How prepared
are you to detect fraud if it slips through the cracks, or even detect
fraudulent activity?
All
organizations are at risk of fraud, each with its own way of preventing it such
as implementing specific policies, procedures, programs and training. However,
preventive measures cannot guarantee that fraud will not be committed.
Fraudulent acts
by individuals can negatively impact the company’s reputation and incur
significant legal costs, and lead to incarceration, not to mention the downfall
of the entire organization.
As an
accounting professional, an important aspect of your job is to identify fraud
during an audit. To help accounting professionals detect fraud, we’ve listed
the Top 10 red flag warning signs of fraud below. While one of these may not
necessarily be cause for concern, the presence of two or more should raise
suspicion and may require a more in-depth examination:
1. Missing Documents -- It isn’t uncommon for documents to go
missing in the workplace. After all, accidents do happen. However, if this
becomes a frequent occurrence, fraudulent acts could be the culprit, especially
for checks. Missing checks numbers or gaps in reconciled check numbers can also
be an indicator of fraud.
2. Complaints -- It’s easy to write off complaints as
nonsense venting, but complaints are one of the best ways to identify fraud. If
employees are complaining about something, don’t take it lightly. Dig further
into the situation to identify the cause of the complaint and what else could
be behind it.
3. Excess Purchases -- Fake payees can be used to convert
funds. Be aware of excessive purchases as they could be covering a possible
payoff of a purchasing agent.
4. Inventory Shortages -- Internal shrinkage and product loss
happens. However, excessive shrinkage could be an indicator of a plethora of
fraudulent activities.
5. Excessive Voids/Returned Checks -- Voided sales slips mean that the sale
has been rung up, but the payment was diverted, potentially into the wrong
hands. This is similar to cancelled checks. While they are usually legitimate
transactions, a cancelled check can be returned to the wrong hands and be
re-written to the fraudster. Excessive voids and cancelled or returned checks
are common indications of theft and should be watched carefully.
6. Duplicate Payments -- Duplicate payments in many cases are
not fraud-related. However, if a duplicate payment is accidentally made by a
company, it is possible for an employee to forge an endorsement of the check.
Watch this closely as well.
7. Rounded-Amount Invoices -- Fraudsters will often create invoices
with rounded amounts. If you don’t see any pennies, it may be a sign that you
need to look into that invoice further.
8. Abnormal Invoice Volume -- Rapid invoice volume increases may be
due to a legitimate increase in business, but is also may point to fraudulent
behavior. Monitoring vendor invoice volume and being aware of spikes is a good
way to spot abnormal behavior.
9. Invoices Just Under Approval Amounts --
Some employees
may be aware of the dollar threshold for management approval and create an
invoice just below that approval level. For example, if the approval level is
$5,000 and you get an invoice for $4,998, you may want to do a bit more
research on that invoice.
10. Mail Drop Address -- A mail drop, or ghost address, is an
entity that can receive mail in your name. Companies using a mail drop as their
address rather than a P.O. Box may be doing so to hide their fraudulent
activity.
Even the most
buttoned up and process driven organizations are at risk for fraud. In order to
find this “needle in a haystack” and confront fraudulent behavior, you must
first accept that fraud exists and that it (unfortunately) occurs often.
Acknowledge the
importance of fraud awareness and implement training for employees on how to
detect fraud at work. By enforcing controls, policies and procedures, you will
cut down your risk of fraud and be better equipped to identify it.
Jodi Chavez is a Senior Vice President for Accounting Principals,
http://www.accountingweb.com/aa/auditing/top-10-red-flag-warnings-of-fraud?utm_source=prong&utm_medium=
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