Fraud detection: How to assess data for hidden risks?

Fraud continues to pose a significant threat to financial stability, often eroding public trust and triggering regulatory scrutiny. A two-tiered fraud detection approach, forensic red flag analysis and deep-dive investigations, may help counter these risks by combining high-level public data with internal forensic accounting.​ 

How can you identify early red flags?

The preliminary stage of fraud detection typically emphasizes finding anomalies within publicly disclosed information. This high-level review is particularly pertinent for internal auditors, finance teams, and compliance officers conducting initial risk assessments.​ 

Key fraud red flags signaling potential financial misstatement: 

• Revenue growth rates significantly exceeding industry benchmarks without credible business drivers.​ 
• An operating cash flow to operating income ratio persistently below 0.8.​ 
• Sudden, unexplained gross margin fluctuations.​ 
• Frequent financial restatements or revisions to previously issued results.​ 
• An Altman Z-Score below 1.8, which may reflect underlying financial distress risks.​

When is in-depth forensic analysis necessary? 

Red flags trigger with targeted forensic investigations, using confidential datasets, accounting entries, contractual documents, and email correspondence to uncover operational discrepancies.​ 

Multidisciplinary teams comprising forensic accountants and IT auditors often employ specific analytical techniques: 

• Benford's Law Analysis to evaluate numerical data distributions for irregularities.​ 
• Vendor and customer concentration assessments to identify potential collusion schemes.​ 
• Ghost employee audits via payroll and HR database comparisons. 
• Document authenticity verification utilizing metadata and forensic imaging.​

What lessons can professionals learn from past cases? 

Cases like Luckin Coffee and Wirecard over the past decade highlight how unchecked revenue anomalies and unverified third-party balances can lead to severe financial consequences.​ 

Internal audit pros must integrate data analytics, AI, and cross-functional teams against evolving fraud schemes. As perpetrators adapt their methods, detection frameworks must evolve in parallel to maintain resilience and compliance.​ 

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For more information, head to our Forvis Mazars’ forensic investigation and compliance capabilities in Vietnam. 

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