soxfirst
Who exposes corporate fraud?
Filed in archive SOX by leon on February 12, 2008
hand.jpeg

In their haste to pass Sarbanes-Oxley into law following the spate of scandals headed up by Enron, politicians and regulators neglected to look carefully at the issue of whistleblowers. Who actually blows the whistle? What drives them to do it?

Important questions because the answers tell us whether the reforms targeted the right people and whether fraud detection is being done cost effectively.

Some interesting insights from Chicago Graduate School of Business professors Adair Morse and Luigi Zingales and Alexander Dyck from the University of Toronto's Rotman School of Management. Their study sheds light on these questions.

Their paper Who Blows The Whistle on Corporate Fraud found that the discovery of fraud comes from many sources. And stock exchange regulators, commercial banks and underwriters are not there at all. Somehow, they don't even notice the fraud. Short sellers and equity holders account for 9 per cent of detected fraud and auditors 14 per cent.

The most surprising finding is that the Securities and Exchange Commission and litigation don't really play that important a role in bringing fraud to light. The SEC only accounts for 6 per cent of fraud detection and private security litigation accounts for only 2 per cent.

The researchers also found that financial analysts and short sellers are the quickest to uncover fraud. They take only 9.1 months on average to detect it, as opposed to clients, competitors and auditors who take 13.3 months. The media takes nearly two years (21 months), just a tad faster than the SEC (21.2 months).

The study also found that analysts, journalists, auditing firms and employees who uncover fraud do not, as a rule, benefit from the disclosure, either from a career or financial viewpoint. Indeed, in 82 per cent of cases, employee whistleblowers ended up either being fired, shifted or pressured to leave. Audit firms were more likely to lose the client when they revealed fraud.

Related Entries:

Permalink: Who exposes corporate fraud?
Tags: Who  blows  the  whistle  on  corporate  fraud  Adair  Morse    Luigi  Zingales  Alexander  Dyck    business  corpor 
Trackback: http://publish.creative-weblogging.com/publish/mt-tb.pl/113234
img Addthis img Ask img Blinklist img del.icio.us img Digg img Fark img Facebook img Google img Lycos img Ma.gnolia Add this page to Mister Wong Mr Wong img Netscape img Netvousz img Newsvine img Reddit img StumbleUpon img Slashdot img Tailrank img Technorati img Wink img Yahoo

Vote for Who exposes corporate fraud?:

  • Currently 7.60/10
  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
Rating: 7.60 out of 5 vote(s) cast.
 
Subscribe
Share It
RSSrss
See all blog subscribe options
Google google
What is RSS?
Yahoo! yahoo
Addthis Subscribe using any feed reader!
Bloglines Bloglines
Newsletter

TwitterFollow us on Twitter!