Fraud “Red Flags”

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Donna Mayes

Unfortunately, non-profit organizations are not immune from fraud. Often times after a fraud has been committed, the organization can look back on the situation and recognize some red flags that should have raised some concern which could possibly have prevented a fraud or at least detected it earlier. I thought it would be helpful to present a list of red flags that may indicate that a fraud could be occurring in your organization.

  • Living beyond one’s means (fancy car, expensive home, lavish vacations)
  • Experiencing financial difficulties
  • Suspicious behavior
  • Too controlling – wants to do everything
  • Caught in lies (often insignificant)
  • Works odd hours (always the first to arrive or last to leave; works weekends when workload doesn’t indicate the need)
  • Password protects files on server that shouldn’t be
  • Takes loan from 401k
  • Gets very defensive when asked a question about work
  • Unusually close relationship with vendor or customer
  • Addiction, gambling or legal problems (How do they pay for these issues?)
  • Won’t take vacation (or comes to the office during vacation to “take care of business”)
  • Doesn’t follow the internal controls that are set up
  • Unusual number of manual journal entries
  • Excessive number of voided transactions
  • No original documentation – everything is scanned in or copied
  • Lot of errors in work

These red flags don’t necessarily mean that someone is committing fraud; however, coupled with other indicators, the employee should warrant closer supervision, surprise internal audits, etc. You may also want to review your internal controls for any possible weaknesses.   Being alert to these red flags can go a long way to preventing fraud and keeping your organization financially sound. (Note:  This is the first in a series of posts about fraud.  Check back for future postings.)

Categories: General Information, Internal Controls, Operational Issues, Sector
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