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How Common is Corporate Fraud?

How Common is Corporate Fraud?

by Starling Insights

Starling Insights Editorial Board

Feb 09, 2023

Observations

The Costs of Misconduct Governance, Audit & Regulatory Failures Audit Science & Research

A recent study on corporate crime suggests accounting fraud may be endemic among US public companies. The researchers — Alexander Dyck (University of Toronto), Adair Morse (University of California, Berkeley), and Luigi Zingales (University of Chicago) — estimate that 41% of public companies materially misstate their financial accounts, and at least 10% engage in securities fraud.

In order to calculate this, the authors analyzed clients of the defunct audit firm Arthur Andersen, comparing fraud detection before the firm's collapse to after, when many of its clients faced enhanced scrutiny. They found that, in normal times, only about one-third of corporate frauds are ever detected.

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