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 .
