Financial Cost of Corporate Fraud in United States Essay

Financial Cost of Corporate Fraud in United States - Essay Example However, the study reveals that fraud training for employees and managers reduces the risk of fraud by 52% and 56% respectively (ACFE, 2009, p.37). Thus, ethical training may be employed as a control against fraud. However, this may not be adequate and other controls must be put in place for early detection of fraudulent activities. Financial statement fraud is the biggest category of frauds and the one associated with highest losses. Financial statements from different periods can be used to identify red flags, which may provide an idea that fraud may be occurring or a deviation from normal routine. Some of these components from financial statements are described below: Receivables can be booked fictitiously or increased without underlying trade/ transaction to show an overstated balance sheet and asset position. The management may want to show better results for the year, and thus may be tempted to overstate receivables. This was carried out recently by the CEO of Satyam, an Indian IT outsourcing company. He recorded receivables against selling to fictitious companies, and thus inflated the balance sheet. This type of fraud can be identified by carrying out the year to year analysis of changes in receivables, and their collection days.