Signs Your Business May Be a Victim of Internal Fraud

Practical Red Flags and How to Initiate an Internal Investigation

Internal fraud can quietly drain a business of its financial resources and erode trust from within. While most companies focus on external threats, employee-related fraud is more common than many realize, and often goes undetected for months or even years.
​
This article outlines common warning signs of internal fraud, explains why prompt action matters, and discusses how working with a forensic accountant like Larry Bradford, CPA, can help uncover and prevent misconduct.

Common Red Flags of Internal Fraud

Fraud schemes can vary, but certain behavioral and financial patterns often indicate something is wrong. Some of the most frequent warning signs include:

1. Unexplained Financial Discrepancies

• Missing receipts, altered invoices, or irregular journal entries
• Frequent write-offs or unexplained adjustments
  
  

2. Unusual Employee Behavior

• A staff member who refuses to take time off or share responsibilities
• Employees who seem overly protective of their work or systems
  
  

3. Bypassed Internal Controls

• One person handling multiple financial duties (e.g., receiving payments and reconciling accounts)
• Resistance to audits or oversight
• Inconsistent documentation or record-keeping
  
  

4. Vendor and Payroll Irregularities

• Payments to unknown or duplicate vendors
• Ghost employees or suspicious payroll increases
• Frequent complaints from suppliers or customers about billing errors
  ​
  

5. Declining Profit Margins Without Clear Cause

• Shrinking profits despite stable revenue
• Inventory discrepancies that can’t be explained by operations
  ​

These symptoms don’t guarantee fraud, but they suggest a need for closer examination.

What to Do If You Suspect Fraud

If you notice red flags, it’s important not to jump to conclusions or confront employees without proper evidence. Instead, follow these steps:
​
1. Preserve Financial Records

• Secure all relevant documents, emails, and logs. Avoid tipping off anyone under suspicion.
  
  

2. Contact a Forensic Accountant

• A professional forensic accountant, like Larry Bradford, CPA, has the experience and tools to investigate discreetly, trace transactions, and identify misconduct.
  
  

3. Limit Access to Sensitive Systems

• Temporarily restrict access to financial systems or bank accounts if there's risk of ongoing theft.
  
  

4. Avoid Internal Bias

• Having an outside expert reduces the risk of personal bias or internal politics influencing the outcome.
  ​
  

5. Document Everything

• Maintain detailed records of your observations and the investigative process, especially if legal action might follow.

Why Work With a Forensic Accountant?

Forensic accounting goes beyond reviewing spreadsheets. It involves tracing financial activity, uncovering hidden patterns, and presenting findings that hold up in legal and financial settings. Few CPAs ever earn the designation of Certified in Financial Forensics by the American Institute of Certified Public Accountants (AICPA). Larry Bradford, CPA, holds this rare certification.
​
Larry Bradford brings over 40 years of investigative accounting experience to these situations, having worked on hundreds of cases where clear, documented financial evidence was presented in court. His work helps clients uncover the truth, protect their financial interests, and make informed decisions during high-stakes situations.

Take Action to Protect Your Business

Internal fraud can affect any business, regardless of size or industry. The sooner red flags are addressed, the better your chance of limiting financial damage and holding the responsible parties accountable.
​
If you suspect fraud, don’t wait. Contact Larry Bradford, CPA, for a confidential consultation. He can help you uncover the facts, respond with confidence, and strengthen your financial controls to prevent future issues. Call 512-402-0049 or send an email to [email protected] to get started.