CHAPTER 27 Fraud Detection and Prevention

Seemingly almost like clockwork, businesses in the United States and elsewhere regularly go through periods of business failures; often they are based on poor general economic conditions, but sometimes on questionable business activities or just fraud. The financial scandals at Enron and others that led to the enactment of the Sarbanes-Oxley Act (SOx) are examples of financial fraud by senior corporate officers. Fraudulent activity can occur at all levels of the enterprise, but in mid-2002, around the time of the enactment of SOx, corporate officers appeared to be real troublemakers in a slew of financial frauds. However, despite the publicity surrounding corrupt senior corporate officers, fraud can take place at all levels. Just as a chief executive officer (CEO), in cooperation with the chief financial officer (CFO), may fraudulently manipulate earnings to boost reported profits and their individual bonus compensation, a midlevel manager or even a staff-level employee may be tempted to initiate some fraudulent action for personal gain or just to get even with someone because of job frustration. Unfortunately, the publicity surrounding these incidents of fraud has since then created an almost everybody-does-it attitude. However, Ernst & Young in its annual Global Fraud Survey1 reports that 85% of the worst frauds were caused by insiders on the payroll and over half of those frauds were initiated by members of management. Exhibit 27.1 ...

Get Brink's Modern Internal Auditing now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.