4 Quick Ways to Find Fraud

With advances in technology, we find ourselves not having to wait for things like we used to. As a kid, I waited for movies, music, and even cartoons. My kids have access to these same things anytime, anywhere. Waiting isn’t fun, and that’s why I encourage you to proactively seek out fraud, rather than waiting for fraud to find you.

Earlier this year, my family watched the movie Inside Out at the theater, and it is coming out on DVD in about two weeks. You can probably watch it online today. Comparing this to my childhood, I had to go to the theater to see a movie, and as I got older, movies were produced on beta, VHS, or laser discs, but we would still have to drive to the video store to rent them. Today, you can rent movies online from anywhere, anytime.

Likewise, as a kid I listened to music on the radio or I would have to go to the store to buy a record, which usually came out after it was released on the radio. Now, kids can buy music from anywhere, anytime. I also remember waiting for Saturday morning to watch cartoons. My kids now have 24/7 access to cartoons; again, anywhere, anytime. I could probably go on and on with this, but we should probably discuss how to find fraud.

Below are four quick ways to find fraud in your organization:

1. Interview a long-time employee. Seek out someone who knows a lot of people in the organization and ask them, “Do you know anyone who is doing something they shouldn’t be doing?” If they say “Yes,” then you should, of course, ask more questions. If they say “No,” you should ask them, “What is the easiest way to steal ______ and get away with it.” Through this discussion, you should be able to learn a lot more about your organization.
2. Review your top salesperson’s top customer for oddities. You may consider looking into their relationship a little further. As an example, your salesperson may own part of the customer’s business. You may also consider evaluating credit memos or pricing arrangements. There could be high sales volume right before the close of a period for calculating sales bonuses.
3. Identify high-risk suppliers and seek out information. In almost every industry, you have high-risk vendors. This could be a sole-source vendor that knows you aren’t shopping price, a new vendor that has quickly taken business from a competitor, or a vendor that is paid quicker than normal. Each of these has different challenges, but you should know your organization’s high-risk suppliers. The background behind your organization’s relationships with these vendors can shed light on many risks from overcharging for products/services to a vendor being on the brink of bankruptcy.
4. Keep an eye on your most trusted employee (“MTE”). You should ask your MTE, “Tell me about the areas you take care of around here and tell me about the one that is most challenging and the one that has the best controls and why.” These questions will lead to a long narrative about a lot of things. Your job is to listen with your eyes. Watch their body language. Are there times when they get overly excited or nervous? Look for any behavior that differs from normal for them. If there is a change in behavior when the MTE is talking about certain areas, these areas should be identified. After you finish, select some transactions from the identified areas, dig into the supporting documents, and ask further questions. If the nervousness escalates, then you are getting closer to finding something.

If these tasks lead to any suspicious behavior (e.g., excessive nervousness, overly complex answers, unexplained questions, missing documents), then you should call me to discuss your concerns, and we can determine the next steps together.

If you don’t find anything, you are keeping a potential fraudster in check because they know that you are engaged beyond the standard day to day controls. I know you are busy completing all your other tasks, but these tasks shouldn’t take too much time. The bottom line is don’t wait for fraud to find you. Be proactive and find it first!

For weekly insights on fighting financial fraud, click here: