Have you ever seen a situation where a group of people want so badly for something to be true that they make every effort to make it true by talking about it as much as possible in hopes that it will become true? This tactic is commonly used by politicians and the news media to convince people that something is true (like a strong or weak economy), even though it may not actually be true — yet. Well, I've had suspicions for the past year or so that this was happening with Sarbanes-Oxley, specifically the impact that it has had on the incidence of fraud.
It seems that there are reports and studies being released all the time now purporting to show that SOX has had a positive effect on reducing fraud and improving investor confidence in capital markets. Yet the only "evidence" we see is either anecdotal, or it's based on opinions from respondents to a poll or survey. And of course we're going to see glowing reports from audit firms, the federal government, the SEC, and the PCAOB. Can you imagine one or more of the above groups stating that SOX has been a colossal waste of time and money and should never have been passed in the first place? Of course not! They have to talk it up no matter what the reality is. What's worse is that this official party line permeates industry to such a degree that it becomes almost politically incorrect to challenge it. I wonder what would happen if I openly criticized SOX as a total disaster in my next presentation at an ISACA or IIA meeting. Would I ever be invited back? Perhaps, but I'd rather not find out. Besides, I would receive a much warmer response at an event consisting mostly of IT people. They've hated SOX from day one, so there would be no love lost there. I'd simply be preaching to the choir. However, there are some rumblings out there that suggest that SOX may not be theanswer to global warming – cure for cancer – peace on earth solution that many think it is.
A story released yesterday says that according to the most recent biannual global survey of economic crime conducted by PricewaterhouseCoopers, 53 percent of US companies reported they had been hit by economic crime during the last two years, with losses totaling $223 million. Companies of all sizes were affected, and the level of fraud has not dropped (italics mine) in the eight years that the firm has been conducting the survey. However, seventy-one percent of the US respondents said they thought that Sarbanes-Oxley was at least some help in detecting economic crime inside the company, and 61 percent thought it was at least some help for detecting economic crime that originated outside the company. So, we see here that fraud has remained steady for the last eight years, but the majority of the respondents still have to credit SOX in some way for that. Why? I mean SOX has only been around for four years, so how do we know that there would have been a huge increase in fraud had SOX never been passed? We don't! It's simply a nonfalsifiable presupposition, and since we'll never really know for sure, it becomes extremely easy to credit SOX.
Another article states that for the first time in four years, a survey of in-house corporate lawyers shows that the rate of corporate litigation has fallen. Fifty-five percent of the respondents credited Sarbanes-Oxley with the decline in litigation, but experts also pointed to the recent relative stability of the economy and the rising stock market, which tends to produce fewer disputes involving corporations. Here again we see obligatory credit being given to SOX, but it's nice to see that at least some experts can still think for themselves by pointing to other factors.
I'm not saying that SOX has not had any kind of positive effects; I am saying that there are too many people creditng SOX without really thinking about why they're doing so. If you really believe SOX has helped then be prepared to provide harder evidence than a survey conducted by an audit firm or the SEC. Let's really debate the topic for once.
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