The House That Fraud Built

Abstract:The downfall of several seemingly strong companies has recently occurred after the discovery of extensive and long-running management fraud. While the fraud may not have been readily apparent, certain key indicators act as early warning signs that can be collected and prioritized using quality function deployment (QFD). By performing QFD on literature related to the detection of financial statement fraud, a list of red flags was constructed that can be part of a risk assessment process to automatically detect signs of financial statement fraud. From the list of red flags advocated by experts a critical few were selected that enable credit analysts to focus their data collection and analysis efforts on the smaller high impact set. A computerized assessment of this short list can be performed as part of a standard credit evaluation or investment decision …

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