Spotlight May 2022 | New Analysis of SEC Enforcement Actions, ESG Events Roundup

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The Anti-Fraud Collaboration (AFC) is pleased to share with you the Collaboration’s recent resources. Explore the latest insights:

  • The AFC has developed a new resource on the state of fraud risk management in collaboration with Ethisphere’s Business Ethics Leadership Alliance (BELA) working group. Topics addressed include leading practices on enhancing an organization’s fraud risk management program through continuous cross-functional collaboration, the importance of regular reporting and monitoring, and the incorporation of risk mapping. Follow our LinkedIn and Twitter accounts for information on our webcast featuring this content on July 19th from 1:00 – 2:00 pm ET.
  • The AFC conducted further analyses on the data collected during its review of 204 SEC enforcement actions to provide additional insights into various data attributes related to the most commonly identified fraud schemes. The analyses focused on SEC enforcement actions involving accounting and reporting issues, specifically financial statement frauds and books and records violations,
  • With greater interest in ESG reporting by regulators, investors, and other financial reporting stakeholders, it is critical that ESG information disclosed by companies be accurate and reliable. Hear experts discuss how companies can meet ESG disclosure requirements and expectations in light of upcoming regulatory changes.

What is your organization’s state of fraud risk management?

Ask the experts. The AFC and Ethisphere’s Business Ethics Leadership Alliance (BELA) formed a working group comprised of risk and compliance officers from 16 organizations including multinational companies to discuss their state of fraud risk management. The working group considered the current environment and its impact on their respective organization’s internal controls, processes, and policies and procedures. This report is part of a series on trends and best practices related to fraud risk management. Part I, The State of Fraud Risk Management, covers:

  • Fraud risk management program maturity model
  • Methodologies to identify internal and external sources of fraud risk
  • Fraud risk management in a time of crisis
  • The role of culture in fraud risk management

Key takeaways: Fraud risk management is dynamic. Working group members agreed that fraud risk management programs are not one size fits all. We learned that fraud risk management is far from a check-the-box exercise and that efforts to improve program maturity have evolved over time at each BELA member organization. The journey differed based on their focus, including fraud risk assessments, standardizing processes, and convening leadership and impacted stakeholders to formalize an effective fraud risk management program.

Read Part I of the series. The State of Fraud Risk Management.

Subscribe to receive emails about our upcoming webcast featuring our working group members, The Current and Future State of Fraud Risk Management: Where We are Now and Best Practices to Enhance Program Maturity, on July 19th from 1:00 – 2:00 PM .


Fraud trends identified from SEC enforcement actions

Insights into SEC enforcement actions. As a follow up to its recent report, Mitigating the Risk of Common Fraud Schemes: An analysis of SEC Enforcement Actionsthe AFC analyzed data collected during its comprehensive review of 204 SEC enforcement actions to provide additional insights into various data attributes related to the 140 in-scope fraud schemes. This supplemental analyses offers insights into:

  • Top in-scope fraud schemes by industry
  • Respondent types by top in-scope fraud schemes
  • Duration of in-scope fraud schemes

Persistent fraud risks. Revenue related issues were most frequently associated with technology services, manufacturing, healthcare, and energy industry sectors. For reserves related issues, banking and finance, technology services, and manufacturing companies were charged most frequently. Healthcare, technology services, and manufacturing companies had enforcement actions involving inventory related issues. Banking and finance companies were charged in most of the cases involving impairment related issues.

See the additional data. Mitigating the Risk of Common Fraud Schemes: Supplemental Analysis of SEC Enforcement Actions.


Stay ahead of ESG regulatory changes

Mind the gap. ESG reporting has greatly increased in recent years, with most companies around the globe reporting on some facet of their social and environmental impacts. Despite this increase, there has not been uniformity in requirements or expectations across different regions. Notably, the US and the EU have taken diverging approaches, with the former’s driven by investors and stakeholders, and the latter’s driven by legislation. In this session hosted by the CAQ at Ethisphere’s Global Ethics Summit, panelists discussed how to reconcile the differing approaches, how to satisfy multiple stakeholders, and t collaborating across business functions to achieve ESG goals.

Start with the basics. While many organizations are shifting focus to ESG reporting requirements in light of the upcoming regulatory changes, companies should still consider whether and how ESG matters are aligned with their business strategy, how data are collected and tracked, and where the information will be reported. Here are some leading practices to keep in mind:

  • Get buy-in from leadership
  • Determine ESG data needs
  • Stay apprised of regulatory developments and their impact on your organizational processes
  • Determine what your organization wants to communicate
  • Maintain governance oversight of ESG reporting

Watch the full replay. Mind the Gap! How to Meet ESG Disclosure Requirements and Expectations in the US and EU.

The future of ESG reporting and assurance. ESG-related matters are gaining significant attention from investors, regulators, and other stakeholders. In November 2021, the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB) and launched a consultation on its first two proposed standards on March 31, 2022. On March 21, the SEC proposed rules to enhance disclosure of climate-related risks as well as . This CAQ-hosted panel at ECI’s IMPACT conference will explore the current and future ESG reporting and assurance landscape and the challenges the evolving landscape may pose for companies.

 Where ESG disclosures are commonly reported. The CAQ’s analysis of S&P 500 and ESG Reporting shows that nearly all ESG disclosures in the US are made in separate sustainability reports or webpages and not in the company’s SEC filings. Private companies are also making ESG disclosures in a similar fashion. The SEC proposal will likely not result in issuers removing climate matters from corporate sustainability reports as they are intended to compliment the entity’s total approach to ESG reporting.

Watch the full replay. ECI 2022 Conference | The Future of ESG Reporting and Assurance.

Stay Connected

Want to learn more about your role in fighting fraud? Visit the AFC website that highlights how all members of the financial reporting supply chain can work together to combat fraud.

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