Ways to Detect Fraud
you suspect any of the following items are occurring in your company,
please contact us immediately.
perpetrator will often display unusual behavior, that when taken
as a whole is a strong indicator of fraud. The fraudster may not
ever take a vacation or call in sick in fear of being caught.
He or she may not assign out work even when overloaded. Other
symptoms may be changes in behavior such as increased drinking,
smoking, defensiveness, and unusual irritability and suspiciousness.
tips or complaints will be received which indicate that a fraudulent
action is going on. Complaints have been known to be some of the
best sources of fraud and should be taken seriously. Although
all too often, the motives of the complainant may be suspect,
the allegations usually have merit that warrant further investigation.
Stale Items in Reconciliations
bank reconciliations, deposits or checks not included in the reconciliation
could be indicative of theft. Missing deposits could mean the
perpetrator absconded with the funds; missing checks could indicate
one made out to a bogus payee.
sales slips could mean that the sale was rung up, the payment
diverted to the use of the perpetrator, and the sales slip subsequently
voided to cover the theft.
which are unable to be located can be a red flag for fraud. Although
it is expected that some documents will be misplaced, the auditor
should look for explanations as to why the documents are missing,
and what steps were taken to locate the requested items. All too
often, the auditors will select an alternate item or allow the
auditee to select an alternate without determining whether or
not a problem exists.
Excessive Credit Memos
to excessive voids, this technique can be used to cover the theft
of cash. A credit memo to a phony customer is written out, and
the cash is taken to make total cash balance.
Common Names and Addresses for Refunds
employees frequently make bogus refunds to customers for merchandise.
The address shown for the refund is then made to the employee's
address, or to the address of a friend or co-worker.
Increasing Reconciling Items
deposits, or bogus checks written, are frequently not removed,
or covered, from the reconciliation. Hence, over a period of time,
the reconciling items tend to increase.
General Ledger Out-of-Balance
funds, merchandise, or assets are stolen and not covered by a
fictitious entry, the general ledger will be out of balance. An
inventory of the merchandise or cash is needed to confirm the
existence of the missing assets.
Adjustments to Receivables or Payables
cases where customer payments are misappropriated, adjustments
to receivables can be made to cover the shortage. Where payables
are adjusted, the perpetrator can use a phony billing scheme to
convert cash to his or her own use.
purchases can be used to cover fraud in two ways:
payees are used to convert funds
purchases may indicate a possible payoff of purchasing agent
payments are sometimes converted to the use of an employee. The
employee may notice the duplicate payment, then he or she may
prepare a phony endorsement of the check.
employee schemes are frequently uncovered when an auditor, fraud
examiner, or other individual distributes paychecks to employees.
Missing or otherwise unaccounted for employees could indicate
the existence of a ghost employee scheme.
Employee Expense Accounts
frequently conceal fraud in their individual expense account reimbursements.
These reimbursements should be scrutinized for reasonableness
and trends, especially in the area of cash transactions on the
shrinkage over a period of time can be computed through historical
analysis. Excessive shrinkage could explain a host of fraudulent
activity, from embezzlement to theft of inventory.
the manufacturing process, an increased amount of scrap could
indicate a scheme to steal and resell this material. Scrap is
a favorite target of embezzlers because it is usually subject
to less scrutiny than regular inventory.
Large Payments to Individuals
large payments to individuals may indicate instances of fraudulent
being paid for overtime hours not worked by altering time sheets
before or after management approval.
Write-off of Accounts Receivable
the write-off of receivables by customers may lead to information
indicating that the employee has absconded with customer payments.
Post Office Boxes as Shipping Addresses
instances where merchandise is shipped to a post office box, this
may indicate that an employee is shipping to a bogus purchaser.