Nipping Fraud in the Bud: Early Signs of Employee Fraud and How Forensic Experts Help Organisations

Employee Fraud, Early Warning Signs, Forensic Experts, Fraud Prevention, Unusual Transactions, Altered Documentation, Inventory Discrepancies, Employee Lifestyle, Financial Processes

Stressed business manager

Introduction

Employee fraud is an all-too-common issue that can severely impact organizations both financially and reputation-wise. As someone who experienced the consequences of employee fraud firsthand, I can attest to the importance of detecting and addressing it as early as possible. In this blog, I will share some early warning signs of employee fraud and explain how forensic experts can play a crucial role in uncovering and preventing such incidents. With these insights, you can better protect your organisation from internal threats and avoid the common pitfalls of overlooking fraudulent activities.

Before we dive into the tips, let me emphasise the importance of being proactive and vigilant when it comes to detecting employee fraud. Prevention is always better than dealing with the aftermath.

Tip #1 - Watch Out for Unusual Financial Transactions

Keep an eye out for transactions that seem out of the ordinary, such as large payments to unknown vendors or frequent adjustments to financial records. Look out for employee incharge of creating and approving new suppliers. It is essential that the person creating supplier records is not the approver of records. These could be indications of fraudulent activity.

Tip #2 - Look for Missing or Altered Documentation

Missing invoices, receipts, or financial records could signal an attempt to cover up fraudulent transactions. Similarly, altered documents, such as changes to pay rates or account numbers, could also be a sign of fraud. Pay attention to invoice numbers with differences between each invoice. For example: INV0025, INV0026, INV0027, INV0028 in different years such as 2018, 2019, 2020, 2021 could point you potential fake invoices. The difference between these invoices is only 1 and not in 100's or 1000's.

Usually organisations have large differences between two invoice numbers such as INV00325 and INV3625 indicating high volume activity in different years.

"Look for thresholds for transaction approvals. If a single large transaction is dissected into three different invoices to stay under the radar, it is a warning sign"

Tip #3 - Pay Attention to Inventory Discrepancies and review Master Data regularly

If inventory levels consistently do not match records or there are frequent stock discrepancies, it could indicate theft or misappropriation of assets.

It is worth noting to review master data of customers and vendors using audit trail of system to ensure that suppliers with PO Box address instead of full registered addresses do not pop up, identify record creator with date and time. Example: If Amazon is a supplier for Cloud services with a credit limit of £200,000, and you notice another supplier AMZN with PO Box address with Credit limit of £200,000 created, you should check contracts, payments made and approver documentation immediately.

Tip #4 - Observe Changes in Employee Lifestyle

Sudden and unexplained changes in an employee's lifestyle, such as purchasing luxury items or taking extravagant vacations, could be a sign that they are benefiting from illicit activities.

Tip #5 - Monitor Employee Control Over Financial Processes

Employees who are reluctant to share information, delegate tasks, or take vacations may be attempting to maintain control over fraudulent activities.

Now that we've identified some early signs of employee fraud, let's explore how forensic experts can help organisations uncover and prevent such activities.

Forensic experts can conduct thorough fraud risk assessments to identify areas of vulnerability, analyse financial data to detect anomalies, and recommend improvements to an organisation's internal controls. By involving forensic experts in your organisation's fraud prevention efforts, you can be better equipped to address potential issues before they escalate.

In conclusion, detecting and addressing employee fraud early is crucial for organisations to protect their financial well-being and reputation. By staying vigilant, recognising the early signs of fraud, and involving forensic experts in your organisation's fraud prevention efforts, you can greatly reduce the likelihood of falling victim to employee fraud. Remember to trust your instincts, and if something seems off, don't hesitate to take action. Feel free to share your thoughts and experiences with employee fraud in the comments below.

Get in touch with our team to see how Ace Forensic can help you investigate an employee fraud