So That’s Why It’s Called a Pyramid Scheme

This article by Joseph T. Wells (founder of the ACFE) won the "Best Article Award" in 2000 from the Journal of Accountancy. In reading it remember that this was written before the 'Enron, WorldCom, Tyco, AOL Time Warner' period. Although much regulation has been put in place since then, the problems faced by CPAs today are still similar to those that Wells mentions in this article.

- Nadine

Executive Summary:

• CPAs ARE UNDER ATTACK for not doing enough in the war against fraud, and they are, at the same time, being asked to play an increasingly important role in the detection of fraud. Because CPAs are becoming more educated about the subject, success stories about their helping clients ferret out fraud are becoming more common.
• FRAUD AND WHITE-COLLAR CRIMES are typically committed by older, better-educated offenders. Estimates of the total cost of occupational fraud to the economy are that it equals 6% of the U.S. gross domestic product—over $400 billion. Small businesses experience fraud losses at a rate almost 100 times that of the largest ones.
• THE FIRST “CPAs” WERE SCRIBES in the pharaohs’ courts who were charged with fraud prevention and detection. Their role stayed much the same until the turn of the 20th century. Accrual basis accounting became more common and reporting issues became a top priority for the profession. Fraud detection was no longer the primary focus.
• IN THE 1980s THE ACCOUNTING PROFESSION began investing considerable resources in responding to the fraud problem. The National Commission on Fraudulent Financial Reporting (the Treadway commission) was formed and identified the “expectation gap.” The Committee of Sponsoring Organizations (COSO) issued a report calling for better internal control systems.
• THE PUBLIC OVERSIGHT BOARD in a special report, In the Public Interest, concluded that “the public looks to the independent auditor to detect fraud, and it is the auditor’s responsibility to do so.” These activities culminated in the AICPA’s adopting Statement on Auditing Standards (SAS) no. 82, Consideration of Fraud in a Financial Statement Audit, which confirmed the profession’s commitment to detecting fraud.  

Click Here to Read: So That’s Why It’s Called a Pyramid Scheme