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Are you prepared to detect fraud?

By: Denise Smith, CPA, CGMA- Senior Accountant

How prepared are you and your company to detect fraud?  Fraud is defined as wrongful or criminal deception intended to result in financial or personal gain. Even if you have policies, procedures and programs to prevent or detect fraud, unfortunately you may still fall victim to fraud.  You and your personnel can be prepared to find and detect fraud by being aware of behaviors and signs.   

The Association of Certified Fraud Examiners publishes a report annually that lists, among other things – behavioral red flags that may indicate that someone is perpetrating a fraud:

·         Living beyond their means

·         Having financial difficulties

·         Having an unusually close relationship with a vendor or customer

·         Control Issues, unwillingness to share duties

·         Having a “wheeler-dealer attitude”

·         Going through a divorce or family problems

·         Irritability, suspiciousness or defensiveness

·         Addiction problems

·         Complaining of inadequate pay

·         Past employment related problems

·         Refusal to take vacations

·         Excessive pressure from within the organization

·         Social isolation

·         Complaining about lack of authority

·         Excessive family or peer pressure for success

·         Instability in life circumstances

·         Past legal problems

Other situations which may warrant looking further:

·         Missing documentation.  Do you have a hard time locating invoices or checks, etc.?

·         Do you have a large number of void checks or sales transactions? It is easy to make a mistake and need to void a transaction or check, but if you are seeing this on a regular basis – it may be time to ask a few questions.

·         Have you seen a large increase in purchasing or invoices being paid without a corresponding increase in sales?

·         Have you seen any duplicate payments to vendors?  If so, are you sure that all refunds have been deposited back to the company?

·         If you have a threshold for signatures on a check, are you seeing many checks falling just below this amount?

·         Are you receiving multiple complaints from customers about receiving statements for amounts that are not owed? It may be time to check up on some of these complaints.

Contrary to what you may believe, an audit, review or compilation of your financial statements by a CPA firm cannot be relied on to detect fraud.  That does not mean, however, that you cannot keep an eye on the red flags listed above, and give Holbrook and Manter a call to find out if we have some suggestions for tightening your internal controls or new procedures to try to detect fraud.