When fraud is perpetrated by employees with access to internal systems, there are several relatively easy things you can do to spot the fraud:
- For starters, check the accounts payable system to see if there are any vendors without an address on file. If there are vendors without addresses, there is a possibility that accounts payable clerks are routing those checks to themselves.
- Also, analyze the activity of vendors in your system. A large company may have 50,000 vendors on file that it has done business with, but may only have done business with 10,000 of them in the last few years. Those unused vendor files are ripe for abuse by malicious employees, who may by cutting checks for bogus work, and then funneling that money to themselves.
- Take a close look at the names of the vendors on file. Malicious employees who are committing AP-related fraud may modify the names of existing vendors or create fictitious companies out of whole cloth. They may add their own initials to the front of company names, use anagrams, or use with silly names like Mick E. Mouse.
- Cross referencing employee addresses with vendor locations routinely turns up some employees with their hands in the cookie jar. This can be done very quickly by simply matching address numbers and ZIP codes.
- In years past, fraudsters would perpetrate their theft using post office boxes, which are guaranteed anonymity by the US Postal Service. This is one of the reasons that many companies now require actual addresses to be on file. You can flush out the little rascals by cross-checking the physical addresses of the UPS Stores and other similar stores with employee and vendor addresses.
- In some cases, it may be useful to use visual tools to analyze street addresses in more details.
- Many businesses close on the weekends, so if checks are routinely issued on Saturday or Sunday, that would be a giant red flag of fraud.
- Fraud fighters can use Benford’s Law (also called the First-Digit Law) to identify suspicious patterns in checks. If the company requires a senior manager to sign off on checks over $25,000, and there is a big disproportionate increase in the number of checks written just below that number, that would be a strong indicator of fraud.
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