The State of Schemes

The Deloitte Forensic Center analyzed and reported on hundreds of SEC Accounting and Auditing Enforcement Releases (AAERs) issued from January 2000 through December 2007. The results of the analysis were compiled in the report Ten Things About Financial Statement Fraud—Second Edition, released in December of 2008. Among the findings:

From 2000 to 2007, the SEC issued 383 financial statement fraud AAERs relating to registered companies. In the years following the Enron and WorldCom collapses, the number of AAERs issued more than doubled from 35 in 2000 to 75 in 2003. The number has since fallen to fewer than 50 per year, beginning in 2005.

The analysts identified 1,403 alleged fraud schemes in the 383 financial statement AAERs used in the study. (A single release often identifies multiple, simultaneous schemes operating in a company.) The average number of fraud schemes identified per AAER increased to an average 4.2 in 2007, up from 2.7 in 2000.

Revenue recognition fraud schemes were the most common type, at 38% of the total. Five types of manipulation schemes (A/R, assets, expenses, liabilities and reserves) combined to make up another 38% of the total types of schemes. Rounding out the list were improper disclosures (11%), asset misappropriation (4%), bribery and kickbacks (4%), investments (2%), aiding and abetting (2%) and goodwill (1%).

Of the 1,403 schemes identified in the AAERs studied, two industries accounted for two-thirds of the total schemes identified: technology, media and telecommunications (37%) and consumer business (29%).

Source: Ten Things About Financial Statement Fraud—Second Edition, Deloitte Forensic Center, www.deloitte.com/forensiccenter.