The Fraud Examiner
Sometimes, It’s All About What’s Missing
Mary Breslin, CFE, CIA
President, Empower Audit
When we talk about fraud detection, we speak the language of red flags — and red flags come in many forms. Sometimes we talk about fraudster characteristics, like the fraud I caught because of shoe envy, but often we are talking about the indicators of fraud. And those indicators, those red flags, are
different depending on the fraud scheme. Sometimes we look for attributes of the fraud itself, sometimes the signs of concealment or conversion, and sometimes we look for what’s just not there but should be. Most fraud fighters know the fastest way to find ghost employees is to look for what is missing — ghost
employees will be missing vacation, sick days, retirement planning and physical access to systems or buildings. Ghost employees can be easy to spot when you know what to look for, but when else should we focus on what’s just not there?
I started my career in the audit department at Price Club, now Costco. I loved my job and I loved that company — still do. While I was working there, I had the privilege of being introduced to the fraud world. Back then that world was run by the Loss Prevention (LP) group; these guys were too
cool for school. They knew every conceivable way both employees and customers could steal from us, and as an auditor I got to help on some cases because, like all good auditors, I could research and I knew the systems and processes. Most of my favorite memories are from helping LP. I also learned what the
“rabbit hole” was, as I spent a lot of time down a few of them, trying to help on these cases without any real fraud or loss prevention knowledge. Boy was it exciting!
The case that sticks out the most in my memory was also one of the simplest and most straightforward frauds I’ve seen in my career. But that simple fraud taught me much about human behavior and why we should always look for what’s missing. As an auditor, one of the things I had to do every month
was review and research discrepancies on the monthly financial statement for the individual warehouses in my assigned region. One of the warehouses had what I would describe today as an “out of balance” condition.
The location in question had a much higher rate of loss due to perishables. It appeared that there were significantly more perishable goods — produce, meat, seafood, dairy, etc. — than any other locations being “returned” by customers and thrown out by store employees for being “bad” by a
wide margin. In comes the LP group. They spoke to employees who worked in the areas that appeared to be affected, but those employees did not have much to offer to help solve the issue. They all believed the amount being tossed was about the same as always, and if it had been creeping up, they didn’t notice. Some
had stories of shipments that came in with problems and larger quantities being thrown out than normal, but those instances were few and far between.
The LP group then looked at the processes around disposal. They also asked me if I could narrow down the problem financially to a more specific area — meat, seafood, produce or bakery. They also had me look at customer returns versus shrink versus product thrown out by staff. Unfortunately, it looked
evenly dispersed. There were a few spikes here and there but nothing that stood out overall. LP audited the disposal process and documentation thinking the process wasn’t being properly followed and that was what was causing the problem. But the processes and the historical documentation looked solid and
well adhered to.
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