The question may sound shocking, but anyone who has worked in internal audit or fraud investigation knows that a fraudster does not start with the most complex items, but rather with the most routine ones; from the place where transactions pass every day until everyone stops asking questions.


These are the thirteen items I advise every CEO, board member, audit committee member, and CFO to start with when assessing fraud risks:

The 13 Most Common Items Where Fraud Occurs:

  1. Personal Expenses:
  • Fraud Method Example: Purchasing home furniture or personal devices at the company's expense.
  1. Fictitious Vendors:
  • Fraud Method Example: Creating a fake vendor and issuing fraudulent invoices to it.
  1. Procurement:
  • Fraud Method Example: Inflating prices or agreeing on kickbacks with vendors.
  1. Petty Cash:
  • Fraud Method Example: Disbursing funds with incorrect or incomplete receipts.
  1. Payroll:
  • Fraud Method Example: Adding ghost employees or continuing to pay salaries to employees who have left the company.
  1. Travel and Per Diem:
  • Fraud Method Example: Claiming unmerited travel costs, hotel expenses, or allowances.
  1. Inventory:
  • Fraud Method Example: Removing goods from warehouses without recording them, or manipulating quantities.
  1. Revenue and Collections:
  • Fraud Method Example: Receiving payments from customers without remitting them to the company.
  1. Fixed Assets:
  • Fraud Method Example: Purchasing assets at inflated prices or selling them below their true value.
  1. Contracts and Consulting:
  • Fraud Method Example: Paying for services that were not actually provided, or inflating contract values.
  1. Advances and Cash Custodies:
  • Fraud Method Example: Disbursing cash custodies that are never settled, or settling them with invalid documentation.
  1. Commissions and Marketing:
  • Fraud Method Example: Paying commissions or marketing expenses that are not backed by actual work.
  1. Related Parties:
  • Fraud Method Example: Awarding contracts or benefits to related parties without proper disclosure.


The Bottom Line:

The most important lesson is not to suspect everyone, but to realize that fraud usually does not hide in obscure accounts, but in the items we are so accustomed to seeing that we stop questioning them.

Therefore, the best control systems do not look for people; rather, they design processes so that committing fraud becomes harder than maintaining compliance. Quality of thinking precedes quality of results.


By: Mohammed Bin Saleh

(Interested in Management and Finance)