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Expanded Financial Fraud Enforcement

A record number of actions by the Securities and Exchange Commission this year send a strong message to finance professionals that the SEC is very fraud focused and looking to file cases.

For the recently ended FY 2015, the Securities and Exchange Commission filed 807 enforcement actions covering a wide range of misconduct totaling $4.2 billion in penalties! Of the 807 actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws. And, 300 were either actions for delinquent filings with the SEC or related criminal convictions, civil injunctions, or other legal orders.

Additionally, a review of recent actions indicates that SEC is looking more closely at specific internal controls and failures. Such actions brought to light cases that are based on accounting errors from misjudgments on things like estimates or reserves, compensation disclosures and related-party transactions. All of this indicates that the SEC is taking action on activities that reach well beyond simple fraud.

Accounting and finance leaders must understand that the SEC and the Department of Justice actions are naming individuals - including a former audit committee chair, partners, CEOs, CFOs, and accounting directors. In some cases the government has also brought criminal charges against individuals.

The message from the federal government is loud and clear: Companies and Boards must focus on internal controls. The Board of Directors and its audit committee are responsible for overseeing the actions of management. Corporate directors can no longer argue that they acted diligently in carrying out their responsibilities if they have failed to design a strong audit committee charter and timely perform all the functions specified. Fraud is on the government’s radar – it should be on yours as well.