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