The third annual study of SEC Accounting and Auditing
Enforcement Releases (AAERs) titled “Ten Things About Financial Statement
Fraud,” indicates chief executive officers (CEOs) represented 24% of
executives cited, the same amount as other members of management. According to
a press release, directors and general counsel were each identified as subjects
of 4% of the AAERs.
However, as Toby Bishop, director of the Deloitte
Forensic Center, pointed out: “Nearly one third of the individuals named
in the SEC’s enforcement releases alleging financial statement fraud in 2008
were not CEOs or financial executives. They were directors, general counsel or
members of management involved in functions such as sales, operations and
planning. This shows that it’s not only financial executives who could benefit
from an awareness of fraud risks in their organizations, so they can take steps
to avoid or reduce them.”
Another key finding of the study is the declining
prevalence of revenue recognition fraud. While it was the most common financial
statement fraud scheme alleged by the SEC in AAERs from 2000 through 2008,
representing 38% of alleged financial statement fraud schemes, the number of
such schemes has declined in all but one year since 2003. Revenue recognition
fraud represented 30% of such schemes in 2008, down from 33% in 2007.
Improper disclosures (18%) and manipulation of expenses
(16%) were the other top schemes, which increased in prevalence from 2007 to
2008, according to the press release. In 2007 they represented 13% and 12%,
respectively, of financial statement fraud schemes alleged by the SEC.
In 2008 technology, media and telecommunications (30%)
and consumer business (29%) had the greatest proportion of financial statement
fraud schemes alleged by the SEC, followed by financial services (18%) and life
sciences and health care (12%). Compared to 2007, alleged fraud schemes in
technology, media and telecommunications decreased by 6 percentage points,
while there were increases in the consumer business (8 percentage points) and
financial services industries (5 percentage points) in 2008.