There are a range of fraud indicators – both warning signs and fraud alerts – which can provide early warning that something is not quite right and increase the likelihood that the fraudster will be discovered.

Business risks

• Cultural issues
• Management issues
• Employee issues
• Process issues
• Transaction issues

Financial risks

• Management compensation highly dependent on meeting aggressive performance targets.
• Significant pressures on management to obtain additional finance.
• Extensive use of tax havens without clear business justification.
• Complex transactions.
• Use of complex financial products.
• Complex legal ownership and/or organisational structures.
• Rapid changes in profitability.
• Existence of personal or corporate guarantees.

External risks

• Introduction of new accounting or other regulatory requirements, including health and safety or environmental legislation, which could alter reported results significantly.
• Highly competitive market conditions and decreasing profitability levels within the organisation.
• The organisation is operating in a declining business sector and/or facing prospects of business failure.
• Rapid technological changes which may increase potential for product obsolescence.
• Significant changes in customer demand.

IT and data risks

• Major information threats include: mobile devices, malicious insiders, remote access and social media. 
• Unauthorised access to systems by employees or external attackers.
• The wealth of malicious codes and tools available to attackers.
• Rapid changes in information technology.
• Users not adopting good computer security practices eg sharing or displaying passwords.
• Unauthorised electronic transfer of funds or other assets.
• Manipulation of programs or computer records to disguise the details of a transaction.
• Compromised business information.
• Breaches in data security and privacy.
• Sensitive data being stolen, leaked or lost.

Fraud alerts

• Anonymous emails/letters/telephone calls.
• Emails sent at unusual times, with unnecessary attachments or to unusual destinations.
• Discrepancy between earnings and lifestyle.
• Unusual, irrational or inconsistent behaviour.
• Alteration of documents and records.
• Extensive use of correction fluid and unusual erasures.
• Photocopies of documents in place of originals.
• Rubber stamp signatures instead of originals.
• Signature or handwriting discrepancies.
• Missing approvals or authorisation signatures.
• Transactions initiated without the appropriate authority.
• Unexplained fluctuations in stock account balances, inventory variances and turnover rates.
• Inventory adjustments.
• Subsidiary ledgers, which do not reconcile with control accounts.
• Extensive use of ‘suspense’ accounts.
• Inappropriate or unusual journal entries.
• Confirmation letters not returned.
• Supplies purchased in excess of need.
• Higher than average number of failed login attempts.
• Systems being accessed outside of normal work hours or from outside the normal work area.
• Controls or audit logs being switched off.

Key tools for detecting fraud

There are also two key tools for detecting fraud: 

• Training and experience – the training received by a management accountant is a very good basis for implementing an anti-fraud programme. 
• The mindset that fraud is always a possibility – A healthy dose of professional scepticism should be maintained when considering the potential for fraud.

These can be supplemented by a range of techniques for identifying and analysing anomalies to help determine whether fraud investigation or review are required.