Serving Businesses
in the Dallas/Ft. Worth Metroplex

Fraud Warning Signs Means Action Required!

July 2017

By Jerry Murray

Is your company able to detect fraud if it slips through the cracks, or even detect potential and actual fraudulent activity?

Whether you choose to acknowledge the risk or not, all organizations are at risk of fraud and each should have its own way of preventing it such as implementing specific procedures, policies, training and internal controls.

Fraudulent acts can negatively impact the company’s reputation, incur significant legal costs, and lead to incarceration, not to mention the downfall of the entire organization.

While one of the fraud warning signs listed below may not necessarily be cause for concern, the presence of two or more should raise suspicion and may require a more in-depth examination.

  1. Complaints – Most fraud is detected by tips from either customers, employees or suppliers. Complaints are one of the best ways to identify fraud. Accordingly, view complaints as an opportunity to look into the situation to understand the cause of the complaint and what’s driving it. Most folks generally don’t take time out of their schedule to complain unless there is something to it.
  1. Round Dollar Amount Invoices – Round dollar amounts (e.g. no pennies) may be a sign that you need to take a harder look at that invoice and others like it.
  1. Invoices Just Below Approval Amounts – Employees may be aware of the dollar threshold for management approval and create an invoice just below the required approval level. Sometimes called “below the radar.” For example, if the authorized level is $1,000 or higher and you get one or more invoices for just below $1,000, you may want to do a bit more research into what is driving this.
  1. Duplicate Payments – Duplicate payments do happen and may not be fraud-related. But be aware that if a company accidentally makes a duplicate payment, it is possible for an employee to forge an endorsement on the check and redirect it to his or her personal bank account or cash the check.
  1. Excessive Supplier Purchases – Shell companies or bogus suppliers can be used to convert company funds into personal gain. Review of approved vendor lists, comparison of tax ID and address, and vendor transaction history could all reveal these risks. Excessive purchases or inflated purchase prices could be covering a possible payoff or kick-backs to your purchasing employee.
  1. Mail Drop Address – A mail drop, or a “ghost” address, is an entity that can receive mail in your name. Companies using a mail drop as their address rather than a P.O. Box may be doing so to facilitate fraudulent activity.
  1. Abnormal Invoice Volume – Unexpected increases in the number of invoices may be due to a legitimate increase in business, but it may also be indicative of fraudulent behavior. Always investigate spikes in invoice volume to spot potential abnormal behavior.
  1. Inventory Shortages and Write-downs – While some internal shrinkage and product loss happen, excessive shrinkage could be an indicator of some possible fraudulent activities.
  1. Voided Sales/Credit Memos/Returned Checks – Voided sales slips and credit memos mean that the sale has been recorded, but the payment might have been diverted, possibly into the wrong hands. This is similar to canceled checks. While they are usually legitimate transactions, a canceled check can be returned to the wrong hands and be re-written to the fraudster. Excessive voids and canceled or returned checks are common indications of theft and should be watched carefully.
  1. Missing Documents – Occasionally documents do go missing in the workplace, but this should not be common at all. If this becomes a frequent occurrence, fraudulent acts could be occurring, in particular for checks. Missing checks numbers or gaps in reconciled check numbers can also be an indicator of fraud.
  1. Timely Bank Reconciliations – A proper bank reconciliation, prepared on a timely basis by someone both knowledgeable and independent of the finance process, is usually a powerful detective control for identifying potential errors or irregularities. You should always investigate old or unusual reconciling items such as a journal entry. Think of it this way, checks are cash used to pay bills and deposits are cash collections; so, when was the last time a journal entry turned into cash?

Even the most internal control-driven organizations are at risk for fraud. To detect and confront fraudulent behavior, you must first accept that fraud exists and that it often occurs.

Acknowledge the importance of fraud awareness and implement training for employees on how to detect fraud at work. By enforcing controls, policies, and procedures, you will cut down your risk of fraud and be better equipped to identify it and promptly respond to mitigate damages.

If you suspect fraud, contact Goldin Peiser & Peiser, LLP which has a team dedicated to fraud prevention, mitigation, and detection. Besides an initial assessment and assistance with implementation, we can also provide on-going testing of controls whereby the “perception of detection” is created in the company and acts as a deterrent against fraudulent behavior.

Feel free to contact Jerry Murray, CFE, CPA, our Principal in charge of fraud prevention, forensic accounting and litigation support at or 214-635-2519.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.


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