Accounting fraud: making it less likely by raising the chances of detection

ACCOUNTING fraud is a worldwide problem. It can occur in many forms, including misrepresenting the true financial condition of the company such as overstating profits, understating liabilities, siphoning money through unapproved loans and fraudulent stock, or establishing complex accounting schemes that involve hiding money in offshore accounts.

The costs of fraud to business and society are difficult to quantify but they are expected to be high. According to Deloitte, the typical direct loss is US$1.7 million, with additional costs of investigation, prosecution, management time and reputational damage adding at least US$600,000 to the total.

In the case of the Enron scandal in 2001 where senior managers kept huge debts off the balance sheet, the company's collapse resulted in shareholders losing US$74 billion, thousands of employees and investors losing their retirement accounts and many employees losing their jobs. Such fraudulent acts can also threaten the public's confidence in organisations and capital markets in general.