Toby Bishop, a forensic accountant who spent 20 years at Arthur Andersen before becoming director of , advises CFOs, auditors and regulators to "look for unusual relationships between related items." These tip-offs include any otherwise unexplainable anomalies between cash flows and reported earnings, the ratio of depreciation and amortization charges to balance sheet assets, and any sudden "ballooning" of the number of days sales that are in accounts-receivable status.

While that last indicator can sometimes reflect the creation of "fictitious receivables" for use in manipulating earnings, he notes that there can be many explanations for this occurrence, such as when a "large customer has suddenly stopped paying," or the addition of a new client from a part of the world where it "may be common to take 180 days to pay bills."

With currently available fraud detection tools often involving as many as 20 of these indicative ratios, false alarms typically occur some 90% of the time. So there's a "tradeoff between detecting a large proportion of fraud versus having a large proportion of false alarms," he says. "Just like a good smoke detector, it sometimes goes off when someone burns the toast. That can get distracting."

Bishop cites Messod Daniel Beneish, a professor at Indiana University's Kelley School of Business, as one of the researchers currently engaged in "tweaking" the tools used to analyze these indicators. Beneish's working relationship with Bishop was enhanced, the professor says, when his "model flagged Enron for [its audit firm] Arthur Andersen before the debacle" that resulted in Enron's collapse.