Have They Changed the Way of Cheating? An Analysis of Management Fraud Schemes Pre and Post SOX

• In Event: Benefits of Audits

Abstract

This study investigates the changes of perpetration and concealment schemes of management fraud pre and post the Sarbanes-Oxley Act and SAS No. 99 (AICPA 2002) in order to examine how regulations change the way of firms to commit fraud. By examining a large sample of fraud cases over the period of 1997 – 2011, this study analyzes how fraud schemes evolve with time, and determine what factors may affect the strategies of management to perpetrate and conceal frauds. After examining the changes of fraud schemes over different time periods, we find that fraud schemes indeed evolved over time and could be significantly affected by external monitoring factors such as new regulations and strengthened enforcement. For instance, though the percentage of revenue frauds remains stable over time, there were switches among subcategories of revenue frauds. In further, there were more cases of expense frauds and other types of fraud post SOX. As for concealment schemes, while collusion with third parties seem to decline, collusion with related parties and other concealment schemes seem to increase over time.

Authors

• Lei Gao, SUNY-Geneseo

• Kyunghee Yoon, Rutgers Business School

• Rajendra P Srivastava, University of Kansas