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7 Warning Signs That May Indicate Fraud Within Your Company

Rebecca Dunne

In organizations, some common types of fraud are unauthorized use of physical and monetary company assets and the misrepresentation of financial statements to make organizations appear more economically successful than what they actually are.

According to the ACFE’s 2020 Report to the Nations, organizations with less than 100 employees suffered larger median losses than those of larger companies. In other words, fraud can happen at any organization, no matter the size, so it’s important to understand the warning signs.

So, what are the warning signs to look out for?

1. Suspicious financials

When budgets are not being met (either being under met, or over met) and financials are not being delivered as timely as they should be, this could indicate a more serious issue. Some questions to ask are:

  • Are there any unusual cash transactions?
  • Are there mismatched payees?
  • Does the payee’s name match the name in the general accounting book?
  • Have there been identical payments cleared to different vendors in the same date range?
  • Do the suppliers of vendors being paid have unprofessional invoices?
  • Are the vendors known as questionable companies?

Unfortunately, it can be a warning sign when things look too good to be true. If sales are way above the norm, or if revenues exceed expectations, there may be a case of some dodgy accounting behind the scenes. If businesses have more than one bank account, there may be inappropriate cash movements.

What to do:

Have regular audits for the accounts and teams.

2. Out-of-character emails

If you receive an unusual email, or one which fails to comply to the organization’s usual practices, it could indicate that a scam is underway. Worse, it could signal that an employee’s email account has already been compromised. According to the ACFE’s Fraud in the Wake of COVID-19: Benchmarking Report, September Edition, 83% of anti-fraud professionals who were surveyed have observed an increase in cyberfraud since the pandemic began.

What to do:

Increase cybersecurity training for employees, specifically focusing on how to recognize phishing attempts and how to comply with the organization’s work-from-home cyber policies.

3. Staff are resisting tighter controls

If staff are resistant to new internal control systems, this could be a sign that they are hiding something and do not want to be caught. Of course, there are normal resistances such as not liking change or not wanting additional work to do or processes to follow. However, there may also be something deeper.  

What to do:

Schedule a meeting and have a one-on-one conversation with any employee who has difficulty with the new controls. Figure out where the resistance is coming from and address the issue from that vantage point.

4. Overly close relationships within the business

High-risk employees are those who have trusted roles in finance or purchasing. These individuals have more access to company assets, which means they have more opportunity to commit fraud. If there are close relationships among a group of such people, or even among one high-risk individual and a small group of others, it can be a sign of fraud.

In kickback scenarios, employees from the company may also have a relationship with a vendor who overcharges the company. As the vendor gets more cash from the company, the insider may earn a return since the two split the difference.

What to do:  

Monitor relations between employees. If it appears people are unusually friendly, talk with them and remind them about the importance of being professional and treating everyone equally, and not having favorites.

5. Travel reimbursement irregularities

This area is relatively simple to abuse. If there is little attention paid to such expenses, employees can falsify their expense records. For example, an employee could easily add on a few extra company lunches each month.

What to do:

Ensure your organization has internal controls in place to monitor all expenses and verify they are legitimate.

6. Unusual employee circumstances

Sometimes an employee will need to work late, or they will need to change up their schedule to accommodate an unexpected life event. Of course, throughout the current pandemic, there have been many unusual circumstances that have upended everyone’s day-to-day routine. However, if an unusual pattern emerges, that is worth a closer look. Here are some behaviors to pay attention to:

  • An employee frequently asks to work extra hours.
  • An employee frequently asks to work outside of regular business hours.
  • An employee refuses to share certain tasks.
  • An employee will only work with a certain supplier.

What to do:

Ensure employees can justify their unusual circumstances. When such requests are made, be sure to follow up. If they want to work late to finish a report, be sure that the report is actually finished. Similarly, security cameras could be used, as well as close audits.

7. Expensive purchases

If an employee purchases something expensive, be it a new car, house or a holiday, consider if the purchase aligns with their salary. Does it add up that this has been purchased? As always, there are legitimate circumstances that can explain big purchases — the employee has been saving for it, they just received some winnings or even an inheritance from a loved ones’ will. But, generally, if a pattern of large purchases emerges, this can be a moment to question if their salary justifies the purchases.

What to do:

Assess if there are other potential warning signs, such as the ones included above. If there are, this may be enough to dig deeper.

If you face any of these warning signs, it is important to take a closer look. If necessary, your organization may need to investigate these situations further because, as we all know, fraud can have a hefty effect on any organization.

Rebecca Dunne is a University of Hertfordshire Management Undergraduate and the freelance writer for KSA Group, who are Licensed Insolvency Practitioners in the U.K., established in 2000. KSA Group runs Company Rescue, which contains more than 2000 pages of useful information for struggling businesses. Connect with Rebecca on LinkedIn.