Forensic Audit

Whistleblowing and the Symptoms of Fraud

There are often cases where auditors come under fire for not being able to uncover more instances of fraud occurring in companies, but this can sometimes have little to do with their efficacy or their attention to detail. It can be that they are simply not in the best place to identify any possible symptoms that fraud is indeed, taking place.

When criminal acts of fraud take place, they can are made up of 3 distinct phases.

1. The theft itself – the actual act of stealing money or resources
2. Concealment – the attempts by the perpetrator to disguise what they have done. This can be physical concealment or by doctoring financial records or inventories
3. The conversion – this is the selling on or ‘fencing’ of stolen goods and then spending the cash gained from this action

The good news is, that fraud can be detected at each of these 3 stages.

1. The Theft

When an employee steals stock, cash or other assets, this can be witnessed by any other employee in the vicinity.

2. Concealment

When financial records are altered or stock is intentionally miscounted to cover up fraud, this can be quickly identified through analysis.

3. Conversion

Lastly, when the offender spends the money they have stolen on something for themselves, there can be a visible indicator that their lifestyle has improved, for unknown reasons. Of course, anyone can buy a new car or something else for legitimate reasons, but it is undoubtedly a potential symptom of fraud.

Co-workers in the best position

Whilst auditors and forensic accountants are extremely skilled in what they do, they are still not in the best position to detect ongoing fraud, as it tends to cease immediately when they arrive to conduct their investigations. The ones in the best position to notice are the work colleagues of the perpetrators at their place of work, prior to any public indication that there is any suspicion of wrongdoing.

Co-workers will have intimate knowledge of the day to day activity of the company and some insight into the actions of others that they work with. Subtle changes that can occur when concealment is taking place is most likely to be noticed by internal accountants and the people they work next to.

Tips and Complaints

Whilst co-workers are in the best place to spot any fraudulent activity, when they attempt to whistleblow to highlight potential wrongdoing, their claims are initially treated with caution and as symptoms, rather than evidence of criminal activity. Claims can be made with malice or other motives, so the situation must be treated with care.

There are also reasons why someone with suspicions might be hesitant to come forward:

• They’re not completely sure and don’t want to alienate colleagues
• They fear reprisals from the perpetrators or feel intimidated by them
• They might suspect their superiors to be the ones responsible and don’t know who to turn to
• Some companies don’t make it simple to come forward

Employees of any company should be aware that in accordance with the Public Interest and Disclosure Act of 1988, there is a legal requirement for those coming forward to have at least a reasonable belief that wrongdoing is occurring. It is also the company’s responsibility to make their staff aware of company policy on whistleblowing.

At RMI Accountants in Media City, Manchester we provide a range of accountancy services for media clients and to the wider public and we have extensive experience in methods relating to fraud assessment, detection and prevention.

If anything discussed here has affected you or your organisation and you would like some advice on saving money by implementing a fraud prevention program, please call us on 0161 4137958 or visit our website www.rmiaccountancy.com for more information.

One of our friendly experts is always on hand to answer any questions you might have.