Red Flags: Don’t Miss the Warning Signs
by Jill A. Shaw, CPA, Partner
Posted on April 23, 2015
According to a recent study by the Association of Certified Fraud Examiners, over 40% of all fraud is detected by a tip, such as a whistle-blower. When fraud occurs, the first thing asked is, “How did we miss that?” Conducting an analysis after a fraud occurs often shows red flags that were present. Organizations that train staff to identify warning signs or red flags can make a huge difference in fraud prevention and detection. A red flag is a set of circumstances that are unusual in nature or vary from normal activity. It is a signal that something is out of the ordinary and may need to be investigated further.
Often times, we get so entrenched in our day-to-day tasks that small warning signs go unnoticed until the fraud has grown significantly. Not all red flags carry equal weight; therefore each red flag should be investigated as the organization deems necessary. Consider these red flags that are common in fraudulent activity:
- Employees that refuse to take vacation or sick leave
- Employees who are easily annoyed at reasonable questioning
- Employees that rewrite records under the guise of neatness in presentation
- Employees with financial troubles such as personal debt or credit problems
- Employees with few or no payroll deductions
- Employees with unusual work schedules
- Employees that turn down promotions or transfers
Does your organization watch out for these types of red flags? In today’s environment, it is essential that policies and procedures are put into place for reporting irregularities and/or suspected fraud. If possible, your government should provide some type of anonymous reporting mechanism, such as a fraud hotline. It is a myth that all frauds are big schemes that should have been uncovered sooner or have been easier to detect. The reality is that most frauds start small and increase in size until something becomes noticeably different or unusual. Employees that are trained to notice and report red flags are the best line of defense to prevent a little bitty fraud from becoming a large fraud left to grow.
