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2 Corporate
Failures

Executive summary

Fraud does not Much research has been done globally • Failure and override of internal
always result in to measure fraud, many articles controls
corporate failure, nor have been published recommending
do corporate failures additional mechanisms to prevent • Manipulation of financial records
and detect fraud. Court sanctions of and/or fraudulent financial reporting
convicted fraudsters do not appear to disguise the true nature of
to deter and additional legislation and underlying problems

occur only as a result regulation appear to have little impact in The main theme that was observed
reducing the occurrence of fraud and, throughout the research is that a
of fraud. However, in hence, corporate failures. variety of role players, factors and
some of the biggest The research, conducted on nine case circumstances culminated into these
corporate disasters. The following
studies across the globe, revealed summarises the main themes observed
corporate failures various commonalities in some of in the case studies.
the biggest corporate failures due to
across the globe, fraud, namely: The role of the auditors
• Greed or sense of making magic
fraud was involved. happen Auditors have been criticised,
investigated and taken to court. Many
No single model can • Over-ambitious corporate articles were written in attempts to
successfully predict expansions leading to complex understand the role that auditors
structures played or didn’t play and whether they
should have known that fraud was
the risks of fraud or • Excessive debt to fund expansions occurring within the organisation. The
or personal expenses independence of relationships between
the fact that fraud • Incentives to management increase clients and auditors have come under
the motivation to commit fraud scrutiny. The quality of audit work
is occurring or has performed was considered to be of
occurred. • Pressure to achieve market less than desirable standard where
expectations corporate failures occurred.

• Corporate governance failures as a Finally, consideration has also
result of incompetent or ineffective been given to the expectation that
boards and board committees
auditors should identify fraud
• Sense of entitlement by senior and whether that expectation is
management
realistic.