Predication or not?

The net revenue for a textile plant was significantly lower than projected even though sales had increased. The company couldn’t find evidence of fraud and didn’t detect unusual trends in financial data, so it attributed the cause to accounting errors. There were some minor inconsistencies in procurement of plant supplies, but the plant manager enforced strict controls, and validated purchases and requisitions each month. He hadn’t found any outliers. Though nobody discovered evidence on the surface, Charles Washington, CFE, wasn’t convinced. His continued investigation into the small procurement inconsistency led to the identification of a major vendor fraud committed by the supply supervisor who maintained duplicate ledgers to conceal his crimes from the plant manager and other executives. (Washington is now the senior director, global fraud and asset protection at Pfizer.)

According to the ACFE Fraud Examiners Manual (FEM), “predication” is the totality of circumstances that would lead a reasonable, professionally trained and prudent individual to believe that a fraud has occurred, is occurring or will occur. (See the FEM, Act on Predication.)