Why Early Detection Matters

Most financial misconduct starts small and grows in silence. By the time it's discovered, the damage has often spread across multiple departments, stakeholders, or even jurisdictions. However, in nearly every major case, there were warning signs.

Organizations that embed mechanisms to detect early anomalies, whether financial, operational, or behavioural, significantly reduce the risk of prolonged fraud, reputational damage, and costly investigations.

Proactive detection doesn’t just reduce impact, it builds a culture of vigilance, accountability, and trust.

While the actual fraud may remain hidden for months or years, warning signs often surface early in the form of:

• Unusual accounting entries
• Overly aggressive revenue targets
• Repeated override of internal controls
• Behavioural red flags from staff under pressure

Failing to spot these signs can cost millions, in cash, reputation, and stakeholder trust.

Common Early Warning Indicators

Key Practices to Spot Misconduct Early: Implementing or reinforcing the following controls can help uncover early misconduct:

1. Trend Analysis: Compare KPIs and ledger balances over periods for unexplained fluctuations
2. Exception Reporting: Configure systems to auto-flag overrides, round numbers, or late entries
3. Forensic Sampling: Conduct quarterly transaction sampling in high-risk areas
4. Whistleblower Channels: Encourage anonymous, secure reporting and commit to non-retaliation
5. Behavioural Awareness Training: Equip managers and internal audit with training to identify non-financial indicators of fraud

Real Case Snapshot:

The “Late-Night Ledger Games” Case

In a mid-sized FMCG distribution company, quarterly results were consistently strong — suspiciously strong. The finance manager, well-regarded for his "dedication," was always the last to leave the office, particularly on month-end and quarter-end reporting days.

An internal audit trainee noticed something odd: high-value manual journal entries, always posted around 11:45 PM, on the last day of the quarter, with vague descriptions such as “timing difference” or “operations adjustment.” These entries weren't tied to any approved memos or reconciliations.

Digging deeper, the auditor uncovered that these entries reversed unshipped sales to inflate revenue and margin figures temporarily, only to be quietly reversed post quarter-end. The manipulation had occurred over five consecutive quarters, artificially inflating EBITDA by over $ 11.6 million.

Red Flags Missed Initially:

• Repeated late-night postings
• Manual entries with no approval trail
• Identical rounding patterns and descriptions
• Finance manager's complete control over the closing process

What broke the case open? A newly implemented ERP exception report flagged all high-value journal entries posted outside business hours. The pattern was unmistakable. A formal forensic investigation confirmed the misconduct.

Outcome:
The finance manager was terminated and reported to authorities. The company restated its financials and instituted a new layer of dual approval for all post-5 PM postings. It also conducted mandatory fraud awareness training across finance and operations.

Coming Next Week:

Once red flags are raised, what happens next? In Week 3, we break down the investigation lifecycle: from initial scoping, evidence preservation, digital forensics, interviews, all the way to final reporting. We’ll walk through timelines, key roles, legal considerations, and share a real-world case on how mishandling evidence derailed an otherwise strong investigation.