Fraud a real deal killer for private equity CFOs

By Arleen Jacobius
Fraud is a big deal among chief financial officers at private equity and venture capital firms, with 81% saying they have walked away from a deal when they suspected fraud or integrity issues, according to a survey by Corporate Resolutions Inc., New York.
Even so, about half of the 36 CFOs responding to the survey had not ever actually experienced fraud in a potential deal compared to 39% who had run across fraud at their firms or portfolio companies and 11% who didn’t know whether there had been fraud.
The most prevalent type of fraud – found 67% of the time among those that experienced fraud – was asset misappropriation such as theft, expense reimbursement fraud and skimming. Seventeen percent reported corruption and another 17% noted fraudulent financial statements. Respondents could pick more than one category.
Some 47% of frauds were found by management review, 29% by account reconciliation and 12% by accident. None was found by external audit or anonymous tip. Respondents could pick more than one category.
“The biggest thing (in the survey findings) was the fact that we talk about frauds and only 6% of the frauds are uncovered by internal audits,” said Ken Springer, president of Corporate Resolutions, who was an FBI agent for 12 years.