Take the case of inventories in  an organisation.  While the sophisticated software and inventory control systems do provide a high level of comfort in the reliability of the reports generated, there have been cases found where inventories had  been conveniently inflated for bankers hypothecation or insurance claims.   There is a famous ‘Salad Oil Scandal’ fraud case which  features in practically every audit or fraud related publication. In this case, the intelligent fraudster took loans from several banks  against salad oil stocks in warehouses to such an absurd extent that, the aggregate quantity of all salad oil stock pledged with the  banks exceeded even the stock of salad oil in that whole country. None of the banks had bothered to ascertain whether the total stock was reasonable and acceptable.  In the same manner, to check the  correctness of   quantities of inventories   every management must compute, within reason, the space occupied by the quantities of inventories represented in any financial report, and compare that with the physical dimensions  of the warehouses and godowns in which they are stored. In the same manner,  the reliability of production figures can be greatly enhanced by ensuring that they are within the installed capacities. Similarly, reliability of reports relating to sales, purchases, gross profits etc would be much greater if they were compared with past period trends and relationship ratios. For example, a gross margin shooting up from  a previous five year average of 12% to 20 % is sufficient cause for concern. In case this limit has never been reached before,  the chances are ten to one that there is something materially wrong in other figures such as overstatement of sales or under statement of purchases or inflation of inventories or any combination of these possibilities.

The process of elimination is also very effective  in scrutinising any expenditure for payment. One often tends to be influenced by the supporting bills and details and the main clue pointing out the absurdity of the claim  may be missed out altogether. As in the case of a jigsaw puzzle, just as each piece must fit exactly into all the other pieces surrounding it, so also in any transaction if there is even a single negative clue which does not fall in place with the others, rest assured that something is amiss. If the person passing any bill or expense voucher centres his attention only on what is factually and practically acceptable with reference to the expense claimed, it will be much easier to spot anomalies  A very amusing fraud case was one where the medical reimbursement request by a male employee for a certain viral infection was supported by a chemist’s bill for birth control pills! No doubt, it is not possible for a person checking any bill to have knowledge or awareness of every pill or medicine, but the point is very clear that a simple clue could expose a fraud done very shrewdly. To quote another example, reimbursements for certain travel expenses in a particular town were found to be completely fictitious on the strength of a simple clue; the person  had apparently travelled on a day of the week when that particular train was not scheduled to run. In another case a steamer agent’s fraud of raising fictitious bills Rs 40 lacs on the client was easily caught  due to a simple clue:  The fictitious bills raised by the steamer agent were for terminal handling charges which were well supported with full details of tonnage, number of packets in break bulk cargo, the reference of the bill of entry, the vessel name, the date of arrival, customs duty paid etc.  However, the fraudster made one small mistake. He did not know that Terminal Handling Charges were levied by port authorities only in respect of container cargo and were not applicable to packages in break bulk cargo!