Each year, workplace fraud costs the average organization five per cent of its annual revenue, according to a 2018 study by the Association of Certified Fraud Examiners (ACFE). That adds up to trillions of dollars in annual losses worldwide.

The study notes that 81 per cent of fraud cases exhibit audit red flags. Internal audits can help detect fraudulent behavior so your organization doesn't suffer financially. Look for these five audit red flags that should trigger an employee fraud investigation.

Check out this eBook for tips on detecting and preventing employee theft.

1. Large Business Expenses

One of the audit red flags that can occur on the employee or C-suite level is claiming or deducting large false business expenses. An employee may travel for work and claim they spent $50 on lunch. In fact, they ordered a $5 from a fast food restaurant and plan to pocket the rest of the cash.

Upper management may ask accountants to deduct large falsified business expenses in order to reduce the amount of taxes the company owes. Expense categories like travel, meals, entertainment and "miscellaneous" should be investigated the most thoroughly, as their vague nature makes them the perfect place to hide fraud.

RELATED: 4 Keys to Preventing and Detecting Fraud in Small Businesses

2. No Segregation of Tasks

An employee who has multiple roles or is responsible for creating and approving payments should catch your attention during an internal audit. While a company may have limited staff to segregate duties, they increase the risk of fraudulent behavior.

Look for these audit red flags:

• An employee serves in multiple positions or is responsible for a range of tasks where they can access the organization's funds, banking records or accounting records.
• An employee is responsible for writing out checks as well as signing them.
• An employee is responsible for payables as well as bank reconciliations.
• An employee completes financial transactions on behalf of the organization by themselves and does not share these duties with others.

3. Too Many Adjusting Entries

Adjusting entries are journal entries used in accounting to "adjust" your books for expenses and income that are not accurately recorded. These are required when your company has:

• revenues that have been earned but the invoices haven't been processed yet
• expenses have been incurred but the vendors' invoices haven't been processed yet
• money that was received before it was earned
• money that was paid out before it was due (future expenses)

These entires are necessary for many businesses but an unusual number of adjusting entries should catch your attention during an internal audit. Fraudsters may use this tactic as a way to conceal the money they have stolen in company records. Company executives may also use adjusting entries to inflate revenues for a fiscal period.

Suspect an employee of theft? This cheat sheet can help you confront them the right way.

4. Mirror Payments

Another sign of fraud to look out for during your internal audit is mirror payments. These are two or more identical payments made to different vendors. One payment is usually real with legitimate documentation, boosting the legitimacy of the others in the books.

In one case described by Blaney McMurty LLP, a bookkeeper showed multiple signing partners the same documentation (like invoices) and got them to sign a check to "the vendor." To pull off the fraud, they covered up the payee line. As a result, only one of the checks they got signed was actually for the vendor; the rest were made out to the bookkeeper and deposited into their personal account.

5. Suspicious Vendors

When performing an internal audit, your vendor list can be a rich source of information. Fraudsters try to disguise their stealing as legitimate business transactions, so looking into vendors is key.

Some fraud red flags you might find include:

• vendor files that are missing contracts and other important materials
• vendors that don't have a web presence or contact information or just otherwise seem suspicious
• an employee who has an unusually close relationship with a vendor, perhaps to the point that they are the exclusive contact with them for your organization
• vendor files containing questionable invoices that lack detail or don't look professional
• multiple vendors with similar names
• vendor with an address that matches an employee's address

RELATED: Red Alert! Accounting Fraud Red Flags

Any behavior that goes against the generally accepted accounting principles (GAAP) should be investigated after performing an internal audit. Deceiving investors, customers, fellow employees and the government should never be tolerated.