The Fraud Diamond: Considering the Four Elements of Fraud

TLDR

Fraud, including asset misappropriation and financial reporting fraud, is rising in frequency and severity, as evidenced by high‑profile cases such as Enron and WorldCom and increased SEC enforcement actions. KPMG’s 2003 Fraud Survey reported a sharp rise in overall fraud since 1998, with employee fraud most common and fraudulent financial reporting having more than doubled. Despite intense efforts to stamp out corruption.

Abstract

D espite intense efforts to stamp out L-orruption. misappropriation of assets, and fraudulent financial reporting, it appears that fraud in its various foniis is a problem that is increasing in frequency and severity. KPMG's Fraud Survey 2003 documented a marked increase in overall fraud levels since its 1998 survey, with employee fraud by far the most common type of fraud. The 2003 survey also noted that fraudulent financial reporting had more than doubled from 1998. This trend is consistent with the unprecedented recent spate of large accounting frauds (Enron, WorldCom), as well as the increased number of accounting restatements and SEC enforcement actions in recent years. (See 2003 Annual Review of Financial Reporting Matters by the Huron Consulting Group and the SEC's Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002.)