September 15, 2025
Accounting fraud is surprisingly prevalent. Often synonymous with financial fraud — think of Sam Bankman-Fried’s involvement in the collapse of FTX or the demise of Enron in 2001 — recent studies indicate that up to 41% of companies engage in accounting violations each year.
Despite robust regulatory and enforcement programs championed by the U.S. Securities and Exchange Commission (SEC), each year accounting fraud results in investor harm, financial losses, and negative market impacts.
Accounting fraud occurs when a company or individual deliberately misrepresents information to gain money or avoid financial loss. Accounting fraud creates a false picture of a company’s health to deceive investors, regulators, and others.
How it happens is more obvious than you’d think.
Spotting the Warning Signs of Accounting Fraud
Red flags that often indicate accounting fraud may be occurring include:
- Significant pressure from supervisors to meet earnings and other performance expectations,
- Supervisory focus on short term performance rather than long term company outlook, for example, pressure to do “whatever it takes” with the numbers to make this quarter look outstanding,
- Financial reporting and accounting infrastructure that lags behind the growth of the company, and
- Management’s poor “tone at the top,” with excessive focus on the firm’s financial performance, to the detriment of quality of work, and employee support and development.
The Most Common Forms of Accounting Fraud
Accounting fraud can take many forms, but most schemes fall into a few well-recognized categories that share a common goal: to distort a company’s true financial picture for personal or corporate gain. These categories include:
- Falsifying revenue, that is, falsifying the financials to make it look like the company earned more than it did,
- Concealing debts or risks that should be included in the financials to make the company look healthier than it is,
- Improper accounting, meaning ignoring accounting rules to boost stock prices, and
- Omitting critical facts or outright lying in SEC filings, earnings calls, or press releases that result in misleading investors or even causing investor harm.
How does this hurt you and me? Lies or omissions affect real people—employees whose retirement savings are tied up in company stock, pension funds investing on behalf of government employees or other public servants, or everyday investors trying to build a future.
The Role of the Whistleblower
Officers, directors, auditors, accountants, vendors, and others with knowledge of accounting fraud can curtail and stamp it out. This is where whistleblowers play a critical role. Tips about accounting violations have not only triggered investigations by the SEC but have also led to substantial whistleblower awards. In cases where the information provided by the whistleblower results in a successful SEC enforcement action and monetary sanctions collected of more than $1 million, the whistleblower can be eligible for an award under the SEC Whistleblower Program. Whistleblowers who possess actual knowledge of the securities fraud and come forward to report that information to the SEC enable the agency to quickly detect and halt accounting fraud.
Importantly, the SEC has stated that accounting fraud cases are a priority for the Division of Enforcement for 2025.
Turning Red Flags into Action
If you work at a company and see signs of accounting fraud, you may be able to help put a stop to it. Whistleblowers are usually insiders who know how the numbers are manipulated or falsified, know who approved the manipulation or falsification, or know how certain risks or liabilities were hidden.
If you see the signs, and you’re ready to act, you should give serious thought to contacting an experienced whistleblower attorney. While you certainly do not need to be an attorney to identify possible accounting fraud at or related to your job, an attorney can help you report your information confidentially, correctly, and carefully. Your voice could be the key to exposing the truth, stopping fraud, and protecting countless others from harm.