Businesses regularly experience bouts of fraudulent activity, such as the unauthorized appropriation of physical and monetary company assets plus the misrepresentation of financial statements to make the company appear to be more economically productive successful and hide bad news such as uncollectable debts.
Fraud can occur at any business, government agency or not for profit unit. no matter the industry sector or size, so it is fundamental for any executive or auditor to spot the warning signs.
- Suspect financial reporting
A review of internal documents should look at budgets for income expenditure – are they being heavily under or overachieved? Indicating poor forecasting or possibly fraud where dishonest activity affected the projections. Another factor to check for is whether financial reports are being delivered on schedule; hefty delays or delivery after on a Monday morning after a fevered weekend fixing up the numbers may indicate more serious issues.
Some subjects to follow up on are:
- Are there any excessive or peculiar cash transactions?
- Are there any mismatched payees?
- Do the payee’s details correspond with the general accounting book?
- Have there been identical payment amounts paid to different vendors within the same date range?
- Do the invoices of vendors have detailed information such as reference number, office address, landline phone number, website etc?
- Are the vendors included in approved vendor list, have they been verified?
Positive results to some of the above checks could reflect sloppy accounting and poor management of financials, or else indicate some dodgy accounting activity with some quick fixes to cover the tracks of the fraudster.
- Erroneous or strange emails
If you find a series of unusual emails within the system or else which fails to comply to the organization’s usual practices, this could ne ab indicator that scams are in process.
A troubling issue could be that one or more employee email accounts have been compromised and hackers are undertaking scams and finding ways to defraud the business or else its contractors / customers. With the surge in working from home during Coivd19 and stresses on IT networks, agencies have observed an increase in cyber-fraud since the pandemic began.
Some points to follow up on are:
- Have the IT department or a computer forensic expert review the dubious emails, assess the IT security and determine whether the IT system has been penetrated
- Conduct system wide searches for any other dubious emails or messages
- Check on anti-virus, firewall and security settings for all email accounts
- Establish whether any old or dormant email accounts have been reactivated
- Enhance cyber threat training for all employees and contractors, outline on how to recognise phishing attempts, suspect email using different spellings or domains plus making sure they secure their mobile devices and laptops when they work from home.
- Staff are resisting tighter administration controls
A company should frequently review SOPs, internal control systems, expenditures and internal audit styles to enhance the protection of company assets and spot potential threats.
Should employees and / or contractors become resistant to new internal control systems, this could be a signal that these new controls are closing off a method some are using to appropriate assets from the company or else it otherwise interferes with some dishonest practice.
Of course, the resistance could be due to normal human reaction such as not liking change, not wanting to have to learn new ways or else wanting to avoid additional work or processes to follow. However, the resistance to the new controls could Well be an indicator that certain situations have been overlooked in the past – such as ability to claim overtime when not necessary, improper disposal of unwanted items, theft of materials etc
- Overly friendly relationships within the business
High-risk employees are those who have trusted roles within finance as well as purchasing. These staff members have more familiarity and access to company assets, which means they have more opportunity to commit fraud. If there are long-term and too relationships among a group of such personnel, or even among one high-risk individual and a small group of juniors, it can be an indicator of fraud.
In kickback payment scenarios, personnel from the company may also have a relationship with a vendor who overcharges the company. As the vendor gets extra payments from the company, the personnel insider can earn a cash payment in return as the two split the difference of the excess payments.
Steps to take:
Be aware and monitor relations between employees within these sensitive departments and positions. If it appears personnel are unusually friendly with vendors and suppliers , remind them about the importance of being independent and professional by treating all suppliers equally, and not having favourites.
- Travel reimbursement suspect claims
This area is relatively simple to abuse by experienced personnel when there are few safeguards and lax oversight in place. If there is little attention paid to review and verify expenses, employees can falsify their expense records. For example, a manager could easily add on a few extra company lunches each month – where they are taken with friends and family members rather than business relationships.
What You Can Do:
Ensure your company has internal controls in place to monitor each series of expenses and verify they are correct and legitimate. Conduct random spot checks on one group of claims and audit them against work diary, sales locations etc; make these spot checks known to the personnel and conduct follow up interviews where necessary.
- Unusual employee working circumstances
It is not unusual for employees with other demands on their time – children, aging parents, tuition etc – to request changes in their work schedule. Sometimes an employee will want to work late or offer to work over a holiday weekend. This could be normal cycle of changing demands – especially with Covid19 wrecking plans and are understandable.
However, by keeping accurate and full management records an unusual pattern may emerge as to timing, who else is on duty, location of delivery etc – these patterns may warrant a closer look.
Here are some behaviours senior managers or HR should pay attention to:
- An employee frequently requests to work additional hours.
- An employee frequently wants to work outside of regular office or business hours.
- An employee refuses to share certain tasks and insists on working extra hour to complete certain tasks
- An employee will volunteer to always work with a certain supplier or at a certain location
Some points to follow up on are:
- Review resource requirements to ensure that employees can justify their unusual requests
- Counsel any employees seeking persistent overtime and assess whether they are financially stressed and what assistance they may be provided with
- An employee refusing to share tasks, especially one involving payments or receipts of cash, cheques etc are definite red flags, so consider conducting discrete inquiries into the employee
- Continually to volunteer to work with a certain supplier or location may be an indicator of receiving some external benefit or conditions, so consider conducting discrete inquiries into the employee
- Expensive personal purchases
Should information come to light that a manager or employee is making several extensive purchases; such as new cars, a boat or a holiday home, consider whether the purchases align with their salary and known income.
Of course, there are legitimate circumstances that can explain such activity — an inheritance, a successful spouse or partner, or it is the product of long-term savings. Should the manager be in a position that provides him with an opportunity to receive gratuities or else more exposed to bribery temptations, the extra warning signs should be heeded.
What You Can Do:
- Appoint an independent investigation team to review the background and risk factors that the individual may be prone to
- Review any adverse reports or comments from within and outside the company regarding their activities
- Check on any complaints or issues raised by the company whistle blower system – if such a system doesn’t exist, seek to implement one
- Seek to confirm whether there is a regular explanation for the sudden increase in wealth
- Keep the matter in view, if suspicions persist then seek advice from a Certified Fraud Examiner or the audit team for further inquiries