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The Institute of Internal Auditors Red Flags of Fraud: Situational Pressures That Contribute To Management Fraud

The document lists situational pressures, company limitations, business decisions, and firm characteristics that can contribute to fraud. It includes examples like heavy losses, dependence on few customers or products, rapid expansion, and lack of internal security or employee screening policies.

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jam lingan
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25 views1 page

The Institute of Internal Auditors Red Flags of Fraud: Situational Pressures That Contribute To Management Fraud

The document lists situational pressures, company limitations, business decisions, and firm characteristics that can contribute to fraud. It includes examples like heavy losses, dependence on few customers or products, rapid expansion, and lack of internal security or employee screening policies.

Uploaded by

jam lingan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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The Institute of Internal Auditors

RED FLAGS OF FRAUD


Situational pressures that contribute to 2. Publishing of overly optimistic earnings
management fraud forecasts.

Company financial pressures that can lead to


fraud are: Firm characteristics that make it easier for an
1. Heavy investments or losses. individual to commit fraud are:
2. Insufficient working capital. 1. Failure to inform employees about rules
3. Unusually high debt. and disciplines of fraud perpetrators.
4. Reduced ability to acquire credit 2. Rapid turnover of key employees.
5. Profit squeeze. 3. Absence of mandatory vacations.
6. Restrictive loan agreements. 4. Absence of periodic rotations or
7. Progressive deterioration in quality of transfers of employees.
earnings. 5. Inadequate personnel screening policies
8. Urgent need for favorable earnings. for hiring new employees.
9. Need to gloss over temporarily bad 6. Absence of explicit and uniform
situations. personnel policies.
10. Unmarketable collateral. 7. Failure to maintain accurate personnel
records for disciplinary actions.
Company limitations that can lead to fraud are: 8. Failure to require executive disclosures.
1. Dependence upon only one or two 9. Dishonest or unethical management.
products. 10. Dominant top management.
2. Dependence upon only one or two 11. Constantly operating under crisis
customers. conditions.
3. Excess capacity. 12. Paying little attention to details.
4. Severe obsolescence. 13. Impersonal relationships or poor
5. Extremely long cycle. morale.
6. Existence of revocable or imperiled 14. Lack of internal security.
licenses. 15. Too much trust is placed in key
employees.
Business decisions that can lead to fraud are: 16. Tenure on key jobs becomes too long.
1. Extremely rapid expansion. 17. Books and records are sloppy.

Note: Red flags provided are examples, and not intended to represent an exhaustive list.

2010 APIPA Conference


Contract & Procurement Fraud 1
July 21, 2010

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