Study: Financial-Statement Fraud not a Solo Job
The study, conducted by the Institute of Fraud Prevention, looked at 834 companies that filed financial restatements between 1997 and 2002. Of those, 374, or 45 percent, were accused of securities fraud and subject to shareholder suits, Securities and Exchange Commission enforcement action or both, the IFP reported. In those cases, an average of seven people were involved, and could include the CEO, CFO, Chief Operating Officer, general counsel, members of the Board of Directors, and internal and external auditors.
In cases of fraud, the Board of Directors often was driven by senior management, and the CEO also served as chairman.
“Far from being a solitary act, securities fraud necessarily requires complicity,” said IFP Executive Director William Black in a statement. “In situations where the CEO is chair of the Board of Directors, a body that is supposed to oversee management, independence can be compromised. When independence falls by the wayside, fraud is the consequence.”
Black noted that 39 percent of the companies accused of fraud were so-called New Economy industries, including dot-coms, energy traders and telecommunications.
“When the dot-com fever hit its peak, there was a loss of perspective as people saw the possibility of making a lot of money very quickly,” he said. “We saw what former Federal Reserve Chairman Alan Greenspan called 'irrational exuberance.' Good business practices were ignored under the pressure to meet earnings forecasts.”
The study, “Control Overrides in Financial Statement Fraud,” (http://www.theifp.org/research%20grants/tillman%20final%20report_revised_mac-orginal-EDITED.pdf) calls for maintaining the reforms of Sarbanes-Oxley while resisting efforts to make it more difficult for shareholders to file suit. The report also concludes that liability of audit firms and corporate board members should not be lessened.
“The events captured by our data largely ended prior to the passage of the Act and comparisons with more recent data suggest that the reform measures have had a positive impact,” the report states.
The Institute for Fraud Prevention is a coalition of domestic and international universities dedicated to research, education and prevention of fraud and corruption. The study was written by Robert Tillman and Michael Indergaard of St. John's University.
Number of comments: 1
AccountingWEB.com May-11-2007
Categories: News Archives
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Firozali A Mulla , 20 May 2007 @ 14:32 PM
Study: Financial-Statement Fraud not a Solo Job It is Sir always inside job. Look at the Enron. Papers came and shred. So if the work is not done prepared it is done after the job is done and I say "Look I am innocent. Nothing, no grease in my hand, clean hand with the detergent". What will SEC or anyone will do after the event. The grabbing of the three NATWEST from UK was a shame |
