Potential red flags in fraud detection


Talking security with Patrick Bhunu

ALMOST every business organisation is bound to be or has already been a victim of fraud in one way or the other. Different organisations, depending on size, have specific policies, procedures, programmes and training methods that are aimed at preventing fraud. Preventive measures, however, will not guarantee that fraud will not be committed against the organisation.

There are warning signals that an organisation can take account of to help in the detection of fraud. These warning signs are commonly known as red flags. In simpler terms, a red flag is something signalling a problem requiring attention.

While the red flags may not necessarily be a cause for concern, the presence of two or more should raise suspicion and some form of an in-depth investigation may be needed. Red flags are simply designed to raise awareness and assist in the detection of fraud. They do not amount to evidence that indeed fraud has been committed.

Employees who consistently work for longer periods than their colleagues are usually regarded highly. However, caution should be taken when dealing with such kind of employees because some will just be in the office or at their work stations for no apparent reason, other than promoting their nefarious agendas. There are employees who will report for duty very early on a daily basis and they consistently dismiss late in the evening when everyone else has long forgotten that they were at work. At times the person does not even go for tea breaks or lunch. Of course individuals may have different views and perceptions on such kind of a warning sign, but this can be well explained through knowledge and experience.

There are employees who are very reluctant to take off days or even to go on annual leave. I had some experience at some organisation where this other gentleman would come to work even when he had a sick note from a doctor advising him to rest for a few days. He would come to work and tell us that he felt lonely at home and it was stressing him. He would tell us that he was comfortable with performing office duties, which duties he was already doing anyway. It is such kind of red flags which provide a better understanding of the conditions that favour the occurrence of fraudulent acts by employees.

Everyone in an organisation is responsible for preventing and detecting fraud and protecting the organisation from the after effects of its occurrence. Sometimes employees keep quiet when they notice a sudden change of lifestyle in fellow employees.

It is very common to notice some behavioural traits in fraudsters as they commit fraud. Before you know it, an employee wakes up one day with an unexplained source of wealth. He or she starts to dress in expensive suits, designer shoes, changes his or her social circle. Some even change the neighbourhoods they live in and drive top of the range vehicles.

When an employee appears to make more than normal number of mistakes and most of the time leading to a financial loss, then the organisation should know that a right “signal has been sent”. You hear such an employee asking for every detail about a proposed audit scope or inspection. The question is why one would be so concerned about a due process which is a regular standard operation procedure.

Fraud is well hidden such that it is difficult to detect it in advance and usually it is discovered by chance more than design. It is, therefore, important that those who are tasked with the duty of detecting this vice use red flags to help identify potential fraud.

It is acceptable that documents can go missing at the workplace. Such things happen but if this becomes a religious event (that is, if it becomes a frequent occurrence), then fraudulent acts could be at play here. An in-depth analysis into the matter would be prudent.

It is also possible that inventory shrinkages occur. However, if the shrinkage becomes excessive resulting in huge losses to the organisation then this could be an indicator of a plethora of fraudulent activities.

Sometimes companies receive complaints from employees or external stakeholders but they brush them aside. Complaints are one of the best ways to identify fraud. If any of the stakeholders lodges a complaint, it should not be taken lightly. There is need to dig deeper into the situation to determine the cause of the complaint and possibly establish what could be behind it.

There are also some abnormalities that point to fraud. Things such as employees becoming unwilling to share duties, employees becoming so close to or building unusual relationships with suppliers and customers, missing excessive amounts of cash from the till or safe, decrease in work concentration, becoming wasteful, financial problems as well as addiction problems.

Even organisations which have water proof control systems and are process driven also fall prey to fraudulent activities. It, thus, calls for organisations to be able to confront fraudulent behaviour, but they have to (unfortunately) accept that fraud really exist and it can often be perpetrated against them. The second step will be to take necessary action to block criminal activity so as to enhance profitability.

Like I stated earlier, these red flags are mere indicators of potential fraud, but organisations or those that represent them should not assume that every similar situation or behaviour is fraudulent. Questionable behaviour or transactions should be validated.

Feedback on patbhunu@yahoo.co.uk/sms on 0716532802.