Fighting Fraud Is A Shared Responsibility

Fraud deterrence and detection is a responsibility shared across stakeholders in the financial reporting supply chain. But what do we know about why fraud happens?

On several occasions over the past few decades, major public companies have experienced financial reporting fraud, resulting in turmoil in the U.S. capital markets, a loss of shareholder value, and, in some cases, the bankruptcy of the company itself. The Sarbanes-Oxley Act of 2002 has done much to improve corporate governance and deter fraud; however, financial reporting fraud – an intentional, material misrepresentation of a company’s financial statements – remains a serious concern for investors and other capital markets stakeholders. Read our report on Deterring and Detecting Financial Reporting Fraud for more information.

When Does Fraud Happen?

Theoretically, anyone has the potential to engage in financial reporting fraud. Some individuals who commit fraud had previous reputations for high integrity. There are three factors, referred to as the “fraud triangle,” that often combine to lead individuals to commit fraud: pressure or an incentive to engage in fraud, a perceived opportunity, and the ability to rationalize fraudulent behavior.


What Do We Know About Who Commits Fraud?

In our report Mitigating the Risk of Common Fraud Schemes, we detailed that company CFOs are the most commonly charged employees, followed by CEOs and other employees – such as chief accounting officers, other accounting department employees, and sales personnel. Fraud also occurs across industries, although the industry sector most commonly charged by the SEC was technology services, followed by finance, energy, manufacturing, and healthcare.

Understanding the Roles We All Play in Fighting Fraud

Management, boards of directors, audit committees, internal auditors, and external auditors make up the public company financial reporting process or “supply chain” and have complementary and interconnected roles in delivering high-quality financial reporting to the investing public, including the deterrence and detection of fraud.

What’s Next

    Research continues to explore conditions that were present in organizations where fraud was uncovered, and the Anti-Fraud Collaboration is committed to sharing those findings. Explore Our Priorities in the top menu to learn more.