ForThoughts Edition 8: Ten Things About Bankruptcy and Fraud
Issues in forensic accounting
Companies filing for bankruptcy protection are three times more likely than nonbankrupt companies to face enforcement action by the Securities and Exchange Commission (SEC) relating to alleged financial statement fraud, according to the new study “Ten Things About Bankruptcy and Fraud,” performed by the Deloitte Forensic Center and the Corporate Restructuring Group of Deloitte.
With economic conditions likely to increase corporate bankruptcy filings, companies should be aware of their potential exposure to allegations of fraud that may be sustained by the SEC,” said Toby Bishop, director of the Deloitte Forensic Center, Deloitte Financial Advisory Services LLP. “Consideration of potential fraud issues may be a wise part of bankruptcy preparations.”
The study’s findings included:
- Companies filing for bankruptcy protection are three times more likely than nonbankrupt companies to face enforcement action by the SEC relating to alleged financial statement fraud.
- Companies that were issued financial statement fraud-related SEC Enforcement Releases were more than twice as likely to file bankruptcy protection as those that were not.
- Approximately one in seven financial statement fraud SEC Enforcement Releases issued to companies that filed for bankruptcy protection were issued prior to the bankruptcy filings. These situations may provide a warning signal of potential bankruptcy filing.
- Bankrupt companies receiving SEC Enforcement Releases were twice as likely as nonbankrupt companies to have more than 10 alleged financial statement fraud schemes — and at least 1.5 times more likely to have six to 10 alleged fraud schemes than nonbankrupt companies.
|Ten Things about Bankruptcy and Fraud
Read the report that explores the correlation between bankruptcy and fraud.
| A Discussion about Fraud and Bankruptcy
Watch the video discussion about the findings of the report.
As used in this document, ‘Deloitte’ means Deloitte Financial Advisory Services LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.