The Evils of Corporate Fraud

You want to know about corporate fraud ? Well you have but to look in the direction of one of the biggest scandals of the last decade: Enron. In October of 2001 the company announced a $638 million loss in third-quarter earnings. The next month they publicly admitted to overstating earnings for the past four years by $586 million. As a result the company’s stock plummeted costing thousands of employees their jobs, retirement savings, 401K plans, etc. You would think that such a debacle would cause companies to stand up, take notice and put necessary safeguards in place, but in fact statistics indicate that corporate fraud is still on the rise today.

The number of fraud cases between 1998 and 2007 have increased compared to the previous 10 year period. The most common fraud techniques are improper revenue recognition (lying about how much money you made) and overstatement of assets (lying about how much your company is actually worth). The most common motives for this fraud are the need to meet internal/ external earnings expectations, an attempt to hide the company’s financial condition and, my personal favorite, the desire to increase management compensation (ie. I lied so it would look like I was doing a good job and therefore I could justify receiving a raise).

The long-term consequences of corporate fraud are bankruptcy, material assets sales and possibly de-listing from a stock exchange. However, the individual commits this type of crime is motivated to do so by short-term goals. Most CEO’s and CFO’s have their compensation tied to the company’s short-term stock performance so it is in their personal best interest to make things seem brighter than they really are. The fact is that until the boards of directors are held responsible for their actions corporate fraud will persist.

For more information about employee theft or corporate fraud investigation contact us about Corporate Fraud or call 1.770.426.0547