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.
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