Oversight Systems Inc. announced the findings of its 2005 Report on Corporate Fraud, a survey of certified fraud examiners. The report explains that most fraud examiners view the provisions of Sarbanes-Oxley to be an effective tool in fraud identification, though few think it will change the culture of business leaders.
The survey results (available at www.oversightsystems.com/survey) indicate that 65 percent of respondents feel SOX has been either "somewhat" or "very" effective in identifying incidences of financial-statement fraud. Only 19 percent of those surveyed found SOX to be ineffective.
"This report is full of positive news, but foreshadows a real need for continued vigilance among executives toward intuitional fraud," said Patrick Taylor, chief executive of Oversight, in a statement. "SOX legislation and the intense focus on corporate scandals have helped battle this type of white-collar crime, but professionals seem to be worried that the C-suite might quickly lose interest in policing corporate fraud."
Although respondents agreed that SOX serves to identify fraudulent activity, they do not feel the cultural change among U.S. business leaders -- focusing on institutional integrity and fraud prevention in the wake of accounting scandals -- will hold over the long term. Only 17 percent feel there will be a shift among business leaders to institutional integrity and fraud prevention for the foreseeable future. The rest of the respondents possess an even bleaker outlook, reporting that interest in such actions will fade in the next five years (39 percent), that vigilance has already begun to fade (32 percent), or that there has been no change among business leaders (12 percent).
While corporate vigilance toward fraud prevention has increased at least temporarily, fraud examiners said fraud is a bigger problem today than in the bubble market of 2000. Two-thirds of respondents (67 percent) said institutional fraud is more prevalent today than five years ago. Only 7 percent think fraud is less prevalent, while the remaining 26 percent of respondents feel there has been no change in the amount of fraud.
Participants were also asked to select the three forms of institutional fraud that present the greatest risk to companies. Respondents identified conflicts of interest (63 percent), fraudulent financial statements (57 percent) and billing schemes (31 percent) as most threatening.
When asked to identify the measure most effective in preventing or detering institutional fraud, 41 percent of professional fraud examiners identified the need for a strong tone from the top of the organization. Visible prosecution was the next most popular response, garnering support from 22 percent, followed by internal controls and technology-enabled monitoring, each receiving support from 17 percent. Manual quarterly audits and government regulation received only minimal support, earning 2 and 1 percent, respectively.
Survey participants report that SOX has altered the role of fraud examiners. Nearly all participants (95 percent) explain that their duties have changed with the implementation of SOX legislation, with 47 percent reporting that fraud examiners play a major role in the management of corporate integrity. Additionally, nearly one third (29 percent) of respondents felt their work in fraud detection has become secondary to SOX compliance.A total of 208 certified fraud examiners participated in this survey, conducted at the Association of Certified Fraud Examiners' 16th Annual Fraud Conference and Exhibition.
