Is Accounting Fraud on the Rise?

It is hard to go one day without the SEC announcing yet another accounting scandal. In this week’s blog, we review how far we have come since the early 2000s when it comes to cracking down on fraudulent activity in accounting departments.

In the 2000s, we watched huge corporations like Enron, WorldCom, Tyco, among others blow up in spectacular fashion because of book-cooking. WorldCom overstated its profits by $7 billion. Enron puffed up its shareholders’ equity by $1 billion and Tyco’s CEO and CFO stole $150 million and inflated company income by $500 million.

The actions of these companies not only cost people their jobs and retirement funds but also brought down the auditing firm Arthur Andersen. These are just a few examples of organizations who are at the top of the list when it comes to the World’s Worst Accounting Scandals of All Time.

From today’s media you would suspect that the accounting industry has failed to clean itself up, however the opposite is true. Bad apples are inevitable but the impact is far lighter than the WorldCom and Enron days. Today’s scandals are relatively smaller than those in years past.

Recent fraud scandals from Valeant totalled $58 million and British supermarket retailer Tesco, exaggerated its profits by (a mere!) $350 million in 2014. When examining the total figure for 2015, accounting fraud amounted to $2.7 billion, or 0.3% of the total corporate profits in the US.

Fraud is something that will be around forever but we have certainly come a long way. Sarbanes-Oxley, international accounting rules, and the availability of software like ART have all helped in the fight to stop modern day accounting fraud.

Interested in how you can do your part? Schedule a demo of our software ART here.