Forensic accountants are best qualified to unearth the ‘hows and whys’ of occupational fraud, but it is up to employers to know when it is time to call for professional help in the first place. The signs of fraud can be easy to miss, but they are usually there.
Something does not belong
Dishonest employees may use anything from fictitious vendors to false invoices to cover up theft. To ferret out potential fraud, look for such signs as:
- Duplicate payments
- Out-of-sequence entries
- Entries by employees who do not usually make them
- Unusual inventory adjustments
- Accounts that do not properly balance
- Transactions for amounts that appear too large or too small, or transactions that occur too often or too rarely
An increase in the number of complaints your company receives is another warning sign. An investigation may lead to a relatively innocent explanation, such as a glitch in your shipping system or it may lead to a fraudulent billing scheme. Pay equally close attention to declines in product quality. They could just stem from a faulty batch of paint or indicate that a thief is working in purchasing.
Living it up
Changes in an employee’s lifestyle can be evidence of fraud. Although such changes usually are difficult to spot initially, a pattern is likely to emerge over time.
For example, one piece of expensive jewelry could be a gift, and a good investment return may pay for an exotic vacation. However, if your warehouse manager brags about his new state-of-the-art home theater, buys an expensive car, and decides to install a backyard pool, you should question how that is possible on the salary you are paying.
When employees steal, especially if they are first-time offenders, they may no longer be on their best behavior. In fact, you may not even recognize them. People who have always been cooperative may become argumentative. Or, alternatively, someone who typically is difficult to work with may suddenly become everyone’s friend.
If an employee starts drinking to excess or takes up smoking, ask what is wrong. If they cannot sleep, or if they worry obsessively about the possible consequences of actions and resent other employees’ participation in ‘their’ projects, be concerned. They may be wrestling with a family problem or stealing you blind.
Do not jump to conclusions
The signs of fraud are easy to overlook, in part because they are not necessarily signs of fraud. There may be explanations for suspicious behavior that have nothing to do with fraud, but you will not know unless you investigate further. If you begin to suspect fraud, contact us.