Abstract
The incident of management misbehavior has been increasing in the last decade. The present financial crisis has exposed additional episodes of questionable, improper, and possibly illegal actions by managers of financial institutions. By combining techniques used in financial analysis and theoretical constructs of the study of managerial fraud, the Analytic Model of Management Fraud is developed. The conceptual framework reflected in the Analytic Model of Management Fraud is that financial statements provide a lens to view the actions of management and determine conditions that increase the likelihood of management fraud occurring. Using three groups of financial ratios produced by the FDIC the model was tested on Community Banks for a period of three years before the occurrence of management fraud. The results of study supports that certain performance ratios are predictive of conditions that increase the likelihood of management fraud occurring.
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