The Effectiveness of Sarbanes-Oxley on Fraud stoppage

Fraud - The Effectiveness of Sarbanes-Oxley on Fraud stoppage

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With the cheaper in shambles and investors as weary as ever, one might start to wonder if the Sarbanes-Oxley act has actually done whatever to forestall fraud. While we have not seen any fraud quite as ugly as the kind that brought down Enron and WorldCom, it is still plentiful. Fraud, it seems, has been slightly deterred at the corporate level, but still runs rampant throughout the financial industry. These ponzi schemes seem to be happening more and more, with old chairman of Nasdaq Bernie Madeoff being involved in one worth nearby fifty billion dollars recently.

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Fraud

In the early 2000s, investors and employees of the associates involved were devastated when huge corporate fraud cases emerged. This fraud, administered from the highest offices in the corporations, left investors with worthless shares and employees with no job, and depleted resignation funds. It was time for reform, and the federal government stepped in. The social firm Accounting Reform and Investor safety Act of 2002, or Sarbanes-Oxley, was their respond to corporate fraud. Sox was intended to make these high ranking officials responsible for the legitimacy of all financial statements released to the public. It also put measures in place to forestall social accounting firms from getting too involved in the corporations in which they ready financial statements for.

While Sarbanes-Oxley was no doubt a good idea, but it turned out to be very high-priced for associates trying to implement these new processes in order to comply. Now there is a situation where the associates that were responsible for the start of this fraud panic have folded, and the ones that were honest are paying a stiff penalty. Now these honest associates are struggling to survive in the middle of the poor cheaper and heavy costs to keep their financials fraud-free.

Even with Sarbanes-Oxley in effect, there are news reports normally describing the latest ponzi task unearthed in the financial world. These are not your median crooks either, these are great minds of the financial world detecting an exploit and taking advantage of it. We only hear about the ones who get caught, but there are no doubt many who skim constantly and get away with it. With the cheaper on the fritz, it only increases the motive for fraud. Fund managers and financial advisors are on the chopping block. They are the ones getting the blame for poor performing stocks, and the ones with their jobs on the line. With all this added pressure it is clear why fraud can look like an easy solution.

So now what do we do? More legislation? Legislation is not the respond here. Sarbanes-Oxley proved that legislation could only take us so far. The respond is ethics. Ethics must be emphasized by businesses instead of profits. If we start leaning towards ethics training and taking a slight pressure of execution it will gradually turn our financial ship back in the right direction. Honesty should be the number one priority, and profits should be number two. If you only emphasize profits and performance, eventually fraud will rear its ugly head and the whole firm could be at stake. If you emphasize ethics and honesty, the profits may not be as stupendous but at least you know them to be true. This sets the groundwork for a firm to prosper for many years as an ethical honest corporation rather than burn out quickly like a behalf driven supernova.

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