Designing a Robust Fraud Prevention Program

Part One


There may not be a more opportune time for a fraud examiner to press for a full-fledged fraud prevention program.  

New York Attorney General Eliot Spitzer, Wall Street's corporate cop, has made headlines the last few years with his highly publicized probes, prosecutions, and billion-dollar settlements involving brokerage firms and mutual funds that defrauded and misled investors. The subjects of his investigations read like a Who's Who of the investment world. Credit Suisse First Boston, Merrill Lynch, and Salomon Smith Barney were accused of issuing fraudulent research reports and paid fines totaling in the hundreds of millions of dollars to settle their cases. Spitzer's office obtained the conviction of the vice chairman and chief mutual fund officer of Fred Alger & Company, a prominent mutual fund. Other ongoing investigations involve some of the top mutual funds.

Spitzer and his team of investigators and prosecutors have become the de facto fraud detection and prevention arm of these firms because the firms couldn't do the job themselves. These companies obviously had fraud prevention programs that didn't work and didn't protect their firms, their employees, or their shareholders from the devastating charges and resultant publicity. Where were the fraud prevention basics that should have been in place?

Many high-profile corporations have learned the hard way about the devastating effects of fraud. Enron, WorldCom, and Tyco - among many corporations - all had security departments but they couldn't do anything to protect employees and shareholders from executives determined to loot their own companies.


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