Fraud Detection

There are a range of fraud indicators – both warning signs and fraud alerts – which can provide early warning that something is not quite right and increase the likelihood that the fraudster will be discovered.

Business risks

  • Cultural issues
  • Management issues
  • Employee issues
  • Process issues
  • Transaction issues

Financial risks

  • Management compensation highly dependent on meeting aggressive performance targets.
  • Significant pressures on management to obtain additional finance.
  • Extensive use of tax havens without clear business justification.
  • Complex transactions.
  • Use of complex financial products.
  • Complex legal ownership and/or organisational structures.
  • Rapid changes in profitability.
  • Existence of personal or corporate guarantees.

External risks

  • Introduction of new accounting or other regulatory requirements, including health and safety or environmental legislation, which could alter reported results significantly.
  • Highly competitive market conditions and decreasing profitability levels within the organisation.
  • The organisation is operating in a declining business sector and/or facing prospects of business failure.
  • Rapid technological changes which may increase potential for product obsolescence.
  • Significant changes in customer demand.

IT and data risks

  • Major information threats include: mobile devices, malicious insiders, remote access and social media. 
  • Unauthorised access to systems by employees or external attackers.
  • The wealth of malicious codes and tools available to attackers.
  • Rapid changes in information technology.
  • Users not adopting good computer security practices eg sharing or displaying passwords.
  • Unauthorised electronic transfer of funds or other assets.
  • Manipulation of programs or computer records to disguise the details of a transaction.
  • Compromised business information.
  • Breaches in data security and privacy.
  • Sensitive data being stolen, leaked or lost.

Fraud alerts

  • Anonymous emails/letters/telephone calls.
  • Emails sent at unusual times, with unnecessary attachments or to unusual destinations.
  • Discrepancy between earnings and lifestyle.
  • Unusual, irrational or inconsistent behaviour.
  • Alteration of documents and records.
  • Extensive use of correction fluid and unusual erasures.
  • Photocopies of documents in place of originals.
  • Rubber stamp signatures instead of originals.
  • Signature or handwriting discrepancies.
  • Missing approvals or authorisation signatures.
  • Transactions initiated without the appropriate authority.
  • Unexplained fluctuations in stock account balances, inventory variances and turnover rates.
  • Inventory adjustments.
  • Subsidiary ledgers, which do not reconcile with control accounts.
  • Extensive use of ‘suspense’ accounts.
  • Inappropriate or unusual journal entries.
  • Confirmation letters not returned.
  • Supplies purchased in excess of need.
  • Higher than average number of failed login attempts.
  • Systems being accessed outside of normal work hours or from outside the normal work area.
  • Controls or audit logs being switched off.

Key tools for detecting fraud

There are also two key tools for detecting fraud: 

  • Training and experience – the training received by a management accountant is a very good basis for implementing an anti-fraud programme. 
  • The mindset that fraud is always a possibility – A healthy dose of professional scepticism should be maintained when considering the potential for fraud.

These can be supplemented by a range of techniques for identifying and analysing anomalies to help determine whether fraud investigation or review are required.

BAS A.S. VAN LEEUWEN, ATTORNEY | ADVOCAAT | AVOCAT

MR. BAS A.S. VAN LEEUWEN (LL.M., ESQ.), attorney at law and forensic auditor, assists clients with criminal matters, administrative supervision and enforcement cases, and internal and external investigations. Cases involving accusations of fraud, bribery, money laundering, corruption or violations, financial mismanagement, of international sanctions seriously disrupt a client’s operations and damage their reputation. At a client’s request, the attorney can conduct internal investigations, advice, litigate and negotiate with regulators and the Public Prosecution Service. He delivers swift solutions that address the underlying problems for urgent matters. Sometimes, his clients are injured by non-compliant conduct; sometimes they find themselves accused of the same.