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How to spot possible fraud - We’ve got your number

Forensic Focus - September 2009

I was recently talking to a group of senior executives about the seven things you need to know about fraud. One of the topics we covered was how fraud is commonly identified within the organisation. The simple answer is when people act on doubts or suspicions.

However I pondered the question some more and discussed it with the team back in the office. We began to formulate a list of red flags that occured on investigations we completed. Any of them could set off alarm bells that a possible fraud is taking place. Here’s what we came up with:

1. Close relationship with suppliers

Budget managers who have close personal relationships with suppliers.

2. Recurring transactions with a particular supplier for no apparent reason 

A large number of transactions with a particular supplier, when many are slightly below an employee’s authorisation limit.

3. Unprofessional invoices 

Invoices that do not appear to have been generated through a computerised accounting system and the description of what is being invoiced is quite ‘light’. 

4. Insufficient knowledge of suppliers

Payments made to suppliers, where finance or senior staff do not know of them. 

5. Common contact details and bank account numbers

Two or more suppliers and/or employees that seemingly share contact details and/or bank account numbers.

6. Lack of supporting documentation 

Lack of supporting documentation for payments, especially those incurred through corporate credit cards. This risk is magnified if there is no review or oversight of the expenditure (e.g. if no-one reviews the CEO’s credit card expenditure).

7. An overly dominant management team

Managers with dominant personalities that people rarely generally question.

8. Annual leave not taken

The accumulation of large amounts of annual leave coupled with reluctance to take holidays or to delegate work when away.

9. Working unnecessarily long hours

Employees who work excessive amounts of overtime. 

10.Significant observed changes in the attitude and behaviour of an employee

An individual displays feelings of resentment towards their employer or has a perception of being owed something by their employer. 

11.Employee lifestyle change

Individuals who appear to live beyond their means.

12.Unavailability of original documentation

Payments to suppliers supported by photocopies instead of originals or not supported at all.

13.Odd transaction patterns

Transaction patterns that are inconsistent with overall business and industry norms.

14.Weak internal control environment

Management does not emphasise the importance of strong internal controls. 

15.Liberal accounting practices enacted by management that compromise internal controls

Controls such as separation of duties, delegation levels, review of expenditure are ignored or modified in practice. 

If you would like to discuss this further, please contact Barry Jordan.

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