PREDICTING FRAUD AT YOUR OFFICE

HOW TO PREDICT FRAUD

Every business that has been around a while has experienced theft by people inside your business or outside. The outside ones are in a class by themselves, but what about your employees or teammates? How do you tell if fraud is happening, or signs that it COULD happen?

Though there are many fraud red flags, here are some of the most obvious that many do not consider, especially if you think you “know” the person. Of course, always keep in mind the Fraud Triangle: the three basic components that allow fraud to happen. They are: ***Opportunity*** because of lax oversight or knowing the weak spots in your company; ***Pressure*** from sources, be it self-induced, a spouse, or the need to have that which seems unattainable, or at least not easily attainable; and ***Rationalization*** where s/he tells themselves that it is OK for (fill-in-the-blank) reason, or the company has lots of money and I do not, or it is only this one time, etc.

Check out these 8:


1. Past Allegations of Fraud: The grapevine, or even gossiping, can be detrimental to business or individual, but can also give a clue as to what has happened in the past. If you hear a situation about a past experience, look into it, or at least tell those who need to know so they may. It may not be true, but verify that it is or is not. If it is not true, stop the rumor.

2. Bankruptcy: This may be a big key because the individual does not have money to fund the lifestyle that s/he is use to. In bankruptcy, the courts will either take all or most of their possessions, or put them on a payment plan that is sure to put a kink in their style. It will not be easy for them. Of course, do not go the other direction and think that bankruptcy will force them to steal because in many cases that is not correct, but it is a consideration.

3. Lifestyle Changes: they suddenly, or slowly, buy items that normally a person in that position cannot. Maybe it is a new car, expensive jewelry, or nice clothes that are beyond their means. Or the other extreme when there is divorce or death of a spouse. This too will cause a lifestyle change that may be difficult for the employee to adapt to which may lead him or her in the wrong direction, but again, not always.

4. Tons of Debt: This goes along with bankruptcy, but this is before the bankruptcy. Often s/he will complain about a mountain of debt, or you receive calls at the office from Collection Agencies or other businesses asking for the employee to pay their bill. It also may lead to garnishment of wages or other interruptions. Extremely large medical bills are another area that sometimes leads to irrational decisions that leads to fraud.

5. Behavior Modification: The normal behavior you are use to changes from alcohol, drugs, or gambling. These are expensive habits that reduce productivity. Along these behavioral lines, but different, is also threat of layoff or firing which may cause them to want either to “get even” or “stock up” for the rainy day fund!

6. Workaholic Syndrome: The people who come early and stay late are often looked at as great employees, but be sure the hours are for work and not taking advantage of the lack of oversight before and after work. They will also never take a vacation, or only an occasional 3 day weekend.

7. Question Annoyance: The thief will often become very annoyed or vocal about a simple, reasonable question about anything that may tie him or her to a fraud. If you just innocently ask a question to get an answer and this person has an attitude, watch out.

8. Missing Payments: If customers begin saying that they paid, especially if they paid in cash, but it does not show up in any records, then you may have a problem. Along with this is the situation where the customer says s/he paid on the 10th, but it was not credited to the account until the 19th. This may be the use of the money until the thief receives another check to cover the first check, and it snowballs from there.

These are just some of the more obvious signs of theft or fraud from employees, and as business owners you trust your people, so it never enters your mind. Be aware of even those whom you trust. Most owners are shocked by who is doing this because they tend to be in places of trust- and you put them there! Trust, but Verify.

Again, these signs indicate that fraudulent activity COULD EXIST not that is does. Once you look more closely, it will be easy to either: a) see that no fraud exists, or b) see that transactions look out of place, wrong, or unusual. This is when further research needs to be done, but do it quietly so that your evidence does not get destroyed or “lost” when the culprit discovers you may be on to him or her.

References:
Coolidge, Carrie. December 17, 2008. Forbes Magazine. http://www.forbes.com/2008/12/17/madoff-fraud-redflags_cc_1216personalfinance_inl_slide.html


DiNapoli, Thomas. Red Flags for Fraud. NY State Comptroller. http://www.osc.state.ny.us/localgov/pubs/red_flags_fraud.pdf