Four uncommon red flags to find out something is going wrong in your business

Nikolay is an expert in forensic, internal control and financial analysis. With over ten years in the largest multinational telecommunications, metallurgic and mining companies, as well as the Big-4 consultancies and investment industry, he builds a unique combination of security and growth for the firm’s clients with a focus on safe expansion.

CEOs and shareholders need to know different red flags which may evidence fraudulent activities, have they in-house audit, security and compliance or not. Here are some of such red flags to consider.

1. No variances between the budget and actual numbers (in revenue, expenses or production)
If your company meets the budget at 100% or in the range of up to 2% deviations, there is high probability that:
a) reporting could be inaccurate, due to recognition of the numbers in the wrong period;
b) there is an internal fraud, which creates unaccounted surplus that can be used to level up required numbers to budgeted amount.
2. Unused vacations
If an employee does not use his/her vacation for several years in line, there can be two reasons for that:
a) ineffective management and workload;
b) an employee is not able to go on vacation because he/she is responsible for some fraudulent processes.
3. Actual loss rates in production/logistic processes are always close to their theoretical maximum
When loss rates (amount, weight, volume etc.) are being estimated, they are based on the range of losses from 0% to some maximum percentage, while the actual results have to be somewhere in between. If your business faces actual losses close to the maximum percentage, it indicates that some of the losses can be artificial.
4. Tricky average numbers
Usually the top management does not look deeply into the project results or statuses, they are provided with high-level 1-2 slides presentations with overall measures. For instance, 1001 objects have been built and 9 items (money / equipment / materials, etc.) have been spent on each. The case seems quite standard. But, if we look at the details, it can turn out that 9 items have been spent on building each of 1000 objects and 100 items have been spent on the 1001st, which will be disguised by average numbers.

See more at Compliance Periscope