The Role of Red Flags on Fraud Detection: The Public Sector Investigative Auditor’s Perspective

Abstract

Red flags are early indicators that help auditors detect potential fraud before it develops further. This study aims to understand the role of red flags in detecting fraud from the perspective of auditors at the East Kalimantan Provincial Representative Office of the Financial and Development Supervisory Agency (BPKP). The study uses a descriptive qualitative approach with in-depth interviews with BPKP investigative auditors. Data analysis was conducted using Miles and Huberman's interactive model through the stages of collection, reduction, presentation, and conclusion drawing, with the help of NVivo 15. The results of the study show that auditors interpret red flags as symptoms of unusual behavior or transaction patterns that need to be further investigated. Auditors follow up on red flags with in-depth analysis, additional evidence testing, and coordination with relevant parties. These findings emphasize the importance of understanding and responding quickly to red flags in order to improve the effectiveness of internal controls and prevent state losses, as well as the need for fraud detection guidelines in the public sector. In addition, current literature lacks studies that propose qualitative method on employs red flags and fraud detection in investigative audit type