A Business-First Approach To The Practice Of Law

3 signs of internal business fraud

On Behalf of | Dec 13, 2021 | Business Law |

Business owners often deal with a variety of issues that develop within their companies, including instances of fraud. The Nonprofit Leadership Center notes that the advent of technology is one cause of this issue, as digital technology provides dishonest individuals the means and the opportunity to commit such acts.

While instances of internal fraud continue to rise, there are several signs business owners can watch for that may point to such activity.

1. Unexplained inventory shortages

Warehouse shortages that occur regularly or in patterns may point to internal fraud. The inventory may turn up missing or diverted, and those responsible for handling this area of a business may try to cover their tracks by reporting false shipping or production delays. Accounting for goods regularly and having several checkpoints in place, from point of origin to the warehouse, may help reduce instances of inventory theft.

2. Altered inventory documentation

Those involved in fraud may alter shipping and inventory documents to account for missing items or to hide cash shortages. This typically happens at the payroll and accounting level, as employees who work in these departments have a greater opportunity to do so. Reducing the number of individuals who have access to editing features could lower the risk of this type of internal fraud.

3. Unusual vendor actions

Internal fraud may involve company vendors and one or more employees. Vendors who display a preference for working with a certain employee or who seems to communicate with him or her more often than is usually necessary may point to fraudulent activity.

Employers who involve themselves in every aspect of their business may have a better chance to catch internal fraud early on. Conducting frequent reviews of financial and inventory records may also lower the risk.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin