OPPORTUNITY RED FLAGS

I. PERSONAL

A. Opportunities developed by individuals

1. Very familiar with operations (including cover-up capabilities)
2.In a position of trust
3.Close association with cohorts, suppliers, and other key people

B. Opportunities fostered or created by company

1. Employees not informed of rules and punishments for fraud perpetrators
2. Rapid turnover of key employees (due to leaving or termination
3. No annual vacations of executives
4. No rotations or transfers of key employees
5. Inadequate personnel screening policies for hiring employees to fill positions of trust
6 Lack of explicit and uniform personnel policies
7. Inaccurate personnel records of dishonest acts or disciplinary actions in cases such
as alcoholism and/or drug use
8. No documented code of ethics
9. Executive disclosures and examinations not required
10. Weak leadership
11. Dishonest management and/or environment
12. Dominant top management (one or two individuals)
13. Operations always in a crisis
14. No attention paid to details
15. Too much trust placed in key employees
16. Relatively few interpersonal relationships
17. No viable dissatisfaction and grievance outlets
18. No provision for personnel evaluations
19. Lack of operational productivity measurements and evaluations

II. COMPANY

A.Nature of firm

1. Many related party transactions
2. A very complex business structure
3. No effective internal auditing staff
4. Extremely large and decentralized
5. Highly computerized
6. Inexperienced people in key positions

B. Relationship with outside parties

1. Uses several different auditing firms
2. Is reluctant to give auditors needed data
3. Changes auditors often
4. Hires auditors who lack experience
5. Persistently brings unexpected information to auditors' attention
6. Changes legal counsel often
7. Is reluctant to give accounting information to legal counsel
8. Has several different legal counsels
9. Uses several different banks, none of which can see the entire picture
10. Has continuous problems with various regulatory agencies

C. Accounting practices

1. Large year-end and unusual transactions
2. Many adjusting entries required at the time of audit
3. Supplies information to auditors at the last minute
4. A poor internal control system or no enforced internal control procedures
5. Unduly liberal accounting practices
6. Poor accounting records
7. Inadequate-staffing in the accounting department

Source: Adapted from Robert K. Elliott and John J. Willingham, Management Fraud: Detection and Deterrence (Princeton, N.J.: Petiocelli Books. 1980)