The best way to protect yourself from crime is to learn the lessons of other victims.

That’s what I hope to do in a monthly newsletter which will focus on case studies. The cases will be actual frauds or cases of intentional regulatory non-compliance. In each one I will look at what happened, what the red flags were, how the frauds were uncovered, and what the fallout was. The names will be changed to protect the innocent. Seriously, the victim. Many of the frauds in our case studies could have easily been prevented. And as much as I’d love to throw the perpetrator under the proverbial bus, I don’t want to name names when illustrating the stupidity, in some cases, naivete, of the victims.

Before I start analyzing case studies, I’m going to explain the most common red flags of fraud. Some of the red flags are no-brainers but are still repeatedly overlooked by management and business owners for all sorts of reasons.

Employee lifestyle changes. If the minimum-wage mail room clerk drives to work in a new Bugatti, it’s time for an audit.
Employee with significant credit problems. Are debt collectors showing up to see an employee? Yikes! Use discretion, but listen to the talk around the water cooler.
Refusal to take a vacation. And you thought the bookkeeper was really dedicated, or had no life. There’s a reason banks require their employees to take week-long (or longer) vacations.
Lack of separation of duties. This is difficult for very small businesses. But should your secretary (or anyone, really) be opening the mail, posting customer payments, taking the deposit to the bank, reconciling the bank statement, answering phone calls, making collection calls, or any two of the above? The same goes for inventory.
Management (or a manager) operates “fast and loose” with rules, details, procedures, etc. and gets away with it.
Unreconciled bank statements. Or unusual reconciling entries: something other than outstanding checks. But take a close look at outstanding deposits. Yes, last Thursday’s deposit really should be on the bank statement that was printed four days later.

I could go on and on. But you get the idea and if you don’t unsubscribe from my newsletter, you’ll learn a lot more. Even better, forward it to someone you think may need a “heads up.”