While 2004 brought convictions in such high-profile cases as Adelphia, Dynergy and others, with implementation of Sarbanes-Oxley requirements well underway and new federal sentencing guidelines in place, expect to see more corporate scandals unearthed in 2005, according to FirstGlobal Investigations.
The investigative and anti-fraud practice, a division of accounting firm BDO Seidman LLP, forecast a number of trends related to corporate fraud for the coming year.
Having focused on compliance with SOX internal control rules in 2004, in the coming year corporate boards will likely turn their attention to the task of creating an anti-fraud environment by implementing proactive prevention and training programs, according to FirstGlobal Investigations, which noted that changes to the Organizational Sentencing Guidelines that took effect this past November shifted responsibility for overseeing a corporation's fraud prevention activities to the board of directors, increasing the risk of liability in the event of serious compliance lapses.
The investigative and anti-fraud practice also predicts that, as compliance is completed, boards and audit committees will seek other ways to gain approval for their oversight policies, such as third-party "SWAT teams" of forensic accountants to focus on potential problem areas of the company's accounting treatments and business operations.
FirstGlobal Investigations also expects whistleblower activity to pick up "considerably" in 2005, as rank-and-file employees become more comfortable using whistleblower hotlines.
Among the other trends the group identified for 2005:
· As part of the settlement of enforcement actions, the Securities and Exchange Commission will increasingly require independent monitors to oversee the implementation of remedial measures by companies charged with securities violations.
· Real-time cyber-sleuthing: In the coming year, look for the emergence of real-time, diagnostic software that will enable corporations to detect "red flags" of potential accounting fraud or other types of financial misconduct.
· Proactive fraud prevention programs will become increasingly common at both private companies and nonprofit organizations. Private companies will be spurred to action by the venture capital community and independent directors, while major donors will put similar pressure on nonprofits.
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