Here’s the hardest thing about writing a fraud roundup in a year so rich with scams, financial chicanery, and all-around questionable behavior: picking the most shocking examples. Is it the Trump Organization’s tax fraud conviction, the stiff sentences for Theranos executives, or the billions of pandemic relief dollars that were misused?

“Very recent cases aside, there haven’t been the enormous headline makers…but the numbers that we’re seeing with a lot of these cases are just astounding to me compared to what we were seeing five years ago,” said Andi McNeal, VP of education at the Association of Certified Fraud Examiners (ACFE).

Any way you slice it, 2022 has been a bumper year for fraud, and 2023 could be worse. Research has shown that fraud increases during an economic downturn, so if the economy goes into a skid, we’ll probably have an uptick in fraud to look forward to as well.

But, before we go all doomsday on 2023, let’s recap some of the biggest fraud stories of 2022.

Crypto crash. There was so much fraud and deception in crypto this year that even Kim Kardashian somehow got caught up in it. The SEC charged her with not disclosing that she was paid to tout crypto coin EthereumMax on Instagram.

Privacy Affairs, an online privacy group, estimated that crypto scams generated $4.3 billion in revenue from January to November 2022.

“I think those of us in the fraud field always knew there were going to be giant crypto scandals because of the gap between the laypersons’ understanding of what’s there and the reality of what that landscape actually looks like,” McNeal told CFO Brew. “The big ones this year, though, is where we’re starting to actually see some of the hypotheses that have been out there come to fruition.” Continue reading here.—DA

SEC reporting managers, expert timeline planners who project manage quarterly and annual reports, will face a new challenge if the SEC moves forward with a proposal released earlier this year: ESG reporting. In the past few months, data tools and cloud platforms have released a plethora of reporting tools for companies, but verifying the data and signing off on it still remains to be done.

“The phenomenon that we’re looking at would be similar to an accounting team trying to do financial reporting without a general ledger,” Steve Soter, senior industry principal at Workiva, a SaaS company, told CFO Brew. He said that ESG data is spread across utility bills, HR files and so forth, creating a reporting nightmare.

It’s no surprise then that companies are eager for a solution to the reporting issue; according to a new Deloitte report on ESG disclosure and preparedness, 99% of 300 public company executives surveyed said they were somewhat likely or very likely to invest in more technologies and tools over the next 12 months.

Automating the reporting could transform the function and ESG roles as they are today, John Willard, US transformation lead at ESG consulting company Quantis, told CFO Brew. He said that sustainability roles are now spending the majority of their time gathering data.

While companies are clamoring to get a tool that can effectively communicate their ESG metrics, the tricker part will be verifying the data, a critical concern for CFOs who, if reporting data to the SEC, have to vouch for the information. Continue reading here.—KT

Audit quality has declined, according to a new report from the Public Company Audit Oversight Board (PCAOB). The regulator found “a collective increase in the number of audits with deficiencies” during annual audit firm inspections in 2021.

The report also found that the auditing deficiencies are an ongoing problem. The issues included leaving out critical audit matters (CAMs) that are material to financial statements, non-compliance with PCAOB standards, and failing to test company controls.

The PCAOB report also found that one-third of the audits it reviewed in 2021 lacked “appropriate audit evidence” to support the audit firm’s opinion of the client company’s financial statements and reporting. In November, the PCAOB released a report that identified 21 firms with deficiencies in their work.

“Higher deficiency rates in 2021, coupled with the fact that the PCAOB is also seeing an increase in comment forms for 2022, are a warning signal that the audit profession needs to sharpen its focus on improving audit quality and protecting investors,” PCAOB Chair Erica Y. Williams said in a statement.

This is the first year many audit firms in the study were required to comply with CAMs reporting regulations. The report found that firms missed some of the matters that should have been included in the CAMs reporting. The PCAOB found fewer errors in audits performed by firms in their second year of reporting CAMs.

The regulator offered several “good practices” for improving audit quality. For example, the PCAOB recommended bringing in outside subject matter experts to perform independent reviews in order to improve communication around CAMs with audit committees, and building communications tracking systems to make sure that nothing is overlooked.

It also encouraged the use of new technological tools, such as expanding digital financial holding monitoring and automating auditor financial holdings analysis, to prevent conflicts of interest. The PCAOB recommended audit firms review disciplinary actions, including monetary sanctions, for independence violations.

The PCAOB inspected a total of 690 audits from 141 audit firms for the report, with an emphasis on sectors and industries “experiencing particularly significant disruptions or financial reporting risks during the Covid-19 pandemic.”—DA

Stat: 7.1%. That’s how much the Department of Labor’s consumer price index rose in November—the slowest month over month pace of growth since December 2021—and down from 7.7% in October, a sign that inflation continues to cool. (the Wall Street Journal)

Quote: “I’ve just never seen such an utter lack of record-keeping.”—John Ray, CEO of bankrupt cryptocurrency exchange FTX, in his testimony about the company before the House Financial Services Committee. (Reuters)

Read: A roadmap of the biggest financial settlements (more than $1 billion) for corporate misdeeds in the US since 2008, which includes the wise observation that “good business is cheaper than the alternative.” (Bloomberg)