Fraud—the need to exaggerate achievements and hide failures—is inherent to human nature and not many people escape this type of temptations.

Therefore, a good way to minimize the risks of manipulation is to always analyze the accounts with a hint of skepticism that helps us not to overlook warning signs.

Of all the warning signs shown in previous chapters, we can propose the following 10 as the most important ones:

  1. Deficient control systems.
  2. Absence of complaints channels.
  3. Excessively complex corporate structure and subsidiaries in tax havens.
  4. Speculative operations with financial derivatives that are difficult to understand.
  5. Managers with extravagant lifestyles and many luxuries.
  6. Managers with conflict of interests in relation to customers, suppliers, bank …
  7. Qualifications in the audit report.
  8. Increase of debts.
  9. Discrepancies between sales, profits, customer balances, and inventory.
  10. Discrepancies between the profit generated and the cash.

The presence of warning signs doesn't necessarily imply that there is fraud, but it informs us that extreme precautions must be taken.

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