Three professional organizations, including the AICPA, released new recommendations for fighting fraud. The report, Managing the Business Risk of Fraud: A Practical Guide, is sponsored by the AICPA, the Association of Certified Fraud Examiners and The Institute of Internal Auditors.
The guidance outlines principles for establishing effective fraud risk management, regardless of the type or size of an organization. It can be used to assess or improve a fraud risk management program, or to develop an effective program where none exists. Five key principles within the guidance address governance, risk assessment, fraud prevention and detection, investigation and corrective action.
A team of more than 20 fraud management experts from the private and public sectors and academia worked to compile the guidelines over a two-year period. The guidance is endorsed by the Association of Chartered Certified Accountants, the Canadian Institute of Chartered Accountants, the Institute of Management Accountants, the Open Compliance & Ethics Group, the Society of Corporate Compliance and Ethics, and The Value Alliance.
The Association of Certified Fraud Examiners released its 2008 Report to the Nation on Occupational Fraud & Abuse. The study is based on data from 959 occupational fraud investigations conducted between January 2006 and February 2008 by individuals holding the Certified Fraud Examiner (CFE) credential (which is administered by ACFE).
The report found that U.S. organizations lose an estimated 7% of their annual revenue to fraud. The median loss caused by the frauds in the study was $175,000. Small businesses suffered disproportionately large losses. The median loss for organizations with fewer than 100 employees was $200,000, which was higher than the median loss for any other size category.
Corruption and fraudulent billing schemes were, respectively, the first and second most common categories of fraud among the cases reported. Financial statement fraud, with a median loss of $2 million among the 99 cases included in the report, was the most costly fraud category. Lack of adequate internal controls was most frequently cited as the factor that allowed fraud to occur.
For more on the report, visit the ACFE Web site at www.acfe.com/documents/2008-rttn.pdf.
The AICPA and its Minority Initiatives Committee recently hosted 100 minority students at the 14th annual Accounting Scholars Leadership Workshop.The program is part of the Institute’s strategic initiative to increase minority representation in the profession. The workshop emphasized the importance of obtaining the CPA credential and highlighted the flexibility and various career paths of the accounting profession. In addition, many students in attendance were among the 360 applicants of the AICPA Minority Scholarship program, an AICPA Foundation initiative.
Session topics focused on the importance of networking and mentoring. Professionals representing public accounting, private industry and academia took part in discussion forums and gave speeches focusing on the development of strong leadership skills.
“Seeing firsthand the quality and enthusiasm of students we hope will become future leaders of this great profession was very reassuring. These young people surely have the capabilities, and my hope is we helped them add to their confidence when it comes to taking the next step and becoming CPAs,” said William Ezzell, CPA, president of the AICPA Foundation.
According to the AICPA’s 2008 Trends study, accounting enrollments in the 2006–2007 academic year were up 19% since 2003–2004 to more than 203,000 students across all degree programs. Minorities comprised 26% of bachelor’s enrollments: 11% Black/African American; 8% Asian; 6% Hispanic/Latino; and 1% American Indian/Alaskan Native.
The study is available at http://ceae.aicpa.org/NR/rdonlyres/C1E23302-17D3-4ED5-AE81-B274D9CD7812/0/AICPA_Trends_Reports_2008.pdf.
Foreclosures started to hit prime loans at a faster pace than subprime loans in the first quarter of 2008, according to the OTS Mortgage Metrics Report. Prime loans comprised almost 50% of newly initiated foreclosures in March, up sharply from approximately 40% in January.
Adding to the bad news in the banking industry, IndyMac Bank, one of the five major lenders surveyed in the Mortgage Metrics Report, was seized by regulators in July. With $32 billion in assets, the bank is the second largest to collapse in U.S. history. The FDIC estimated insured losses to IndyMac depositors could cost the Deposit Insurance Fund as much as $8 billion. The DIF’s balance was approximately $52.8 billion as of March 31, 2008 (see “ News Digest”).
The picture was not much better for the rest of the big thrifts as the percentage of new foreclosures relative to seriously delinquent loans rose from 8.7% in January to 11.2% in March. Over the same months, foreclosures relative to seriously delinquent prime loans increased from 10.83% to 16.33%, while new foreclosures on seriously delinquent subprime loans increased at a much slower rate, from 6.45% to 7.11%. A seriously delinquent loan is one that is 60 or more days past due or, in the case of borrowers in bankruptcy, 30 or more days past due.
