud—translating to a potential global fraud loss of $3.7 trillion.

The fact is, no business is immune to the fallout of deceit, says Andi McNeal, CFE, CPA, director of research with the ACFE. “Any organization that employs individuals is at risk of being defrauded or deceived by one or more of those employees,” she says matter-of-factly. “However, our findings show that organizations that are proactive in preventing and detecting employee fraud and misconduct catch incidents sooner and suffer smaller related losses than organizations that take a purely reactive approach to these inevitabilities.”

Proactive strategies, though, require an understanding of the psychology of deceit. In other words, what are the tells?

Alan Hirsch, M.D., a Chicago-based psychiatrist and neurologist, says that anyone equipped with a basic psychology tool set can recognize some of the tell-tale signs. Through research published in The Journal of the American Academy of Psychiatry and the Law, Hirsch and his colleague Charles Wolf, M.D. were able to identify 23 verbal and nonverbal clues as discriminators for truthfulness. For the sake of simplicity, he suggests focusing on these seven.

1. Touching the Nose/Face

Termed the “Pinocchio Effect,” research suggests that increased blood pressure and blood flow result when a person lies, causing the nose to expand. The result is an itching sensation.

2. Would Not & Could Not

Liars tend to emphasize the word “not” and use an expanded form of the negative more frequently, says Hirsch. “Look for excessive use of words like ‘would not’ or ‘could not’,” he suggests.

3. Errors in Speech

Unnatural pauses and an increased number of grammatical errors such as using the wrong tense or pronoun are more common when a person is lying. Often, Hirsch notes, liars will try to fill in periods of hesitation with sounds such as “uh,” “er” and “um,” or may become tongue-tied or begin stammering or stuttering.

4. Leaning In

Leaning forwards, resting elbows on a table and general restlessness may be an indicator of dishonesty, says Hirsch.

5. Dry Mouth

Increased drinking or swallowing along with frequent clearing of the throat are potential indicators that a person is lying.

6. Catchphrases

Frequent use of phrases such as “to tell the truth” or “to be honest” before completing a thought may be a red flag that someone actually is not telling the truth or being honest. Also, denying being guilty of lying by stressing one’s truthfulness with statements such as, “I have absolutely no reason to lie” may be red flags.

7. Eye Movement

People who lie tend to look away from you more often—to the side or down. Also, a deceptive person tends to blink less frequently, says Hirsch.

He cautions against jumping off the deep end with your conclusions based solely on a stutter or twitchy nose, however. “Anxiety can give the appearance of lying,” he explains, pointing out that stress alone can increase errors in speech and mid-sentence changes. “Just by being nervous or fearful, you can demonstrate many of the characteristics of lying,” he warns.

Beyond learning about verbal and nonverbal red flags, McNeal suggests that the most effective technique to detect and deflect deceivers is to involve employees throughout the organization in helping to uncover fraud and misconduct.

“Our research has consistently shown that tips are by far the most common way that deceit is detected,” she says. “So encouraging and supporting employees in coming forward with suspicions of fraudulent or deceitful behavior is essential to effectively spotting these problems.”

To encourage this openness, McNeal recommends implementing reporting mechanisms such as hotlines and making them known and available to staff, vendors, customers and the public. Building on Hirsch’s tips, she also recommends that managers throughout the organization receive training specifically on the behavioral red flags commonly displayed by individuals engaging in deceit and fraud.

“They should also be instructed that watching for these warning signs is part of their managerial responsibilities, with the important caveat that they should focus on patterns and changes in these behaviors, not isolated incidents,” she says, adding that just as there’s  no single body movement that definitively indicates someone is lying, there’s no single behavior that definitively indicates fraud. “However, knowing the most likely physical displays of stress and the most common behavioral warning signs of fraud can help management identify areas—and individuals—that merit increased monitoring.”

Adding another layer, motivation is critical to understanding the penchant for deception. Not surprisingly, the biggest deterrent for many fraudsters is fear of getting caught and its consequences. “It is the belief that they can get away with it that leads them to cross the line and keep going,” McNeal explains. “Consequently, raising the perception that such behavior will be detected is one of the best ways to prevent fraud and deceit among employees.”

It then follows that in order to strategically address risks of fraud and misconduct, companies need to make it known that management is proactively watching for deceit, and that such behavior will be prosecuted. Hand in hand with this, says McNeal, emphasize a culture where honest and ethical behavior is not only the priority, but also rewarded.

“When employees know that management includes honesty and ethics as core business values, they are less likely to deceive or defraud,” she comments. 

5 Tips for Fraud Fighters

The Association of Certified Fraud Examiners suggests these basic steps to lessen your risk of fraud.

1. Be Proactive. Adopt a code of ethics for management and employees. Evaluate internal controls for effectiveness and identify those areas that are most vulnerable.

2. Cement Hiring Procedures. When hiring staff, conduct thorough background checks, including educational, judicial, credit and employment histories, as well as references.

3. Train Staff in Fraud Prevention. Ensure employees are familiar with basic detection methods and are able to recognize the most common red flags.

4. Start a Fraud Hotline.
Fraud is still most likely to be identified via a tip. Providing an anonymous reporting system for your employees, contractors and clients will help to uncover deceit.

5. Make Detection a Corporate Priority. Communicate anti-fraud policies regularly with staff, as well as ways to report suspicions of misconduct and the potential consequences of committing fraud (termination, prosecution, etc.).