Accounting Fraud Remains a Persistent Problem

For several years now, instances of accounting fraud have been low and relatively stable. In 2013, for instance, only 47 were reported, and in 2012 there were just 45. Many pointed to these numbers as evidence that new policing measures combined with tracking technologies had created an effective deterrent to the practice. However, a recent report from Cornerstone Research suggests that those rosy conclusions were premature.

Over the last year, instances of accounting fraud have risen steadily and saw a precipitous spike between 2013 and 2014. According to the data, allegations jumped 47% between those two years and a total of 69 new cases were filed.

What is perhaps more revealing is that overall instances of securities fraud have not increased measurably, only the proportion that are related to accounting fraud. In 2013, 166 cases were filed compared to 170 in 2014. Over that same period, the share of total settlement dollars in accounting cases ballooned from 25% in 2013 to an astounding 85% in recent years.

Is accounting fraud on the rise or is some other factor to account for this outbreak of new cases?

For now, the latter would seem to be the explanation. The SEC has been aggressively pursuing accounting fraud cases as part of a new enforcement effort. It’s impossible to conclude absolutely that accounting fraud is not more common now than it was several years ago, but the SEC has publicly stated its intention to focus their resources on these types of cases.

Also relevant is that the report suggests filings for accounting cases involving restatements of financials have reached recent highs. In both the total number of cases (29) and as a percentage of all cases (42) these particular types of cases have reached levels not seen in seven years.

These troubling figures underscore the importance of both internal and external oversight. The effects of accounting fraud ripple through a company and outwards into the market, giving this kind of duplicity a particularly pernicious character. The health of the economy depends on regulatory bodies like the SEC continuing their enforcement efforts in the hopes that accounting fraud will be deemed too risky to continue.

If there is any silver lining, it’s that new and emerging technologies are getting better at identifying instances of accounting fraud before they have an impact. Deploying and optimizing these technologies, however, can be a challenge for limited IT teams. Bring the expertise you need onto your staff by consulting with the recruiters at The Squires Group.


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