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The Six Signs of Internal Fraud
By Peter Goldmann, Editor, White-Collar Crime Fighter

September 2007 (White-Collar Crime Fighter) As executives, managers, internal auditors or rank and file employees, when it comes to internal fraud we may suspect it, suffer the consequences of it, or anticipate it. But we never see it, according to Steven Albrecht, associate dean at Brigham Young University's Marriott School of Management.

However, we can see the signs of fraud, Albrecht said in a speech at the 18th Annual ACFE Fraud Conference. There are six signs in all organizations. By understanding them and looking for them, we significantly improve our chances of detecting and reporting fraud.

Accounting anomalies—representing such countless red flags as inventory shortages, unrecorded transactions, unusual levels of returns, etc.

Internal control weaknesses. These equate to opportunities for insiders to commit fraud. If you identify a weakness, chances are that someone will exploit it if they haven’t already.

Analytical symptoms. When a business function occurs at the wrong time, or is conducted by the wrong person or a similar operational anomaly occurs, chances are it is a sign of fraud.

Lifestyle symptoms. Employees living beyond their means is the most common. Smart internal fraudsters would steal and save. But most steal and spend. When you notice signs of extravagant lifestyle, you’re most likely looking at a sign of fraud.

Behavioral symptoms. People who stop looking you in the eye, sweat more than usual, come in earlier than usual and/or stay late should be monitored as potential fraudsters.

Tips and complaints. When employees report actual or suspected incidents of fraud among their co-workers or bosses, you’ve got good reason to start following up with a search for hard evidence.

PETER GOLDMANN is the editor and publisher of White-Collar Crime Fighter. Don't miss him in the new SmartPros CPE segment, "Corporate Fraud: Profiling and Prevention.

2007 White-Collar Crime Fighter. Used with permission.

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