Corporate Fraud —Nemesis to IRS
According to the IRS, “corporate fraud schemes are characterized by their scope, complexity, and the magnitude of the negative economic consequences for communities, employees, lenders, investors, and financial markets. Most corporate fraud investigations are joint efforts involving many federal agencies.”
Corporate fraud is a big issue, especially with the IRS. Certainly two of the more notorious corporate fraud cases involved Enron and WorldCom. However, a number of other corporate fraud cases appear to fly below the media’s radar. For example, in 2009 alone, teams involving the IRS and other agencies arrested a prosecuted a huge number of corporate fraud cases including:
- Florida, September 2009: A self-employed limousine driver sentenced to 18 months in prison for conspiracy to commit securities fraud and willfully failing to file tax returns.
- Colorado, September 2009: Husband and wife sentenced for tax evasion. According to court documents, the pair’s tax filings did not include nearly $215,000 the wife embezzled from their employer.
- Pennsylvania, September 2009: Attorney sentenced to 22 months in prison, three years supervised release, and ordered to pay a $2,000 fine and to pay nearly $138,000 in restitution for hiding more than $800,000 in income.
One of the more interesting things about corporate fraud is the manner in which corporate fraud is discovered. In their paper, “Who Blows the Whistle on Corporate Fraud?”Alexander Dyck, Adair Morse, and Luigi Zingales, all college professors of finance, reported that of the 216 corporate fraud cases examined in depth 64, or about 30 percent, involved detection from “internal governance” while 152, or about 70 percent, came from external sources. Employees, the largest external category, accounted for 17 percent of the cases; the media and industry regulators, 13 percent each.
Clients or competitors, 5%
Equity holders, 3%
Law firm, 3%
Short sellers, 15%
To learn much more about ways to prevent corporate fraud, order your copy of Business Fraud: From Trust to Betrayal today!