Fraud

FRAUD

Weakening operating performance was a common characteristic among companies alleged to have manipulated financial statements, according to an analysis of SEC enforcement releases. Researchers led by Patricia Dechow, an accounting professor at the University of California, Berkeley’s Haas School of Business, examined more than 2,000 releases from 1982–2005. That review resulted in a sample of 680 companies alleged to have manipulated financial statements. Other common characteristics of companies in the sample included unusually high growth in cash sales combined with declines in cash profit margins and earnings growth; declines in order backlog and employee headcount; and abnormally high increases in financing and related off-balance sheet activities such as operating leases.

The Financial Crimes Enforcement Network (FinCEN) released a new report that breaks down the geographical dispersion of Suspicious Activity Report (SAR) filings by financial institutions between April 1, 1996, and Dec. 31, 2006. The report, SAR Activity Review—By the Numbers , showed the rate of increase of SAR filings by depositary institutions dropped from 37% for 2004–2005 to 9% for 2005–2006. Money laundering (48.3%) and check fraud (10.7%) constituted the majority of Bank Secrecy Act filings. Just over half of all filings over the 10-year period occurred in California (24%), New York (11.1%), Texas (6.3%), Florida (5.7%) and Illinois (3.5%).

The report, with all related statistical charts and a companion report, The SAR Activity Report—Trends, Tips & Issues, is available at www.fincen.gov/news_release_sar_btn8.html .