Fraud Series: Red Flags that Fraud May Be Occurring in Your Business

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fraudulent activities that may be occurring in your business
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Welcome to our WNDE 2017 Series on Fraud.

The Association of Certified Fraud Examiners (ACFE) publishes data on why employees commit fraud. According to the ACFE, employees may commit fraud if three elements are present:

  • requirements to have fraud occrMotive: The employee has an immediate need for money that cannot be satisfied by legitimate means. For example, the employee may have maxed-out his or her credit cards, borrowed money from relatives and friends and taken out short-term bank loans – and yet is still desperate to obtain additional funds.
  • Opportunity: The employee may have access to cash or other assets, and there is a lack of segregation of duties which would otherwise prevent a fraud. For instance, an employee may be in charge of the company’s general ledger, and also be authorized to prepare checks. The employee could prepare a check to a fictitious vendor, forge the check signature, deposit the check in his or her personal bank account, and make entries into the general ledger to cover up the fraud.
  • Rationalization: The employee justifies or excuses his or her conduct.


There are certain Red Flags that fraud may have occurred at your business:

  1. There may be an unusual or unexplained decrease in cash receipts or increase in cash disbursements.
  2. The conduct or personal circumstances of a company officer or employee may cause suspicion, such as:
  • know the signs of potential fraud in your business or companyA lifestyle that is well beyond what would be expected at his or her compensation level(expensive cars, expensive vacations, etc.)  
  • Heavy private debts
  • A drug addiction, alcohol addiction or gambling addiction problem
  • An employee that has grievances against the company.

    3. A “whistleblower” may come forward and alert management of an actual or suspected fraud. This person could be an officer, employee, informant, vendor, customer or other outside party. (Note: The Association of Certified Fraud Examiners has published statistics that almost 50% of fraud is discovered by tips.)


If any of these Red Flags are present, the company should consider performing a confidential fraud investigation under the direction of the company’s counsel. At White Nelson Diehl Evans, we provide advisory services to help clients implement internal controls best practices that help prevent fraudulent behavior, and can perform forensic accounting investigations. If you want to minimize the chance of fraud or suspect that fraud may have occurred, contact your WNDE partner today.

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