At our first Lunch & Learn seminar of 2010 (Fraud Issues in Nonprofits), we went over some “red flag behavior” that organizations should take note of in their employees.  These indicators are so important because they often reflect some bigger problems happening within the accounting department – including errors and fraud.  I thought I’d share some of those in this week’s posting. 

1. Does the employee never call in sick regardless of how physically ill they appear?
2. Has the employee stopped taking full weeks of vacation in which someone else performs their duties?
3. Is the employee working odd hours when no one else is there?
4. Have there been excessive complaints rendered upon one employee?
5. Has an employee’s lifestyle suddenly greatly improved with no explanation?
6. Are all accounting matters handled by one individual with no system of checks and balances?
7. Are there strange adjustments noted in bank reconciliations?
8. Are records or documents suddenly missing and untraceable?
9. Are there excessive credit memos?
10. Are certain customer/donor/member names frequently showing up as having received  refunds?
11. Is the general ledger out of balance?
12. Are duplicate payments found in the ledger?
13. Are adjustments to receivables or payables frequently found in your ledgers?
14. Are there excessive cash transactions found in expense accounts?
15. Is the organization experiencing inventory shortages above normal shrinkage?
16. Are there alterations on employee time sheets after supervisors have signed them?
17. Are there frequent shipments to PO Boxes?
18. Are shipping destinations anywhere other than the business address?
19. Are unreasonably large quantities of supplies ordered?
20. Are weekend or holiday delivery dates shown on the invoices?
21. Do delivery dates appear that do not conform to vendors usual pattern of delivery?
22. Are goods delivered by a vendor other than the one from whom the merchandise was ordered?
23. Are some vendors paid on a preferential basis?
24. Are invoices not properly canceled to avoid duplicate payments?
25. Are there unusual markings on invoices?
26. Are invoices appearing which are copies and not the original?
27. Are handwritten invoices being paid?
28. Do some invoices appear to lack the proper letterhead?
29. Are invoice totals round dollar amounts?

Any of the above should grab your attention and warrants additional investigation into the issues causing them.  Do not ignore a red flag!  Of course, sometimes an error is just an error – meaning there is no fraudulent intent – but it’s still important that management properly address the issues.

Jessica Puckett, CPA, CFE