FRAUD IS AN EVER-PRESENT THREAT TO ANY ORGANIZATION, AS MANAGEMENT PERSONNEL HAVE THE OPPORTUNITY TO CIRCUMVENT THE ACCOUNTING SYSTEM CONTROLS TO MISAPPROPRIATE OR MISUSE FINANCIAL INFORMATION OR MISLEAD FINANCIAL STATEMENT USERS. THE INDEPENDENT AUDITOR'S ROLE IN THE DETECTION OF MANAGEMENT FRAUD HAS BEEN SPOTLIGHTED BECAUSE OF A NUMBER OF WELL-PUBLICIZED AUDIT FAILURES ASSOCIATED WITH MAJOR MANAGEMENT FRAUDS. SINCE 1960, AND MOST NOTABLY IN 1977, THE INDEPENDENT AUDITING PROFESSION HAS ACTED TO INCREASE ITS RESPONSIBILITY FOR THE DETECTION OF DECEPTIVE FINANCIAL PRACTICES, ERRORS, IRREGULARITIES, AND ILLEGAL ACTS. EFFORTS HAVE BEEN MADE TO BETTER DOCUMENT THE MANAGEMENT REPRESENTATIONS RELIED ON BY THE AUDITOR AND TO REQUIRE COMMUNICATION OF MATERIAL WEAKNESSES IN INTERNAL ACCOUNTING CONTROLS. AN AUDITOR NEEDS TO DEVELOP A CONCEPTUAL EARLY-WARNING SYSTEM THAT WILL HELP IN SPOTTING THE 'RED FLAGS' ASSOCIATED WITH MANAGEMENT FRAUD. AN ANALYSIS OF 10 RECENT MAJOR MANAGEMENT FRAUDS SHOWS THAT RED FLAGS FOR THE AUDITOR ARE TIED TO CONDUCIVE ECONOMIC CONDITIONS, CONDUCIVE BUSINESS STRUCTURES, LACK OF AUDITOR UNDERSTANDING, AND THE PRESENCE OF FACILITATING PRACTICES. NUMEROUS CASE STUDIES ILLUSTRATE THE METHODS OF FRAUDS COMMITTED (CATEGORIZED AS EXTERNAL FRAUD FOR THE COMPANY'S WELFARE AND INTERNAL FRAUD AGAINST THE COMPANY'S WELFARE) AND RELATED AUDITING PROBLEMS. REFERENCES, A CHART, AND TABULAR DATA ARE PROVIDED. (RCB)