1: Corporate Fraud Exposed: An Overview

After a major corporate scandal occurs, companies around the world are under increased pressure and scrutiny from market participants and law enforcement agencies to curtail deliberate actions aimed to deceive stakeholders. Yet, despite the increased regulatory activity, recent studies and global surveys document an alarming increase in the prevalence and severity of corporate fraud (Global Fraud Survey 2015, 2016; Reurink 2016; Dyck, Morse, and Zingales 2019). In fact, anyone can commit fraud at any level of an organization. The rapidly changing laws and regulations aimed at curbing corporate fraud continue to lag behind the changing sophistication of fraud schemes. Contrary to regulators, white-collar criminals exhibit superior abilities to swiftly adapt their fraud schemes to advances in technology, changes in economic development, and the emergence of new business models. This adaptability may explain why only one in four corporate frauds is detected in the United States. Corporate fraud is also widespread in the rest of the world. According to the “cockroach theory” of financial scandals, for everyone you see, hundreds more are hiding in the woodwork (Anonymous 2004).