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Corporate Fraud: On the Rise

When fraud is uncovered on Wall Street, it makes headlines.  And every headline is yet another story about the seedy culture of the financial industry.

But illegal activity, and the arrogance that comes with it, isn’t only found on Wall Street.  It happens all over the corporate landscape…from tech companies to pharmaceutical companies to consulting firms.  Corporate fraud is rampant.  And it’s on the rise.

The Network, Inc. and BDO Consulting recently released their Quarterly Corporate Fraud Index.  And in the first quarter of this year, the Fraud Reporting Percentage (FRP) hit an all-time high of 21.7%.  The FRP is the percentage of fraud-related reports relative to all reporting activity…meaning 21.7% of corporate reporting activity was fraud-related.

And looking over the past several years, the FRP is clearly in an upward trend.

Source: The Network, Inc.

Just as troubling as the over-all percentage is the actual number of fraud reports.  Fraud Related Incidents (FRI), a measure of the volume of fraud-related calls, has climbed steadily over the past several years…and jumped 21% at the beginning of 2012 (on a yearly basis).

Source: The Network, Inc.

Fraud Related Incidents are prevalent, and they come in many forms.  ‘Fraud’ can mean corruption, misuse of assets, theft, accounting irregularities, conflicts of interest and violations of SEC rules.

As bad as that seems, it’s actually good that fraud reports are increasing.  More reporting means more employees are blowing the whistle.  It could be that employees are just more willing to uncover illegal conduct.  Or maybe some corporations are encouraging reports by making employees aware of, and comfortable with, their reporting options.

Source: Securities and Exchange Commission

Still, the fact that fraud reporting is ramping up is a reminder that the government can’t legislate ethical behavior.  They can only enforce action after the rules have been broken.


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