The Sarbanes-Oxley Act, spawned from huge corporate collapses, will not make fraud disappear. But its strong language and stiff penalties could deter some executives tempted to stray.
The United States' Public Company Accounting Reform and Investor Protection Act of 2002, also called the Sarbanes-Oxley Act, may not be a household name just yet. But with a little time and some well-publicized prosecutions, it may soon be. Just as RICO (the Racketeer Influenced and Corrupt Organizations Act) has struck fear into organized crime for more than 30 years, I believe Sarbanes-Oxley will do the same for corporate crooks. And in doing so, it will become part of our vernacular while protecting the naïve and the innocent.
Investors have been battered by the falling stock market and daily revelations of corporate fraud. The constant reporting of corporate scandals and indiscretions has reinforced the belief that some corporate titans have personified greed, lined their pockets at the expense of the average investor, and are miserably unaccountable. It is understandable that investors are cautious about making further investments in the market. If they believe the market is rigged and no one is there to protect them, they will not invest. Legislation itself will not make fraud disappear. But the intent of the act is to raise the standards of corporate accountability, improve detection and prevention of fraud and abuse, and reassure investors that they have a level playing field.
Transparency in financial reporting, improved standards for corporate governance, corporate accountability, and true independence of auditors and boards may be new concepts to some in corporate America but they are the basic tenets of Sarbanes-Oxley. Sarbanes-Oxley was written with strength of purpose and a commitment to stop and punish financial fraudsters. To a fraud examiner, an understanding of Sarbanes-Oxley is vital because it provides a unique tool to fight fraud in the corporate board rooms.