Fraud

Got Fraud?: The Prevention of Business FraudLauren Ferraro

● Explain what exactly fraud is● Discuss major cases of fraud, mainly

concerning scandals like Enron● Discuss laws put into place to prevent major

fraud cases● Decide which law has proved more effective● Discuss the different tactics of preventing fraud

Objectives

● Purposeful deception● Person aims to have a gain

o Financial o Personal

Fraud

http://skcdocs.com/blogsktx/tag/fraud/#sthash.cUvo6aoL.dpbs

● Sixth largest energy company in the world● August 2000 stock prices were $90.75● November 30, 2001 they were $.26● Declared bankruptcy December 2, 2001

Enron Scandal of 2001

http://www.riskencyclopedia.com/articles/enron/

● Covered up financial weakness to investors● Arthur Andersen destroyed financial documents● Overstated profits by $600 million

Enron’s Downfall

http://www.sefinanzas.com/noticias/2966-reviven-el-nombre-arthur-andersen-una-decada-despues-del-colapso

● Enron, among others, showed SEC an issue● Stock market crash ● Public demanded tighter restrictions

A Catalyst

http://caleb.21stcenturyenetwork.com/mystery-cycles-stock-market-crashes-mystery-shemitah-year-every-7-year/

● More responsibility● Tighter restrictions● Require outside audit● Enforced by SEC

Sarbanes-Oxley Act

http://www.slideshare.net/RizzeCaminong/sarbanesoxley-act-9354519

● UK version of SOX● Very similar to SOX● Enforced by SFO

Companies (Audit, Investigations and Community Enterprise) Act

http://www.cyogate.com/ispy_fraud_prevention.html

● Punishment much more severe with SOX● Code of Ethics required with SOX● Management must state effectiveness of

internal controls to auditors with SOX

Comparison of Laws

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SEC Annual Report

SFO Annual Report

● Two different methods:o Actively Searchingo Reacting

Are These Laws Effective?

http://achievemarketing.hubpages.com/hub/Effective-and-Successful-Teams-Is-it-Teamwork-or-Performance-that-Matters

● Actively Searchingo Prevents dramatic stock market changeso Insiders o Gets down to the bottom of it

Which Method is Better?

http://imgbuddy.com/magnifying-glass-detective.asp

● Reactoryo More cases brought to lighto Reveals flawo Cheapero Less secretive

Which Method is Better?

http://www.counsellingincanberra.com.au/2011/01/responding-and-reacting/

http://www.dylanmalloch.com/2014/06/opinions-do-yours-stand-up-to-scrutiny.html

Opinions?

● Fraud affects everyone● Laws implemented to protect consumers● Debate over which fraud fighting method is

better

Tying It All Together

http://bridalmusings.com/2011/06/a-unique-wedding-invitation-tying-the-knot-literally/

http://stateimpact.npr.org/ohio/2011/08/16/any-questions-for-sb-5-sponsor-state-sen-shannon-jones/

Any Questions?

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Journal April (2004): n. pag. The CPA Journal Online. Web. 23 Sept. 2014.James, Geoffery. "Four Reasons to Love Sarbanes-Oxley." CBSNews. CBS Interactive, 26 Feb.

2008. Web. 14 Sept. 2014. <http://www.cbsnews.com/news/four-reasons-to-love-sarbanes-oxley/>.Kamar Ehud, Pinar Karaca-Mandic, and Eric Talley. "Site-wide navigation." Do the Benefits of Sarbanes-Oxley Justify the Costs? Empirical Evidence in the Case of Small Firms. RAND, n.d. Web. 17 Sept. 2014. <http://www.rand.org/pubs/research_briefs/RB9295/index1.html>.Li Sherry, Evelynn McDowell, and Erin Moore. "Accrual Based Earnings Management, Real Transactions Manipulation and Expectations Management: U.S. and International Evidence." Journal of Global Business Management 4.2 (2008): n. pag. The Journal of Global Business Management. Web. 18 Sept. 2014.Moylan, John. "Chequered History of the SFO." BBC News. BBC, 22 Aug. 2012. Web. 15 Nov.

2014. <http://www.bbc.com/news/business-19323170>.National Fraud Authority. Fighting Fraud Together Quarterly Update – January 2013. 2013. PDF FilePeter, Gwynne. "Beneficial or Detrimental Legislation?." - The pros and cons of Sarbanes-

Oxley. Kellogg School of Management, 1 Nov. 2008. Web. 17 Sept. 2014. <http://insight.kellogg.northwestern.edu/arti/beneficial_or_detrimental_legislation/>.Rapoport, Michael. "SEC: Accounting Board Is Dragging Feet." WSJ. 14 Dec. 2014. Web. 5 Jan. 2015. <http://www.wsj.com/articles/sec-accounting-board-is-dragging-feet-1418605107>.Reuters. "New SEC Task Force Eyes 'emerging Financial Fraud'" CNBC. Cnbc, 29 Apr. 2014.

Web. 9 Dec. 2014. <http://www.cnbc.com/id/101623433#.>.Serious Fraud Office. “Annual Reports and Accounts”. 2014. PDF File.Serious Fraud Office. “Operational Handbook”. 2014 PDF File."The Devil's in Their Details." Action Fraud. 20 Nov. 2012. Web. 14 Nov. 2014. <http://www.actionfraud.police.uk/thedevilsintheirdetails>.The Economist. "The real scandal." The Economist. The Economist Newspaper, 19 Jan. 2002. Web. 14 Sept. 2014. <http://www.economist.com/node/940091>."The Fall of Enron." NPR. NPR, 22 Jan. 2001. Web. 10 Mar. 2015. <http://www.npr.org/news/specials/enron/>."The Ones That Get Away." The Economist. The Economist Newspaper, 30 July 2005. Web. 11 Oct. 2014. <http://www.economist.com/node/4233843>.Tysiac, Ken. "What Accounting Fraud Risk Factors Will Attract SEC’s Attention?." What

accounting fraud risk factors will attract SEC's attention?. AICPA, 13 Dec. 2013. Web. 7 Oct. 2014. <http://journalofaccountancy.com/News/20139258.htm>.White, Mary. "The Challenge of Coverage, Accountability and Deterrence in Global Enforcement." IOSCO 39th Annual Conference. IOSCO. Rio de Janiero, Rio de Janiero. 1 Oct. 2014. Speech.

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