Deloitte Webcast Poll: Majority of Business Professionals Expect More Financial Statement Fraud to Be Uncovered in 2010, 2011 Compared to the Last Three Years

Financial services industry expected to have the greatest percentage increase in financial statement fraud alleged by the SEC during 2010 compared to 2009

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Deloitte

Apr 27, 2010, 09:00 ET

NEW YORK, April 27 /PRNewswire/ -- More than half of approximately 2,100 business professionals (56 percent) surveyed during a Deloitte webcast about reducing fraud risks think more financial statement fraud will be uncovered this year and in 2011, as compared to the last three years. Almost half of those surveyed, 46 percent, point to the recession as the reason more financial statement fraud will be uncovered.

Moreover, it's getting harder to assess financial statement fraud risks because of changes in the risk environment, according to 45 percent of survey respondents while only 11 percent of respondents believe the task is getting easier.

"With a slow economic recovery likely to keep companies under pressure for several years, having an effective fraud 'safety valve' can help keep the pressure cooker from exploding," said Toby Bishop, director of the Deloitte Forensic Center for Deloitte Financial Advisory Services LLP (Deloitte FAS). "Our respondents recognized that changes in the risk environment have made it harder to assess financial statement fraud risks, but that's the first step in controlling them. Enhancing fraud risk management is a key part of how companies can more effectively mitigate risk and protect shareholder value."

More than one-third (38 percent) of respondents stated that in the current economic environment, revenue recognition manipulation is the type of financial statement fraud of greatest concern. Meanwhile, 18 percent of respondents cited 'big bath' write-offs while expectations are low and 14 percent cited manipulation for debt covenant compliance purposes.

One half (50 percent) of respondents said the financial services industry will have the greatest percentage increase in financial statement fraud alleged by the SEC during 2010, as compared to 2009. This was followed by technology, media and telecommunications (14 percent), consumer business (12 percent), life science and healthcare (10 percent) and manufacturing (6 percent).

"It is no great surprise that business professionals expect the greatest growth in financial statement fraud schemes alleged by the SEC in 2010 to be in the financial services industry," continued Bishop. "Because today's regulatory scrutiny of certain industries may result in additional enforcement measures, it would be prudent for companies to consider refreshing their fraud risk assessments and fraud risk mitigation activities."

One-quarter (25 percent) of respondents believed that the action most useful to their organization for mitigating the risk of financial statement fraud would be training staff to recognize financial statement fraud. Furthermore, 22 percent believed that improving the 'tone at the top' would mitigate the risk of financial statement fraud, while 22 percent believed that improving fraud risk assessments would be most useful to their organizations in this effort.

Approximately 2,200 business professionals from the aerospace and defense; automotive; banking and securities; consumer and industrial products; consumer business; energy and resources; financial services; health care providers; media, entertainment, technology, and telecommunications industries responded to the online polling questions during a February 2010 Deloitte webcast, "Reducing Financial Statement Fraud Risks: Ten Things You Need to Know."

About the Deloitte Forensic Center

The Deloitte Forensic Center is a think tank aimed at exploring new approaches for mitigating the costs, risks and effects of fraud, corruption and other issues facing the global business community. The Center aims to advance the state of thinking in areas such as fraud and corruption by exploring issues from the perspective of forensic accountants, corporate leaders and other professionals involved in forensic matters. The Deloitte Forensic Center is sponsored by Deloitte FAS.

About Deloitte

As used in this document, "Deloitte" means Deloitte Financial Advisory Services LLP and Deloitte Services LP, separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

SOURCE Deloitte