The Handbook of Board Governance, 2nd Edition

29Ten Tell-Tale Signs of Possible Fraud: A Director's Primer

James Hunter CPA

Retired President, KPMG Forensic Inc.

Introduction

A serious fraud, publicly exposed, will taint a corporation's reputation. This taint may extend to the corporation's board, to its management. and to anyone associated with the corporation.

In many cases involving serious fraud, the directors may be among the last to find out. This is hardly surprising: The perpetrators of large-scale frauds often go to extraordinary lengths to hide their wrongdoing. What can the directors do?

This chapter sets out ten factors, the existence of which might suggest to a vigilant board that a corporate environment is ripe for fraud to occur. These factors are based on the observations of a forensic accountant—an investigator who is hired to review and report upon allegations of financial irregularities.

The list is not intended as comprehensive or complete. Most importantly, just because an observer sees one or more of these signs within a corporation does not mean necessarily that fraud is underway or contemplated. Rather, the existence of such factors should present those who are charged with corporate fraud risk mitigation with some food for thought.

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