EideBailly

Common Sense Flags

• Tips or complaints from other employees or outsiders regarding a certain employee.
• Employee is living extravagantly relative to his/her known income level.
• Unexplained amounts of overtime by a certain employee.
• Employees who have been dishonest with current or previous employers.

Behavioral Flags

• Employee does not take vacations or never misses work.
• Overworked employee will not allow others to help with his/her work.
• Custodian of financial records is overly protective of them.
• Changes in behavior, such as increased drinking or moodiness.
• Employees with substantial amounts of personal debt.
• Employees who gamble on a regular basis.

Accounting Flags

• Business is inexplicably unprofitable.
• Company is having cash flow problems.
• The "books" are out of balance.
• Unexplained inventory shortages or adjustments.
• Subsidiary account balances do not reconcile to corresponding control accounts.
• Unexplained end-of-period adjusting entries.
• Financial statement trends/ratios do not make sense.
• Related-party assets on the financial statements.

Document Flags

• Excessive credit memos.
• Check register has been tampered with. (ex. entries whited out)
• Source documents for payments made cannot be located.
• Missing deposit slips and/or canceled checks.
• Excessive written off accounts receivable.
• Requested financial records cannot be produced upon demand.
• Excessive sales voids.
• Source documents, such as vendor invoices which are clearly atypical.

Internal Control Flags

• Reimbursements are not supported by receipts or other source documents.
• Background checks on key employees are not conducted.
• The company considers internal controls to be unnecessary "red tape."
• A single employee controls the company checkbook.
• Lack of proper authorization and/or independent checks.
• Internal controls are either non-existent or not enforced.
• Invoices are paid without verifying receipt or purchase authorizations.
• Company credit cards are not adequately controlled.