How to spot possible fraud

Insights

How to spot possible fraud 

Deloitte Forensic  

Throughout the numerous fraud investigations we have carried out, we have identified a list of common themes or ‘red flags’. Any one of these could indicate that a possible fraud is taking place. Being alert to red flags and responding appropriately can assist you to detect fraud earlier and in some cases prevent fraud occurring altogether.

It is important to emphasise this this list is not exhaustive, rather it represents many of the common red flags present in fraud cases that we have investigated. If one or two of these red flags alone are present, it may not necessarily mean that fraud is occurring, however it would be prudent for the organisation to understand the underlying details and make enquiries.

1. Unusually close relationship with suppliers

Employees who have unusually close personal relationships with suppliers. For example an employee takes a holiday with a supplier.

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

A large number of transactions with a particular supplier – often when many are slightly below an employee’s authorisation limit or when the supplier or goods/services supplied are not known to finance or senior staff.

3. Unprofessional “manufactured” manual invoices

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

4. Insufficient knowledge of suppliers

Payments made to suppliers, where finance or senior staff do not know of the supplier or do not know why the payment is being made.

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.

7. An overly dominant management team

Managers with dominant personalities that people rarely question or are wary of questioning.

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. Similarly an employee may refuse to take sick leave when they are really sick.

9. Working unnecessarily long hours

Employees who routinely work excessive amounts of overtime, work weekends or work early or stay late - for no apparent reason or business need. This could be coupled with a reluctance to delegate work.

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

An individual who 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 or have an unexplained lifestyle change.

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 or does not take any corrective action when problems arise.

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

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

If you suspect that you might be a victim of fraud or you would like to discuss how you can avoid becoming a victim, please contact David Carson or Barry Robinson. 

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