The prevention and detection of corporate fraud: An assessment of the present framework

DOIhttps://doi.org/10.1108/eb024943
Pages331-339
Date01 April 1997
Publication Date01 April 1997
AuthorW.M. McInnes,J.E. Stevenson
SubjectAccounting & finance
The prevention and detection
of
corporate
fraud:
An assessment
of
the present
framework
W.M.
Mclnnes
and
J.E. Stevenson
Received 30th June,
1997
Dept.
of
Accountancy and Finance, University of Stirling, Stirling, Scotland FK9 4LA; tel: 01786 467 280;
fax: 01786 467 308.
Journal of Financial Regulation and Compliance Volume 5 Number 4
William
M.
Mclnnes
is
Professor
of
Accounting
at the
University
of
Stirling.
For two years he was Director
of
Research
at
The
Institute
of
Chartered Accountants
of Scotland.
He is a
Chartered Accountant
and has
a
PhD from the University
of
Glas-
gow.
His
research interests include audit-
ing
and
corporate governance, accounting
choices and accounting
for
complex finan-
cial instruments.
Joanna
E.
Stevenson
is a
lecturer
in the
Department
of
Accountancy
&
Finance
at
the University
of
Stirling.
A
Chartered
Accountant, she previously worked
for
one
of
the big six
accountancy firms
as an
external
auditor.
Auditing
is her
main area
of research
and she has
recently
co-
authored papers
on
auditor liability
and
limited liability partnerships with
a
busi-
ness
law
colleague.
ABSTRACT
This paper examines
the
current
framework
in
the UK for the prevention and
detection
of
cor-
porate
fraud,
in
the light
of
recent
figures which
demonstrate that
losses
from
reported
fraud
far
exceed losses from other kinds
of
theft.
The
responsibilities
of
external auditors
and
corpo-
rate management
for
preventing
and
detecting
fraud
are
explored,
as is
law. enforcement
in
regard to
fraud.
The
paper concludes that
the
overall
framework
is
weak and that given
the
escalation
of
fraud levels,
the
Government
ought
to
conduct a full review
of
the roles
of
auditor
and
management
and the
state
of
law
enforcement in this area.
INTRODUCTION
Fraud
is a
serious problem
in the UK. 'In
1992 losses from reported fraud totalled
£8,500m.
In
contrast, figures
for
reported
burglary totalled just under £500m, retail
crime £560m
and
vehicle crime £700m.
...
The
Director General
of the
National
Criminal Intelligence Service
has
estimated
that fraud costs British industry £10bn
a
year
.1
The purpose
of
this paper
is to
assess
the
present framework
for the
prevention
and
detection
of
corporate fraud.
The
first sec-
tion will explore
the
external auditor's
responsibilities
in
this area.
The
second sec-
tion will explore management's responsi-
bilities.
The
third section will describe
law
enforcement
in
regard
to
fraud. Conclu-
sions
are
provided
in the
final section.
AUDITORS' RESPONSIBILITIES
Various surveys indicate that
the
general
public believe
it is the
responsibility
of
the
external auditors
to
detect corporate
fraud.2
For
instance, Steen found that
75
per cent
of the
general public, including
the majority
of
financially knowledgeable
Journal
of
Financial Regulation
and Compliance, Vol.
5,
No.
4,
1997.
pp. 331-339
© Henry Stewart Publications,
1358-1988
Page 331

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