Signs Of Internal Fraud, How To Respond And Investigate

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Internal fraud can happen to anyone, no business is immune to it. Over $500 million annually is lost by companies in the USA due to internal fraud.

Signs of internal fraud

Unjustified transactions

Any unexplained and unjustified changes in bookkeeping records are a definite warning sign of internal fraud. If there is a decrease in revenue despite continuous payments from the business bank account or if there are various pending payments for long periods of time without any justified reason, then there is most likely something suspicious happening. Also, if there is an unexplained increase in expenses and a sudden decrease in profits, it means that money is draining out of the company to a place where it is not supposed to go.

The over efficient workaholics

An accountant who is a fraudster will go to any extent for hiding his or her crime. They often want to work off hours when everyone has gone home. Another sign is that they refuse to go on leave or use any vacation time. They often try to take work home. All of these activities are red flags and need to be addressed. Keep an eye on such workaholics. Unfortunately, there may be an underlying reason for working such odd and extreme hours.

Unexplained satisfaction

Fraudsters try to hide their working documents and processes from managers and others. If any manager or other employee tries to get involved in their work, they become offended. Unsatisfactory explanations and answers are given by them on any fault.

They are overprotective. They work alone and don’t like any involvement or interference. Records maintained by them become inaccessible and untouchable for others. When asked questions, they become strangely defensive. In fact, they know that the records will expose their crime and their answers will be suspicious and unrealistic.

Financial stress

If an accountant is facing any kind of financial stress in their life, there have been cases when they plan internal fraud to fulfill their needs. Any unexpected financial loss such as divorce, mortgage, or debt act as the trigger for internal fraud. Know your employee by taking time for small discussion with them about their current situation. By doing this, you can detect any kind of sudden change in their behavior and activities.

How to respond to internal fraud?

A business owner should know how to respond to internal fraud. Whether the fraudster should go through an internal investigation or handed over to law enforcement should be a decision that you are prepared to make. A forensic accountant should be consulted for an expert opinion.

A forensic accountant is hired in case of any internal fraud. They will investigate and interpret your complicated financial information. The accountant will analyze the amount of loss due to fraud, collect all shreds of evidence, preserve them and prepare a summary of the lawsuit. They will suggest a policy to prevent fraud in the future. Termination is normally the minimum consequence of internal fraud cases. Along with termination, other penalties enforced by a lawsuit are necessary to make it an example that fraud will not be tolerated in your company.

How to investigate

An internal investigation should be exhibited in such a way that your employees, partners, public, and donors trust you and your investigation. No question on the credibility of your investigation should be raised. Hire experienced fraud investigators to ensure that your investigations are handled according to law and be sure that there is no violation of legalities.

A prompt decision needs to be made by the business owner, internal audit, board of directors, and forensic accountant alone or in combination. The size of the fraud, target of the investigation, how to recover the loss, and other risk factors should be addressed by the decision making authorities.

Interview all of the parties, i. e. vendors, customers, and employees. Review all relevant records. Preserve the evidence as early as possible because that documentary evidence is key for investigations. A forensic accountant and IT personnel should be hired to do investigations in the best way to ensure that you handle it thoroughly.


Internal fraud should be investigated in detail to produce evidence for legal prosecution.

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