Is There Fraud in My Company?
This is the question any executive or manager, if they truly care about the financial livelihood of their company, should ask themselves. This newsletter is about this very topic - Red Flag Indicators of Fraud.
Here is a short list of red flags to watch for in your company:
Financial & Operational Red Flags
• Unexplained Transactions: Large, unusual payments, frequent reversing entries, or excessive voids/discounts/returns.
• Poor Reconciliation: Unreconciled accounts, missing bank statements, or incomplete documentation.
• Vendor Irregularities: Unfamiliar vendors, duplicate invoices, sole-source contracts, or changing payment details.
• Inventory Issues: Inventory shortages without investigation or excessive write-offs.
• Inconsistent Data: Missing or altered documents, inconsistent financial data, or unusual timing of transactions.
• Budget & Performance: Large budget deviations or unrealistic performance expectations.
Internal Fraud Red Flags
• Control Issues: Reluctance to take vacations, refusal to delegate, or excessive control over finances.
• Behavioral Changes: Defensiveness, secrecy, bullying, unexplained new wealth (cars, trips), or addictions.
• Pressure: Overwhelming pressure to meet targets or meet deadlines.
• High Turnover: Frequent departures, especially in finance roles.
External & Customer Red Flags
• Urgency: Pressure to act immediately or make quick decisions.
• "Too Good to Be True": Offers of huge returns with "guaranteed" profits.
• Payment Methods: Requests for unusual payment methods (gift cards, wire transfers to personal accounts).
• Customer Behavior: Rushing purchases, inconsistent details (billing/shipping mismatch), or multiple failed payment attempts.
If you see any of these Red Flag Indicators, you should pay attention and make further inquiries internally. You should also consider contracting with a Certified Fraud Examiner to conduct a limited or full fraud audit of your company.
Brought to you by the Certified Fraud Examiners at Fittz & Associates.