Corporate Fraud More Widespread Despite Enhanced Rules

June 11, 2007 ( - Three out of four respondents to a recent survey from Oversight Systems said institutional fraud is more prevalent today than it was in 2002, when the Sarbanes-Oxley (SOX) Act took effect.

In addition, 56% of respondents said they have personally observed financial misconduct in the past year, according to a press release on the survey. The 2007 fraud report also revealed double-digit percentage increases in incidents of expense and reimbursement schemes (41%), and bribery/economic extortion (35%) from 2005 figures.

“This survey indicates the checklist approach to compliance is not effectively reducing fraud,” said Patrick Taylor, CEO of Oversight Systems, in the news release.

As for the reasons institutional fraud occurs, four out of five certified fraud examiners responding to the survey chose the pressure to do whatever it takes to meet goals as the primary motivation. Other reasons chosen included: executives seeking personal gain (71%), followed by the mentality that individuals won’t get caught (41%), and individuals do not consider their actions fraudulent (40%).

Four out of five respondents said corporate fraud would decrease if white-collar criminals were prosecuted and sentenced in the same manner as violent offenders. The majority of fraud examiners (58%) also indicated an executive defrauding shareholders through stock options fraud and a middle manager defrauding a company through accounts payable manipulation should be punished equally. All other respondents indicated the executive should receive the harsher penalty.

Forty-three percent of examiners surveyed said the measure most effective in preventing institutional fraud is a strong tone from the top of the organization.

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