Red Flag: A Mean for Preventing and Detecting Corporate Fraud

Abstract

Corporate fraud is a matter of serious concern as it causes a challenge to the business organization in today’s dynamic environment. Fraud is a wilful act to obtain money, property or other advantages that recipients are not actually entitled to own. It occurs in all countries and affects all type of organizations irrespective of their size, place or industry type. Most of the fraud cases occur after some signals which are known as red flags. Red flags help in understanding root causes of fraud. The present research examines the red flags as a mean to the managers, auditors, and regulators for detection, prevention, and investigation of corporate fraud. Various research studies available from different national and international journals have been taken into consideration. The review reveals that management related characteristics, firm’s operating and financial environment and inadequate internal control system significantly affect the presence of fraud whereas industry environment related variables are insignificantly related with the occurrence of fraud.