As businesses grow, so do the opportunities for financial statement fraud. Unfortunately, these types of frauds can be devastating to a company’s bottom line and reputation. It’s important to know the tell-tale signs of financial statement fraud so you can take steps to protect your business.

So, what are the red flags to look for when it comes to financial statement fraud? Here’s a closer look at some of the key warning signs you should be aware of.

1. Inflated Revenues

One sign of financial statement fraud is inflated revenues. This can be done by overstating sales figures or booking sales that haven’t actually been made yet. It’s also possible to overstate the value of inventory or other assets.

2. Misstated Expenses

Another common sign of financial statement fraud is misstated expenses. This can include recording expenses as income or understating expenses to reduce the cost of goods sold. It can also involve recognizing expenses for a period other than when they occurred or classifying expenses as something other than what they are.

3. Unrecorded Liabilities

Unrecorded liabilities can also be a sign of financial statement fraud. This can include failing to record loans or other liabilities, recording them as assets, or misstating the amount of the liability. It can also include recording liabilities that don’t actually exist.

4. Unusual Transactions

Unusual transactions can also be a sign of financial statement fraud. This could include unusual payments to vendors, the transfer of funds to related parties, or unusual loans. Any transactions that seem out of the ordinary should be investigated further.

5. Lack of Internal Controls

Another red flag to watch for is a lack of internal controls. This can include not having sufficient separation of duties or not having adequate procedures for approving and recording transactions. It can also include not having sufficient oversight of the finance department.

These are just a few of the red flags to look for when it comes to financial statement fraud. It’s important to remain vigilant and to investigate any suspicious activity. By doing so, you can protect your business from this type of fraud and keep your financials accurate.