Company Fraud Involves an Average of Seven People

The image of the white collar criminal as a lone operator is not always based on reality. A new study by the Institute of Fraud Prevention suggests that financial statement fraud requires teamwork. The study, “Assessing the Role of Control Overrides in Financial Statement Fraud,” focuses on the significant number of frauds that occurred between 1997 and 2002. The Institute examined 834 companies that filed financial restatements. Of those, 45% were charged with securities fraud and subject to shareholder suits. A typical case involved an average of seven people. Frequently, the scheme was perpetrated by members of senior management, such as the CEO, CFO, Chief Operating Officer, general counsel and members of the Board of Directors. Five years after SOX, collusion continues to play a major role in fraud. Compared with frauds committed by a single individual, frauds executed by a group wreak far more financial damage to the victim organization, according to a 2006 study by the Association of Certified Fraud Examiners. The Association looked at more than 1,100 cases of occupational fraud and abuse investigated between January 2004 and January 2006. Nearly 40% of the incidents discussed in the report were facilitated through employee collusion. While white collar fraud continues to be a significant problem, there are proven deterrents. Based on the study’s findings; firms who instituted anti-fraud training and surprise audits, experienced losses 50% lower than firms who did not. For more information about how to evaluate and improve your firm’s internal controls for detecting fraud and protecting your assets, call Donald J. Goldstein, CPA, Partner at 561-994-5050.