What are the Red Flags of Fraud?
The following is a partial list of the factors contributing to fraud. It is not intended to list all possible situations.
- Ineffective internal controls such as:
- Not separating functional responsibilities of authorization, custodianship, and record keeping. No one should be responsible for all aspects of a function from the beginning to the end of the process.
- Unrestricted access to assets or sensitive data (e.g., cash, personnel records, etc.)
- Not recording transactions resulting in lack of accountability
- Not reconciling assets with the appropriate records
- Unauthorized transactions
- Unimplemented controls because of the lack of or unqualified personnel
- Collusion among employees over whom there is little to no supervision
Embezzlement “Red Flags”
- Borrowing money from co-workers
- Creditors or collectors appearing at the workplace
- Gambling beyond the ability to stand the loss
- Excessive drinking or other personal habits
- Easily annoyed at reasonable questioning
- Providing unreasonable responses to questions
- Refusing vacations or promotions for fear of detection
- Bragging about significant new purchases
- Carrying unusually large sums of money
- Rewriting records under the guise of neatness in presentation
Other Common Forms of Fraud:
- Falsifying time sheets for a higher amount of pay
- Pilfering stamps
- Stealing of any kind (e.g., cash, petty cash, supplies, equipment, tools, data, records, etc.)
- Forgery
- Lapping collections on customers’ accounts
- Pocketing payments on customers’ accounts, issuing receipts on self-designed receipt books
- Not depositing all cash receipts
- Creating fictitious employees and collecting the paychecks
- Failing to end personnel assignments for terminated employees and collecting the paychecks
- Paying for personal expenses with University funds
- Increasing vendor invoices through collusion
- Billing for services not rendered and collecting the cash
- Seizing checks payable to vendors
- Recording fictitious transactions on the books to cover up theft
Other Fraud Danger Signals:
- High personnel turnover
- Low employee morale
- No supporting documentation for adjusting entries
- Incomplete or untimely bank reconciliations
- Increased customer complaints
- Write-offs of inventory shortages with no attempt to determine the cause
- Unrealistic performance expectations
- Rumors of conflicts of interest
- Using duplicate invoices to pay vendors
- Frequent use of sole-source procurement contracts
- Unreconciled accounts
- Dormant accounts
- Failure to deactivate or terminate access after employees have separated from a position, unit or the university