Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance

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Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance By Martin T. Biegelman and Joel T. Bartow Published by John Wiley & Sons, 2006; ISBN: 0471739278 416 pages, $39.95 (Hardcover)

Martin Biegelman and Joel Bartow bring to this impressive work a combined 50 years of public- and private-sector experience in detecting, investigating, and preventing fraud and white-collar fraud. Their experience covers a wide spectrum of fraud, including corporate crime, investment fraud, kickback schemes, international fraud scams, insurance and healthcare fraud, organized crime, and violations of the RICO (Racketeer Influence and Corrupt Organizations) Act. In this process they were involved with hundreds of prosecutions. Both also assisted private-sector clients who were victims of corporate fraud and white-collar crimes in the United States and globally.

The book is heavy on real-world experience, case studies, and proven methods in preventing fraud and white-collar crimes. It provides realistic steps to create proactive and cost-effective antifraud programs for companies of all sizes, and will serve companies well in helping them to comply with a rising bar of regulatory compliance, satisfy investors, and maintain a competitive advantage.

The work builds on earlier fraud-prevention handbooks to demonstrate the critical need to create a fraud-prevention culture in the Sarbanes-Oxley corporate environment. The authors make an effective argument that it takes years to develop the internal controls, education, training, and executive "tone at the top" to realize a truly effective antifraud program, yet it takes only moments to destroy it.

The scandals of the 1990s and the resulting regulatory reforms have fundamentally changed how white-collar crime is viewed. Prior to Enron, WorldCom, and similar public-relations disasters, it was not unusual to look at white-collar crime as much less threatening to our way of life than violent and blue-collar crime. But when millions of investors saw their retirement accounts destroyed, the climate changed to one demanding greater financial-reporting transparency and vigorous prosecution of corporate wrongdoers.

The authors' case studies should be seen as eye-openers in preventing an environment ripe for fraud: a too-large percentage of accounting staff from temporary agencies; disparate financial systems; loose audit controls; high personnel turnover; and aggressive financial goals.

Section 404 of the Sarbanes-Oxley Act (SOX) requires robust internal controls to maintain segregation of duties and prevent both fraud and errors. The authors use fascinating fraud stories and case studies to demonstrate that fraud prevention must be closely aligned with internal auditors' efforts to maintain internal controls. Unfortunately, some internal auditors still take a passive approach to fraud prevention, while others see fraud prevention as just an opportunity to greatly expand the importance of the internal-audit process. Ironically, despite the high cost of implementing SOX section 404, the authors note that less than 20% of fraud is detected from internal-control measures.

The authors demonstrate that greater corporate compliance, accountability, and ethical conduct are not only mandated by SOX. …