Why Audits Fail to Find Fraud

I am reading Cynthia Cooper’s book, Extraordinary Circumstances, which documents her experiences uncovering the massive fraud at WorldCom. I want to finish reading the book so I can write a proper review here and elsewhere. But I admit I’m having a hard time finishing the book due to all the other demands on my time…

Nonetheless, I wanted to share this passage from the book because it illustrates so perfectly the main reason why audits fail to find fraud: Those committing fraud know how to hide it from the auditors. Because of that active concealment, there is little chance of the auditors finding the fraud.

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Cynthia Cooper’s book – Extraordinary Circumstances: The Journey of a Corporate Whistleblower

Cynthia Cooper, WorldCom whistleblower, is releasing her book in just few days. Extraordinary Circumstances: The Journey of a Corporate Whistleblower is her story. If it is anything like the speech I heard her give a few years ago at the Association of Certified Fraud Examiners Fraud Conference, it will be fantastic. Unlike other so-called whistleblowers … Read more Cynthia Cooper’s book – Extraordinary Circumstances: The Journey of a Corporate Whistleblower

Conviction of Bernie Ebbers Upheld by Appeals Court

Today the U.S. Court of Appeals for the Second Circuit upheld the conviction and prison sentence of former WorldCom CEO Bernard Ebbers. The 64-year-old defendant was convicted in 2005 of nine counts of conspiracy, securities fraud, and false SEC filings. He received a 25-year prison sentence, which all but assures that he will die in … Read more Conviction of Bernie Ebbers Upheld by Appeals Court

Sarbanes-Oxley Cost Versus Benefit

The New Yorker recently printed a commentary on Sarbanes-Oxley. While the legislation was viewed by politicians as an important step toward protecting investors from fraud, corporate executives aren’t so impressed.

Corporate executives believe that the high cost of implementing the Sarbanes-Oxley regulations is not justified by the small benefits. The cost of implementation is particularly high for smaller companies, which may discourage them from going public.

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