How to spot and avoid being a victim of an employee and supplier fraud

Throughout the countless fraud investigations we’ve carried out, we’ve identified a list of common ‘red flags’ that could indicate a fraud is taking place within the organisation. 

Being alert to the red flags we have listed below can help you detect fraud being committed by employees or suppliers in the earlier stages and hopefully prevent it from happening all together.  However, if one or two of these red flags are present in your case, this does not automatically mean that fraud is taking place.  Use this list as a guide and be cautious if you spot these common themes:

  • Frequent low value transactions – Frequent transactions with a certain supplier or expense claims that are often just below an employee’s authorisation limit or approval threshold.
  • Personal relationship with suppliers – Employees that are unusually personal with the suppliers. For example, an employee taking a holiday with a supplier.
  • Unusual invoices – Manual invoices which look like they have not been through a computerised accounting system, invoices for services or products that were never delivered or carried out, or invoices which have false bank account details.
  • Unknown suppliers – Supplier to whom the payment is being made to is not known to the finance team or senior staff and/or where the reason for payment is unknown.
  • Contact details – Multiple suppliers or employees that share contacts details or bank account numbers.
  • Ghost employees – Payroll containing personnel who do not work for the organisation.
  • Limited supporting documentation – the lack of documentation in support of payments and expenses, specifically on corporate credit cards.
  • Management team – When the management team are overly dominant to the point where employees would not question them.
  • Annual leave not taken – When an employee is reluctant to take holidays and has accumulated a large sum or when an employee refuses to take sick leave when they are sick.
  • Overtime – When an employee is working unnecessarily long hours for no reason or business need.
  • Transaction time/date – When payments are frequently made/authorised outside business hours or over the weekend or holidays.
  • Employee behaviour – A drastic change in employees’ behaviour, showing resentment towards employer or having the perception that they are owed something by their employer.
  • Employee lifestyle change – A change in an employee’s material wealth when their income and living situation has not changed, e.g. buying an expensive car, clothes and/or jewellery, taking expensive holidays etc.
  • Gifts and corporate entertaining – When the senior staff or employees receive expensive gifts or are taken to expensive meals and/or retreats by suppliers.
  • Original documents – When the original supporting document to a transaction is destroyed or is unavailable, and only photocopies are supplier, e.g. payments to suppliers.
  • Transaction patterns – The employee’s transaction patterns are unusual and very inconsistent with overall business and industry norms.
  • Weak internal control environment – Lack of emphasis from management about strong internal controls and when problems arise there is no corrective action made.
  • Management of internal controls – When controls such as separation of duties, delegation levels or review of expenditure are ignored or modified in practice.

Fraud prevention methods:

Ensuring that your organisation has sufficient fraud prevention and detection methods in place is the best way to protect your business from fraud.

Some simple fraud prevention methods include:

  • Ensuring that all internal controls such as separation of duties and appropriate delegation levels are implemented and are adhered to.
  • All staff are regularly made aware of the code of conduct, ethics and values and conflict of interest policies and that they are documented.
  • A ‘positive tone’ is set by senior staff.
  • Background checks on suppliers and pre-employment screening is completed to verify the information you have and to determine if you can handle sensitive or confidential information.
  • Confirming bank account details on the payroll or invoice with the employee and supplier before the first payment is made will help ensure that payment is made to the correct bank account.
  • Regular fraud risk assessments are taken and followed up on control improvements.

These are all great ways to help prevent or minimise fraud. However, sometimes a person who is intent on committing fraud may still find a way.  For this, it is important that businesses also have fraud detection methods in place such as a whistle blower hotline, regular fraud detection data analytics programme and requiring all staff to complete regular fraud awareness training.

The 2016 Association of Certified Fraud Examiners Report to the Nations Occupational Fraud indicates that tip-offs are the most common fraud detection method.  Also, in this report they share that companies with whistle blower hotlines are more likely to catch a fraud through this method. Fraud detection is ensuring that the systems in your business not only identify the problems but ensure that they are also acted on accordingly.

If you suspect you are a victim of fraud or would like to find out more, please contact Asim Sheikh here-


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