The U.S. Securities and Exchange Commission (“SEC”) regulates the country’s stock and options markets. In order to prevent and detect fraud, the SEC relies on individuals to provide information about various types of financial misconduct. Those who provide information concerning financial fraud to the SEC are called whistleblowers. Under the SEC Whistleblower Program, the SEC provides monetary awards to whistleblowers who provide information that leads to sanctions against parties who commit financial fraud. Accounting fraud is one form of financial misconduct that the SEC actively seeks to combat. Below is an overview of accounting fraud and the SEC Whistleblower Program.
Types of Accounting Fraud
There are many types of accounting fraud. Some common examples of accounting fraud include:
- Understating expenses – The higher a company’s expenses, the lower its net income. Some companies understate their expenses in order to make their net income appear higher.
- Overstating revenue – When public companies are profitable, they often see an increase in the value of their stock shares. Companies sometimes overstate their revenue in order to appear more profitable than they really are. This form of fraud can result in artificially inflated stock prices and a false perception of profitability.
- Misrepresenting assets and liabilities – Another form of accounting fraud occurs when a company overstates its assets or understates its liabilities. This exaggerates a company’s financial strength.
- Slush fund accounting – In order to avoid reporting low earnings, some companies set earnings aside into a slush fund. These reserves can later be used to artificially inflate earnings.
- Poor internal accounting controls – Companies are required to adopt policies and procedures to ensure that all accounting is accurate. The failure to do so is a form of accounting fraud.
- Auditor conflicts of interest – When a company hires an auditor to review its records, the auditor should be independent of the company. Otherwise, this creates a conflict of interest.
- GAAP violations – Generally Accepted Accounting Principles (“GAAP”) govern how companies must perform their accounting procedures. Violations of GAAP are a form of accounting fraud.
How to Report Accounting Fraud
Whistleblowers who report accounting fraud to the SEC can receive up to 30% of the monetary sanctions recovered by the SEC from the company that committed the fraud. In order to be eligible for a financial reward under the SEC Whistleblower Program, a whistleblower must:
- Have original information about accounting fraud,
- Voluntarily provide this information to the SEC, and
- Provide information that results in a successful SEC enforcement action with monetary sanctions over $1 million.
Contact Our SEC Whistleblower Attorney Today
If you have information about accounting fraud that you’d like to report to the SEC, you need an experienced SEC whistleblower attorney on your side. At Newman & Shapiro, we understand the bravery it takes to become a whistleblower. Therefore, when you become our client, we’ll do everything we can to ensure that you obtain the compensation you deserve for your sacrifice. Please contact us today for a consultation.