Gustavo Ballvé on May 24th, 2010
Corporate Governance, Food for thought, Home, Mental models

Old article but still relevant, discussing red flags for Board members trying to detect fraud. For our tastes and frameworks, the article doesn’t give nearly enough emphasis to the incentives issue. While we do have a few useful links, it’s always important to remember that one shouldn’t rely on checklist approaches to CG, fraud, stock research and pretty much anything else involving “systems” that are far from simple.


Fraud detection: Red flags – a KnowledgeLeader “checklist” of sorts that is just that – a list of useful tell-tale signals or warning signs. As we said above, it shouldn’t be taken too seriously.

No one would listen – A post about Bernie Madoff, whistle-blowers and red flags that remained ignored for way too much time. By the way, we’d now add another book suggestion to the ones we make in this post: The Confidence Game, recording Bill Ackman’s saga against MBIA Corp.

Essentials of Corporate Fraud – We’re not singling out this book as a leading publication on the subject, it’s just a way to open up “related book” searches. There are many many textbooks on fraud, forensics accounting and so on, and this didn’t necessarily save people from Enron, Worldcom, Madoff, etc. – and won’t necessarily prevent the next, big, “unimaginable” fraud either.

US agencies’ fraud-detection effors – As this Federal Trade Comission page shows and other pages not mentioned here corroborate, the US government is very concerned with fraud and tries to increase awareness of the issue. This handbook about the Red Flags Rule for protecting consumers’ IDs is an interesting read.

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