Red Flags of Fraud | Risk Unit (2024)

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The following is a partial list of the factors contributing to fraud. It is not intended to list all possible situations.

Ineffective internal controls such as:

Not separating functional responsibilities of authorization, custodianship, and record keeping. No one should be responsible for all aspects of a function from the beginning to the end of the process.
Unrestricted access to assets or sensitive data (e.g., cash, personnel records, etc.)
Not recording transactions resulting in lack of accountability
Not reconciling assets with the appropriate records
Unauthorized transactions
Unimplemented controls because of the lack of or unqualified personnel
Collusion among employees over whom there is little to no supervision

Embezzlement “Red Flags”

Borrowing money from co-workers
Creditors or collectors appearing at the workplace
Gambling beyond the ability to stand the loss
Excessive drinking or other personal habits
Easily annoyed at reasonable questioning
Providing unreasonable responses to questions
Refusing vacations or promotions for fear of detection
Bragging about significant new purchases
Carrying unusually large sums of money
Rewriting records under the guise of neatness in presentation

Other Common Forms of Fraud:

Falsifying time sheets for a higher amount of pay
Pilfering stamps
Stealing of any kind (e.g., cash, petty cash, supplies, equipment, tools, data, records, etc.)
Forgery
Lapping collections on customers’ accounts
Pocketing payments on customers’ accounts, issuing receipts on self-designed receipt books
Not depositing all cash receipts
Creating fictitious employees and collecting the paychecks
Failing to end personnel assignments for terminated employees and collecting the paychecks
Paying for personal expenses with University funds
Increasing vendor invoices through collusion
Billing for services not rendered and collecting the cash
Seizing checks payable to vendors
Recording fictitious transactions on the books to cover up theft

Other Fraud Danger Signals:

High personnel turnover
Low employee morale
No supporting documentation for adjusting entries
Incomplete or untimely bank reconciliations
Increased customer complaints
Write-offs of inventory shortages with no attempt to determine the cause
Unrealistic performance expectations
Rumors of conflicts of interest
Using duplicate invoices to pay vendors
Frequent use of sole-source procurement contracts
Unreconciled accounts
Dormant accounts
Failure to deactivate or terminate access after employees have separated from a position, unit or the university

The Risk Unit is responsible for evaluating loss exposures, assessing liability, handling claims, promoting internal controls and developing effective safety and health programs. The corporate and student insurance plans are managed by this unit.