For the last twenty-four years, the Association of Certified Fraud Examiners (ACFE) runs a week-long campaign encouraging business leaders and employees to proactively take steps to minimize the impact of fraud by promoting anti-fraud awareness and education. This year’s International Fraud Awareness Week runs November 17-23. Mercadien proudly supports Fraud week and employs four Certified Fraud Examiners (CFEs) as well as two Certified in Financial Forensics (CFFs), a designation offered through the AICPA & CIMA. But you do not need to be an accounting firm, or employ a CFE or CFF, to take advantage the ACFE resources to educate your organization’s workforce about the risks and signs of fraud and the benefits of fraud awareness.

Ask someone what ‘fraud’ means and you’ll get a variety of answers, but in broad terms, fraud encompasses all actions meant to deceive for personal or financial gain. More specifically, fraud is defined as an intentional and deliberate act to deprive another of property or money by guile, deception or other unfair means. According to the ACFE’s latest Occupational Fraud 2024: A Report to the Nations, organizations lose about 5% of their revenue annually due to fraud. Fraud causes billions of dollars in damage to companies, governments and individuals each year.

WHAT ARE SOME FRAUD RED FLAGS?

 Frequently, fraudsters display some kind of distinct behaviors that can serve as warning signs, also known as red flags. By familiarizing yourself with some of the most common behavioral clues, your organization can take these into consideration when designing and implementing fraud prevention and detection strategies. And since tips (from employees, customers, vendors, and competitors) is the way over forty percent of frauds are detected, educating your workforce on common red flags just makes sense.

The most common behavioral clue, and one that has consistently been the most common clue since the ACFE started tracking the data in 2008, is fraudsters living beyond their means. While there may be a legitimate reason a person is suddenly on a shopping spree, if you suspect there’s an issue, and especially if the person is exhibiting one or more of the other common signs, the appropriate internal team might find grounds to conduct a preliminary investigation.

Some of the other most common red flags / behaviors include:

• Declining to utilize earned sick and/or vacation hours year-after-year.
• Control issues, i.e. unwillingness to share duties.
• “Wheeler-dealer” attitude.
• Divorce or other family or legal problems.
• Unusually close relationships with vendors or customers.
• Irritability, suspiciousness, or defensiveness.
• Financial difficulties.
• Bullying or intimidation.

WHAT SHOULD YOU DO IF YOU SUSPECT FRAUD IN YOUR BUSINESS?

 The organization’s fraud detection and prevention planning should identify a chain of command as well as a guideline of each person’s roles and responsibilities in the event a fraud is suspected and/or reported. An internal investigation should take place by the appropriate personnel (which might include assistance from outside experts) as soon as possible. Conducting an internal investigation helps to demonstrate company integrity and promotes a commitment to zero-tolerance for fraud.

This internal investigation would vary depending on the source of the information and the type and complexity of the fraud suspected but may include:

• Establishing predication – determine if there is enough cause to proceed with an investigation.
• Create a timeline of the allegations and facts.
• Identify which controls have been circumvented.
• Gathering evidence – collect physical and electronic information such as emails, documents, photos and videos.
• Preserving evidence – including noticing employees to prevent them from deleting, altering or destroying evidence.
• Consulting legal counsel to address any legal uncertainties.
• Identify potential witnesses and establish a list of people to interview, both internally and externally.
  • When interviewing, it is advisable to interview fact witnesses first, then any implicated parties and the suspected target of the investigation last;
  • Always have a second interviewer present to witness the interview and take diligent notes.
• Suspending employees who could compromise the investigation, if warranted under the circumstances after consultation with legal counsel.
• Creating a written report that summarizes the investigation, including the findings, interviews, and evidence.
• Depending on the goal(s) of your investigation, determine if reporting to local law enforcement is warranted.

MERCADIEN’S FORENSIC ACCOUNTING & INVESTIGATIVE CONSULTING EXPERTS
ARE HERE TO HELP

 Sometimes an organization is understaffed or lacks qualified staff to conduct a full internal investigation, or the fraud is suspected within the board of directors or management. If the loss is covered under the organization’s insurance policy, they may be required to hire an independent third party to conduct the investigation. Whatever the need, Mercadien has the depth of experienced staff to assist.

As with an internally conducted investigation, it is crucial to begin the investigation as soon as possible. We can work with your in-house counsel, board, management, IT, human resources, or other relevant personnel to discreetly and efficiently perform the investigation, conduct interviews, quantify losses, and/or assist counsel and law enforcement as needed. We have decades of experience working with local as well as regional and international law firms; and federal, state and local law enforcement and government agencies, including the U.S. Attorney’s Office, FBI, Secret Service, NJ Attorney General’s Office, NJ Bureau of Securities, and Philadelphia City Controller’s Office and more.

When people come to us, they are usually very anxious, under duress and needing urgent resolution. It can be an unusually trying time for organizations and individuals. Our team understands this and will help you stay focused. We are committed to building a relationship of trust and reliability.

STEPS YOU CAN TAKE NOW TO HELP PREVENT FRAUD

Every employee should feel a responsibility to help prevent and report suspected fraud, regardless of position. There are six  anti-fraud controls that have shown the greatest association with lower fraud losses, per the ACFE, and they are:

1. An established, company-wide code of conduct. This starts with the tone-at-the-top and should be reinforced with regular training. Companies that provided fraud training for employees saw a thirty-eight percent reduction in the median loss per fraud insurance.
2. An internal audit department. Internal auditors take a pro-active approach of monitoring for potential fraud indicators, such as unusual patterns or trends in financial transactions or operational activities
3. Management certification of financial statements. Certified financial statements are a cornerstone of financial transparency and accountability. They provide assurance that management has presented a reasonably “true and fair” view of a company’s financial performance and position.
4. External audit of internal controls over financial reporting. Auditors are trained to look for signs of fraud, such as unusual transactions, unexplained discrepancies, or suspicious employee behavior.
5. Management reviews. Reviews can help identify weaknesses in internal controls and recommend improvements, as well as identify areas of risk and the likelihood of those risks occurring.
6. A hotline allows employees to report wrongdoing anonymously which can help them feel more comfortable. This helps foster a culture of open communication and trust.

For more information on ACFE’s International Fraud Awareness Week, you can visit fraudweek.com. If you suspect fraud in your organization or want to learn more about how Mercadien can help you prevent, detect or deter fraud, please contact us today.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.