An annual report on corporate fraud released Monday by Oversight Systems revealed double-digit percentage increases in incidents of expense and reimbursement schemes (41 percent), and bribery/economic extortion (35 percent) over 2005.  

Participants were asked to select the three main reasons institutional fraud occurs. Four out of five certified fraud examiners chose the pressure to do whatever it takes to meet goals. Executives seeking personal gain was identified as another major cause of fraud (71 percent), followed by the mentality that they won't get caught (41 percent) and the delusion that they do not consider their actions fraudulent (40 percent).

In spite of increased legislation since the passage of SOX, close to half of the fraud examiners indicated corporate vigilance and executive interest has already started to fade.

"This survey indicates the checklist approach to compliance is not effectively reducing fraud," said Patrick Taylor, CEO of Oversight Systems.

Taylor said with the announcement of a new principles-based audit standard, recently passed by the Public Company Accounting Oversight Board and awaiting SEC approval, the SEC is guiding companies towards a risk-based approach to financial controls.

"By revising their guidance, the Securities and Exchange Commission is driving companies to address fraud based on risk, the greatest of which is management override of controls," he said. "Financial professionals will be able to evaluate their vulnerability and focus the full power of their monitoring and auditing capabilities on preventing the fraud that could cripple their business."

Following lengthy and high-profile court cases of several corporate executives during the past five years, fraud examiners favor more stringent punishments. Four out of five of respondents felt corporate fraud would decrease if white-collar criminals were prosecuted and sentenced in the same manner as violent offenders.

When asked which crime deserves a stricter punishment – an executive defrauding shareholders through stock-options fraud or a middle manager defrauding a company through accounts payable manipulation – the majority of examiners (58 percent) said they should be punished equally. All other respondents indicated the executive should receive the harsher penalty. When asked to identify the measure most effective in preventing institutional fraud, 43 percent of the professional examiners cited the need for a strong tone from the top of the organization.

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• Less Patience for Executive Misdeeds