Beyond the behavioral red flags, two places to start when looking for fraud within a company’s accounting records includes a thorough understanding of both analytical and accounting anomalies.
Analytical anomalies can best be described as transaction or financial relationships that do not make sense. This includes an inspection of transactions that do not fit a pattern of normal activity or what’s expected. Are the amounts smaller or larger than usual? The following are further examples:
- Round, even transaction amounts
- Cash transactions instead of payments by check
- Unexpected transaction recipients
- Unexplained cash shortages, to name a few.
Accounting anomalies on the other hand are defined as unusual activities that seem to violate normal expectations. One example is the posting of routine journal entries by the CFO on a Sunday when these transactions are normally performed by a clerical employee during normal business hours.
Another is transactions that lack supporting documents such as ties to a given purchase order? Do these transactions lack the required second endorsement on a check? Are they duplicate payments? Do the payees address match or closely match that of an employee?
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