Thursday, June 14, 2007

Certified Fraud Examiners: SOX Needs Darning

A survey of certified fraud examiners by Oversight Systems found that 76% of those surveyed believed that fraud was more prevalent than five years ago, the Sarbanes-Oxley Act nonwithstanding. Additionally, only three percent found that fraud was less prevalent and 43% believed that corporate viligance toward fraud prevention was starting to fade. Reasons for fraudulent behavior mirrored the fraud triangle with goal pressure and personal gains (incentives and pressures) being named by well over half the respondents and not getting caught (opportunity) and acts were not fraudulent (rationalization) also being named by at least 40%. Leadership tone was cited as the most important feature in fraud prevention with sophisicated monitoring and visible sanctions for those found fraudulent trailing the "tone at the top" by a sizable margin in second and third.

Several observations here: [1] As Hubert Humphrey once said: "morality cannot be legislated," [2]Although auditors have a role in preventing and detecting fraud, management MUST accept the primary responsibility.


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