How small exceptions can grow into major fraud

Fraud rarely begins with one big step. More often, it arises from small exceptions that initially seem explainable or temporary, but become increasingly normal through repetition, pressure, and a lack of contradiction.

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Reading time: approximately 7 minutes · For board members, management, compliance, and internal audit

Major fraud often starts with a small exception

A payment is approved outside the usual route because it is urgent. A control is skipped this month because the colleague involved is trustworthy. A result is presented slightly more favorably, with the intention of correcting it later. In isolation, each action may seem small or explainable. The risk arises when the exception is not corrected, but becomes a precedent.

When deviant behavior produces results and has no visible consequences, the norm shifts unnoticed. What initially seemed unacceptable becomes open to discussion; what became open to discussion becomes standard practice. Eventually, employees may come to feel that the deviant way of working simply belongs to the organization.

The most dangerous exception is not always the largest, but the one that tacitly becomes the new norm.

How deviations slowly become normal

Normalization usually occurs gradually. Four steps are often recognizable.

The exception — A rule or control is bypassed once due to time pressure, customer interest, a target, or a seemingly practical solution.
The repetition — The same route is used again. Because nothing visibly goes wrong, the perceived barrier decreases.
The justification — People develop explanations: everyone does it, the interest of the organization requires it, or the rules do not reflect reality.
The entrenchment — The deviation becomes embedded in work processes, expectations, and mutual loyalties. Dissent becomes harder, and information may be deliberately shielded.

Why people of integrity can still go along

Fraud risk is not just about individual intentions. Pressure to achieve results, strong loyalty to a manager or team, unclear responsibilities, and the desire to solve problems independently can impair judgment. Success also plays a role: when an informal working method seems to work out well for a long time, anyone who asks questions is quickly accused of being an unnecessary obstacle.

An organization with integrity therefore does not rely solely on good people. It establishes clear boundaries, visible oversight, and sufficient room to express doubt.

Early warning signs to take seriously

A single signal does not prove fraud. However, a pattern of signals can be a reason to look further.

Recurring exceptions — urgent payments, manual adjustments, or non-standard approvals become structural.
Concentration of authority — one person can initiate, approve, and review, or has unusually high influence over information.
Inadequate substantiation — files are incomplete, explanations fluctuate, or documents are created after the fact.
Pressure on results — financial or commercial targets are visibly prioritized over procedures and professional standards.
Resistance to oversight — critical questions are taken personally, audits are delayed, or reviewers receive only partial information.
Silence in the team — employees see irregularities, but expect that reporting will achieve little or lead to negative consequences.

Pay particular attention to combinations of signals and changes in behavior, processes, or information access.

Leadership determines what the norm truly is

The behavior of leaders carries more weight than formal messages. Those who emphasize integrity on the one hand, but reward exceptions when targets are under pressure on the other, create a double standard. Employees do not just look at what is said, but above all at what is accepted, rewarded, and corrected.

What responsible leadership makes visible

Critical questions are welcomed, even when they cause delays or discomfort.
Results are not viewed separately from the way they were achieved.
Exceptions are explicitly documented, limited in scope, and reviewed afterward.
Concerns receive timely and consistent follow-up, regardless of position or performance.

A speak-up culture only emerges when employees experience that speaking up constructively is genuinely safe and meaningful.

Combine rules, controls, and challenge

An effective integrity program connects three layers. Clear standards indicate what behavior is expected and who is responsible for what. Practical controls make deviations visible in a timely manner. A safe culture ensures that employees can ask questions when systems or numbers alone do not tell the whole story.

Prevent — Make authorities, interests, approvals, and exception procedures clear and workable.
Make visible — Use segregation of duties, data analysis, monitoring, and targeted audits to identify irregular patterns.
Discuss and follow up — Provide accessible reporting channels, protect dissent, and visibly demonstrate that concerns are thoroughly investigated and followed up on.

What do you do in the event of a specific suspicion?

Avoid a rushed confrontation or an unfocused search for evidence. First determine what information needs to be secured, who decides on the next step, and what expertise and independence are required. Keep facts, suspicions, and interpretations separate, and restrict information to those who need it for their role.

Depending on the nature and severity, a targeted preliminary inquiry, audit, legal advice, or independent integrity investigation may be appropriate. Ensure a clear research question, a proportionate scope, and fair treatment of all parties involved.

An investigation must provide clarity, not serve as a visible token that the organization is ‘doing something’.

Fix the system, not just the incident

After a confirmed incident, attention often focuses on the individual involved. That may be necessary, but it is rarely sufficient. Also examine what pressures, authorities, controls, informal expectations, and leadership signals enabled or sustained the behavior.

Translate findings into concrete improvements, assign ownership, and track their effectiveness over time. In this way, an incident becomes a source of learning without excusing the behavior or obscuring accountability.

In summary

Treat small exceptions as insight into how the system is functioning.
Watch for repetition, justification, and shifting standards.
Do not rely solely on good intentions; establish visible safeguards.
Make dissent safe and demonstrate that concerns are consistently followed up on.
Respond to a suspicion carefully, independently, and proportionately.
Following an incident, restore processes, leadership, and culture as well.

This article provides general practical guidance. The appropriate approach remains dependent on the facts, internal regulations, and the legal context of the organization.

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Also read: Help. I have a report! →

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