Archive for November, 2005
Thu 10 November 05 · Filed under Fraud News Stories
Yesterday I had an opportunity to emcee an event focused on the prevention and detection of corporate fraud. The event was sponsored by Jefferson Wells International, The Business Journal of Greater Milwaukee, BDO Seidman, and Foley & Lardner.
Our fraud event drew a crowd of about 75 professionals from companies in the greater Milwaukee area. The keynote speaker was James Finch, the Special Agent in charge of the Milwaukee office of the FBI. On the one hand, I was surprised at how low “white collar crime” is on the FBI’s list of priorities. On the other hand, all resources are limited, so it is no wonder that the agency must prioritize.
The most interesting speaker (in my opinion) was Nancy Sennett of Foley & Lardner, speaking on SEC investigations. We got an overview of the process and a bit of general advice on how companies should cooperate with the investigation. It became clear to me that the best thing a company can do when they get that dreaded phone call from the SEC is to call a qualified lawyer. Qualified means lots of direct experience with this process.
Thanks to all the speakers and attendees for providing a thought-provoking afternoon!
Tue 8 November 05 · Filed under Fraud News Stories
According to the 2004 Report to the Nation, a study done by the Association of Certified Fraud Examiners, anonymous reporting mechanisms (read: hotlines) are highly effective tools to detect fraud. Internal frauds are most often detected through tips from employees, customers, and vendors.
Sarbanes Oxley requires audit committees to establish confidential reporting mechanisms, so fraud hotlines can be a good option to meet that requirement. As a side benefit, companies with hotlines suffer fraud losses that are half those of companies without hotlines.
ACFE recommends EthicsLine as a quality provider of anonymous hotlines.
P.S. I was fortunate enough to be selected to participate in the study, so one of my cases is in the results of the 2004 Report to the Nation. How cool is that?
Mon 7 November 05 · Filed under Fraud News Stories
Oversight Systems surveyed 208 Certified Fraud Examiners earlier this year, inquiring as to whether or not the controls imposed by Sarbanes-Oxley are believed to be effective. The survey found that while fraud examiners believe SOX helps with fraud identification, few believe that the culture of business leaders will be affected by it in the long run.
65% of survey participants believe that SOX has been “somewhat effective” or “very effective” in identifying incidences of financial statement fraud. However, the large majority (83%) of respondents believe that recent leanings toward integrity and fraud prevention will not have long-term staying power.
It is clear that while regulations have shined a brighter light on fraud prevention, the ability of SOX to have a lingering effect in the minds of executives is doubtful.
Survey results are available here.
Sat 5 November 05 · Filed under Fraud News Stories
Joseph Wells, the founder of the Association of Certified Fraud Examiners, says that accountants are generally not equipped to find fraud. I agree!
Joe says that the main problem is that untrained accounting graduates are trying to fight the fraud was against sophisticated cheats. Sarbanes-Oxley doesn’t do anything to train accountants and auditors about fraud. Few colleges and universities are offering courses on fraud, although that may slowly be changing. The fact of the matter is that accountants are taught about books and numbers, but that doesn’t necessarily translate into the expertise to find fraud.
Joe lists three reasons why auditors can’t possibly find all frauds:
1. Trust - Employers must trust their employees in order to do business. Fraud relies on this element.
2. He says that “fraud is a crime without unique clues”. So while there may be telltale signs that a fraud has occurred, they aren’t as obvious as those for property crimes or violent crimes.
3. Auditors can only audit the information they are given. It is easy to conceal fraudulent transactions.
I agree with Joe. Unfortunately, auditors and accountants are largely ill-equipped to deal with fraud.
A participant’s comment from one of my recent conference keynotes said: “We all know what fraud is….”
Really? I totally disagree, and until accountants can admit that they aren’t educated enough about fraud, the fight against fraud will continue to be an uphill battle.
Read the entire press release here.
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