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.
- Cultural issues
- Management issues
- Employee issues
- Process issues
- Transaction issues
- 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.
- 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.
- 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.