• Fraud doesn't always scream foul play.filthy money image by hazel proudlove from Fotolia.com
  
  You're reading your business income statement, checking it to make sure all's on the up-and-up. Revenue, operating expenses, net worth--it's all there. Now you look closer at your operating expenses and discover that several categories appear overinflated. Determining the difference between fraud and innocent accounting error often requires looking for what's not on your statement.
  
  

Information Control

• Manipulated income statements' telltale warning signs are overcentralization of financial reporting and the management judgments that accompany that reporting. High-level committees that can't get a handle on company finances or that find significant insider trading and under- or overblown benchmarks that differ greatly from industry standards are clues that something may be amiss.
  
  

Accounting Clues

• Less than full-disclosure of loans, unaccountable transactions, too many personal transactions filtering through business accounts, ghost employees and expensive services never rendered can clue you in to fraud. Sudden changes in accounting structure requested by management to make the books look more financially stable instead of changes due to compliance issues are also red flags.
  
  

Sarbanes-Oxley Act of 2002

• Chief executive and financial officers must validate all financial statements, according to the Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission (SEC) will not accept any financial statement that hasn't been certified. Company auditors must also flag any accounting discrepancies. Suspecting fraud and proving fraudulent intent entail clean investigation by third-party entities such as independent auditing firms and the SEC. The stakes and the penalties are high, so read between the lines of your income and other financial statements.