Financial fraud study shows patterns.

Despite increasingly stringent legislation aimed at combating fraud and increased enforcement efforts by the U.S. Securities and Exchange Commission (SEC), financial statement fraud remains a public concern. To learn how fraud schemes have evolved since the Committee of Sponsoring Organizations of the Treadway Commission (COSO) produced its last comprehensive report on fraud in 1999, the Deloitte Forensic Center completed an analysis of hundreds of SEC enforcement releases issued from 2000 through 2006.

The findings may have significance in helping establishing processes that will depend on knowing which fraud schemes are typically committed and analyzing industry-by-industry differences in those schemes.

In Ten Things About Financial Statement Fraud, Deloitte studied SEC reporting on its administrative enforcement actions through its Accounting and Auditing Enforcement Releases (AAERs). Deloitte Forensic staff reviewed more than 1,300 AAERs that the SEC released.

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Some notable findings:

* Between 2000 and 2006, the SEC issued 344 financial statement fraud AAERs relating to its registrants; the flow hit its peak in 2003, at 77 releases.

* Average time elapsed between the date identified as the fraud initiation date and the date the SEC issued its most recent AAER is 4.7 years; the lengthiest period was 18 years.

* 1,240 fraud schemes were identified in the 344 financial statement fraud AAERs in the study.

* Most companies (82 percent) had from one to five fraud schemes, but over 20 had 10 or more.

* Revenue recognition is the most prevalent cause of fraud, at 41 percent of the total. Other schemes involving manipulation of various financial statement items account for more than a third of all fraud identified.

* Among the other top fraud schemes are improper disclosures, manipulation of expenses, manipulation of assets, manipulation of liabilities, manipulation of reserves and asset misappropriation.