Finding and fighting fraud in the workplace

While the subject of fraud and its potential impact can be devastating for many, the potential for fraud should not be associated only with large cities in major metropolitan states and corporations and their owners, such as Enron, Bernie Madoff or Tyco. Consider that it was recently noted that Vermont has the highest instance of fraud per capita in the entire country.While the topic could logically require years of practical application to fully understand, this article will look at the types of activities and methods available to prevent or detect fraud or to provide a resource when confronted with a case involving a client who suspects or is concerned about a potential instance of fraud.Forensic professionals employ a series of generally accepted methods to analyze and predict or detect the many schemes that are used in the workplace. One important analytical tool is called The Fraud Triangle, which includes: • The theft act that places the employee or fraudster at risk of being caught • Concealment of the act from others who could recognize and stop the theft • Conversion to cash or some other form of value from the victim to the fraudsterThe application of the Fraud Triangle provides the examiner assistance in developing a methodology for the detection of a fraud scheme. One of these types of schemes includes fraudulent misstatements in a company’s financial data or financial reports.The forensic expert analyzing financial statements performs procedures including comparing account balances from one period to the next (or prior) period and calculating key ratios and comparing them from period to period.When to investigateFraud is an intentional act. For fraud to be successfully eliminated, it is critical to understand its symptoms, and how detecting those symptoms helps in the actual determination that fraud occurred by identifying and understanding the accounting symptoms of fraud.Looking for, brainstorming and understanding the five groups of fraud symptoms takes a forensic professional with specific skills, knowledge, education, experience and training. The forensic investigator is commonly looking for: • Accounting anomalies resulting from unusual processes or procedures in the accounting system • Internal control weaknesses, including the employee never taking a vacation or only taking a vacation for a short period of days scheduled around non-critical accounting events or periods of slowdowns • Analytical anomalies in which relationships in financial or non-financial data do not make any sense to a company manager or outside consultant when reported or explained • Extravagant lifestyles that contradict compensation amounts from the employer • Unusual behaviors, including those that keep other employees on edge and away from the target employee who has access and opportunity to perform fraudulent activities without further management review in ways that often intensify and become more frequent, obvious and threatening • Tips and complaints come in a variety of ways and from a variety of sources, often when it is least expected or from people who may seem to have a grudge from being slighted.This is one of the more common outward signs of an employee who has increased risks associated with a financial crime. The signs are often easy to spot, yet often overlooked due to the perceived loyalty of the employee and normal human nature of not wanting to pry into another employee’s personal life.During the course of the forensic analysis, the following methods are used to fully document the activities that caused the investigation to be commenced: • Concealment investigative methods • Conversion investigative methods • Inquiry investigative methodsIt is important to study and give full consideration of when to investigate a suspected fraud.With careful and objective consideration, a fraud investigation may be effectively conducted with credible, sustainable evidence to determine the amount, extent and strength of the evidence of a fraud, or the determination that there was none.Jeffrey A. Graham, owner of the CPA firm of Graham & Graham, Concord and Laconia, is an adjunct professor in financial forensics at Southern New Hampshire University.