Not all red flags lead to active occupational fraud schemes. But when fraud is occurring, it usually leaves traces — for example, accounting anomalies — for fraud experts and other knowledgeable people to find. Owners and executives, as well as rank-and-file workers, should be familiar with the signs of fraud and know when to call in a forensic accounting specialist.
Take a Closer Look at Suspected Fraud
Dishonest employees may use anything from fictitious vendors to false invoices to cover up theft. To ferret out potential fraud, always investigate duplicate payments, out-of-sequence entries, unusual inventory adjustments and accounts that don’t properly balance. Transactions for amounts that appear too large or too small, or transactions that occur too often or too rarely also merit a closer look.
An increase in the number of complaints your company receives is another warning sign. An investigation may lead to a relatively innocent explanation, such as a glitch in your shipping system ’ or it may lead to a fraudulent billing scheme. Pay equally close attention to declines in product quality. They could just stem from a faulty batch of paint or they may indicate that a thief is working in purchasing.
Question Lifestyle Changes
Changes in an employee’s lifestyle may be evidence of fraud. Although such changes usually are difficult to spot initially, a pattern is likely to emerge over time.
For example, one piece of expensive jewelry could be a gift, or a good investment return might pay for an exotic vacation. But if your warehouse manager brags about his new state-of-the-art home theater and is putting in a backyard pool, you may want to question how that’s possible on the salary you’re paying.
Pay Attention to Behavioral Shifts
When employees steal, especially if they’re first-time offenders, they may no longer be on their best behavior. In fact, you may not even recognize them. People who have always been cooperative may become argumentative. Or, alternatively, someone who typically is difficult to work with may suddenly become everyone’s friend.
If an employee starts drinking to excess or takes up smoking, ask what’s wrong. If they can’t sleep, or if they worry obsessively about the possible consequences of actions and resent other employees’ participation in “their” projects, be concerned. They may be wrestling with substance abuse or getting divorced — or stealing you blind.
Don’t Jump to Conclusions of Fraud
It’s important to remember that there are many innocent explanations for what seem like fraud signs. Staffers may be sloppy, inexperienced, or poorly managed. Behavioral changes could lead back to family or health problems. So it’s important to encourage employees to discuss work and personal challenges with their managers or HR personnel. But if you have good reason to suspect fraud — or wish to schedule fraud-prevention training — contact us.
© 2021
CPA/CFE
anthony.lanasa@hwco.cpa
