Sunday, July 19, 2009

Be aware of red flags

I find it amazing that every time I do a fraud investigation that I still hear the same comment – “why didn’t we see that”. Every fraud investigation I have done, familiar red flags have been present and unfortunately have gone unnoticed for some time allowing the fraud to go unnoticed.

A red flag is a set of occurrences that are unusual in nature or vary from what would be considered the normal activity of the organisation. It is a signal that something may be wrong or out of the ordinary and needs further investigation. However, it must be remembered that a red flag does not mean that fraud has happened, it is a trigger that something may have happened and therefore the issue needs to be investigated.

There are many red flags. Here are just a few:

  • unexplained items on reconciliations
  • inconsistent or vague responses from inquiries made
  • excess voids or credits
  • multiple remittance addresses for the same creditor
  • lack of segregation of duties
  • infrequent bank deposits allowing cash to accumulate
  • a delay in issuing of monthly, quarterly or annual financial reports
  • key financial or operating personnel leaving the organisation
  • missing assets
  • questionable handwriting on documents
  • a poor culture within the organisation

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