Fraud Prevention Tip #22: Look for Fraud Indicators, Symptoms and Red Flags

In business organizations, fraud often leaves clues in the records. These clues are called indicators, symptoms or red flags. They are the visible signs that something is wrong. And they are the signposts employees need to point out where to look and exactly what to look for in their efforts to prevent and find theft, wrongdoing and outright fraud.

Here are 15 examples of common fraud indicators. If you see them in your work, don’t overreact. But don’t ignore them either. Insist on more details and deeper support.

1. Missing or inadequate documentation
2. Unavailability of other than photocopied documents when documents in original form are expected to exist
3. Significant unexplained items on reconciliations
4. Inconsistent, vague, or implausible responses to your inquiries
5. Discrepancies between your entity’s records and the records of third parties
6. Missing assets, including inventory
7. Transactions not recorded in a complete or timely manner, or improperly recorded as to amount, accounting period, classification or company policy
8. Supplier and contractor invoices that have been altered
9. Invoices with the same address or phone number as employees
10. Amounts of transactions fall just below the threshold for review
11. Disbursements are unsupported by invoices or other documentation
12. Complaints from customers, suppliers, competitors, bid losers, former suppliers and anyone else who would be in a position to know if something wasn’t right
13. Vendors with an inordinate business volume for no apparent reason
14. Prices from a vendor are unreasonably high when compared to others
15. Anything physically impossible, including overtime, quantities stored, or credits to customers where no sale was ever recorded

This list is just the tip of the iceberg. Your list should include anything you know in your gut just doesn’t look or feel right.

Regardless of the source of your concern, chose to dig deeper to find out why. Insist on answers. And if needed, refer your suspicions to those with audit or investigative authority in your organization.

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”