Warning signs of employee fraud

In today’s fast paced business environment, it is increasingly important for not-for-profit organisations to keep ahead of the game when it comes to detecting fraud within their operations. According to The Association of Certified Fraud Examiners’ 2010 Report to the Nations on Occupational Fraud and Abuse 80 per cent of fraud was committed by employees.

With this in mind, it is crucial that all not-for-profit organisations know how to deal with fraud.

In some instances employees may display characteristics (or red flags) that can indicate fraud is occurring. The Association of Certified Fraud Examiners’ Report found that some of the most common red flags displayed by perpetrators prior to the discovery of fraud were:

• Living beyond their means
• Financial difficulties
• Control issues and/or unwillingness to share duties
• Defensiveness, suspiciousness and/or irritability
• Not taking annual leave/holidays.

While perpetrators in some instances displayed characteristics prior to the fraud being discovered, it should be noted that just because red flags are present, it does not necessarily mean fraud is being committed.

There are also financial red flags that can highlight fraud. These include, but are not limited to:

• Unexplained decreases in cash flows
• Unexplained increases in expenses
• Unusual adjustments at period end
• Round dollar payments being made to suppliers to ‘part pay’ invoices
• Unreconciled bank accounts or suspense accounts
• Lack of complete and timely reconciliations and financial reports.

As employee frauds can often last for months or years before being discovered, early detection is vital.