Ten Top Tips: Spotting an office fraudster

Male, 36 - 45 years old, works in the finance function or in a finance-related role, holds a senior management position, employed by the company for more than 10 years, works in collusion with another perpetrator.

by Alex Plavsic
Last Updated: 02 Aug 2012

Analysis of 348 actual fraud investigations conducted by KPMG member firms in 69 countries suggests that the above is the portrait of a typical office fraudster. But spotting fraud in your own company is not as simple as singling out all those who fit the above credentials. And nor would doing just that be either moral or appropriate. 

Fraud is indeed a recurring nightmare for management, shareholders and investors. With the value of fraud perpetrated by employees on the rise, increasing 10% in the last year, here are a few warning signs to look out for which may indicate that fraud is being committed within your company:  

Behavioural red flags

1. Rarely takes holidays

Whilst not taking holidays initially appears an HR or wellbeing issue, it is worth considering that this could be an indicator that an employee does not wish to leave his/her work open to the scrutiny of colleagues in his absence.

2. Refuses or does not seek promotion or rotation and gives no reasonable explanation 

Career progression or work rotation is highly desirable for the majority but if an employee refuses this on more than one occasion, it could be an indicator that something is going on under the radar so to speak. Management must take the time to understand how their employees work with others in the department, if an employee insists on working in isolation when this is not always appropriate, this could be a warning sign. 

3. Is suspected to have over-extended personal finances or excessive lifestyle
Greed is one of the key motivations to committing fraud. Management should be alert to the fact that overnight inheritances, newly established opulent lifestyles and excessive personal expenditure may all point to fraudulent behaviour. The recent case of a former secretary who embezzled half a million pounds from a company to spend on private jets, luxury cars and Premier League football tickets is just one such example. 

4. Defensive mechanisms

Whilst this is a slightly contentious area, managers should be able to use their best judgement. There have been many cases of employees inventing illnesses as a mechanism to act as a buffer to challenge.  If an employee is creating defence mechanisms to prevent questioning over transactions or performance, there may be reason to be extra vigilant. This is particularly the case where answers to straightforward questions are ever changing and inconsistent. 

5. Senior managers with unusual spheres of influence

When the CFO banks cash takings or a senior manager is involved in purchasing decisions outside of his function, ask the question: why? In relation to the first of these it is important that all businesses can trace all fund inflows from source to bank with appropriate segregation of duties.

6. Expenses, expenses, expenses…

Several recent stories have appeared of significant expenses frauds. They are also a good indicator of an employee’s honesty: many fraudsters overstate their expenses in addition to their main crime. Use of data analytics over expenses is to be encouraged; looking for perennial over-spenders or spikes in claims.Business indicators

7. Accounts not reconciled to underlying records

Management fraud is on the increase with fraud perpetrated at senior levels now making up 55% of cases. One common management fraud is presenting the business as performing better than it is; manipulating the financial results. It is often the case in such situations that key accounting reconciliations are suspended to enable the manipulation to go undetected.

8. Elsewhere in the industry, companies are struggling and sales and/or profits are declining. Your business appears to buck the trend
Over performance against peers is generally good news, however, independent directors and the Board must get comfortable as to how this has been achieved. Are such explanations underpinned by data and support which evidences a competitive advantage?

9. Excessive secrecy about a function and its operations

Certain business leaders have an uncanny habit of avoiding or postponing scrutiny, such as internal audit reviews, for seemingly plausible reasons. Such avoidance activity should not be accepted on a repeated basis.

10. Posting to vulnerable balance sheet accounts

When funds are stolen or accounts are manipulated the perpetrator will need to process an accounting entry to disguise the underlying transaction. Invariably, certain balance sheet accounts are used such as suspense accounts or other accounts (such as VAT or PAYE) that are rarely fully reconciled. Unexpected build up of balances on such accounts requires challenge.


Alex Plavsic is head of forensic at KPMG

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