EC A Felon’s View Of White-Collar Crime - Why Society Is Very Vulnerable To Fraud

Many investors blindly rely on the integrity of audits to protect them against fraud. Unfortunately, audits give investors a false sense of security. Traditional financial statement audits of public and private companies are not designed to find fraud. What accounting firms call an “audit” of financial reports is really a compliance review designed to find unintentional material errors in financial reports by examining a limited sample of transactions. In other words, traditional financial statement audits are designed to be spell-checkers and catch the accounting equivalent of innocent typos.

Despite the built-in limitations of audits, the major accounting firms do a poor job conforming to professional standards and rules for carrying them out. In 2012, the Public Company Accounting Oversight Board (PCAOB) inspected various audits conducted by the biggest four accounting firms and reported serious deficiencies in 25% to 49% of them:

  • Ernst & Young: 51 audits inspected /deficiencies (49%)
  • Pricewaterhouse Coopers: 52 audits inspected/21 deficiencies (40%)
  • KPMG: 48 audits inspected/17 deficiencies (35%)
  • Deloitte & Touche: 51 audits inspected/13 deficiencies (25%)

The latest inspection reports issued by the PCAOB for 2013 show that Pricewaterhouse Coopers had serious deficiencies in 19 of 57 audits inspected (33%) and Deloitte & Touche had serious deficiencies in 15 of 51 audits inspected (29%).

Dwindling Law Enforcement Efforts to Battle White-Collar Crime

From 1993 to 2013, the amount of prosecutions of white collar criminals recommended by the FBI has steadily declined, according to data obtained by Transactional Records Access Clearinghouse (TRAC) under the Freedom of Information Actfrom the Department of Justice. See the charts below provided by TRAC:


As a nation, we devote far more resources fighting blue-collar crime or street crime, than we do battling white-collar crime. For example, the NYC Police Department employs approximately 34,000 cops in uniform battling street crime. However, the FBI employs approximately 13,600 special agents, the IRS Criminal Investigative Division employs approximately 2,600 special agents, the SEC employs approximately 3,958 people, and the US Postal Inspectors Officeemploys approximately 1,500 postal inspectors. The NYC Police Department has more man power directly battling street crime than those four federal law enforcement agencies combined have fighting nationwide white-collar crime.

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I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of ...

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