Foreclosures in process increased 16% in the quarter, from 1.49% of the total portfolio in January to 1.73% in March. The share of seriously delinquent loans, however, declined slightly from 3.65% to 3.61%.
The report analyzes mortgage loan data from institutions regulated by the Office of Thrift Supervision. Data was collected from the five largest thrift-related servicers—Countrywide, IndyMac, Merrill Lynch, Wachovia FSB and Washington Mutual—which held a combined 11.4 million first-lien residential mortgages with total outstanding balances of $2.3 trillion as of March 31, 2008. These portfolios constituted approximately 21% of all U.S. mortgages by dollar value.
The complete report is available at www.ots.treas.gov.
SEC Chairman Christopher Cox and Federal Reserve Chairman Ben Bernanke signed a memorandum of understanding that pledges deeper information sharing and cooperation between the financial regulators in key areas of common interest. Those areas include anti-money laundering, bank brokerage activities under the Gramm-Leach-Bliley Act, clearance and settlement in the banking and securities industries, and regulation of transfer agents.
The MOU covers bank holding companies and so-called “consolidated supervised entities” that own securities firms. The agreement builds on recent cooperation between the agencies on matters including banking and investment banking capital, and liquidity following the Federal Reserve’s emergency opening of credit facilities to primary dealers.
The SEC recently entered into a similar agreement with the Commodity Futures Trading Commission. The SEC-Federal Reserve MOU is available at www.federalreserve.gov/newsevents/press/bcreg/bcreg20080707a1.pdf.
A partnership of large accounting firms has joined forces to create and launch the Accounting Doctoral Scholars (ADS) program. The ADS was formed in response to a looming shortage of Ph.D. accounting faculty at U.S. colleges and universities, one recognized recently by the Treasury Department’s Advisory Committee on the Auditing Profession. The program is administered by the AICPA Foundation.
Enrollments in undergraduate and master’s-level accounting programs have grown steadily in recent years, as shown by the 2008 edition of the AICPA’s Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits. But the number of graduating Ph.D.s has decreased by about half during the last 10 years, even as many accounting faculty members now look toward retirement. The average age of accounting professors last year was 55, with nearly one-third age 60 or older.
To resupply their ranks, the ADS program has amassed nearly $15 million in pledges to fund stipends of $30,000 a year for up to 30 qualifying Ph.D. candidates each year for the next four years. The sponsoring accounting firms are also committed to recruiting practicing professionals from their ranks to transition to a faculty career.
“This program is designed to enable colleges and universities to add slots for graduate students pursuing their doctorate and increase the pipeline of qualified applicants for doctoral study in accounting with an emphasis in auditing and tax,” said Doyle Z. Williams, executive director of the ADS program.
Applicants must be U.S. citizens or permanent residents with significant public accounting experience in auditing or tax. They must also be committed to a career in teaching and research in auditing or taxation at a U.S. university accredited in business by the Association to Advance Collegiate Schools of Business. Applications may be submitted starting Sept. 9. For more information, write firstname.lastname@example.org or call 919-402-4524.
The International Federation of Accountants’ (IFAC) member body compliance program has reached a major milestone in its mission to encourage accountancy organizations worldwide to work together with their members, regulators, standard setters and other key stakeholders to strengthen the profession. The compliance program comprises a three-part process that includes a member organization’s assessment of its country’s regulatory and standard-setting framework; a self-assessment of the extent to which a member body has committed to international convergence of standards and promoted the implementation of strong quality assurance and enforcement regimes as specified in IFAC membership requirements; and the development of action plans to further the convergence process and meet other IFAC membership requirements.
The compliance program is in this third phase, and in July the action plans of IFAC members from six countries were publicly released on the IFAC Web site. The six members are Federación Argentina de Consejos Profesionales de Ciencias Económicas; Botswana Institute of Accountants; Chinese Institute of Certified Public Accountants; Chamber of Auditors of the Czech Republic; Institute of Certified Public Accountants of Kenya; and Corpul Expertilor Contabili si Contabililor Autorizati din Romania.
To view the action plans of IFAC member bodies as well as the responses to parts 1 and 2 of the compliance program, go to www.ifac.org/ComplianceAssessment/published.php.