Reducing financial fraud

There are many regulatory agencies designed to supervise and audit financial funds to prevent fraud.  In nearly all cases the enforcement arms of these agencies are weak, ineffective or non-existent. In most cases the fraud is detected after the fact and the relevent assets have evaporated.

There are two reasons for the inadequacy of our fraud enforcement regime.  First, the technical skill and competence to understand and detect fraud are rare in the workforce and when they occur they are most likely to appear on the highly-rewarded fraud-creation side (the crooks are well rewarded). Second, enforcement agencies are highly fragmented.  The SEC, FBI, Postal Service, Department Of Justice, IRS, state Attorneys General, local DAs and the financial regulatory agencies all have their own fraud enforcement forces. Cooperation is weak and sporadic. 

The long-run solution to reducing financial fraud is to centralize both the audit/supervision functions of all agencies and to centralize the enforcement/prosecution functions of all agencies.  While Americans will never be comfortable with an increase in the power and effectiveness of any law enforcement agency, all centralization, however limited, in this area will be beneficial.

Overall, the most effective approach to the financial fraud problem is to create a single national educational center, such as the military academies, that concentrates knowledge and technology related to accounting and fraud at one location. Such a single, focused professional educational center will not only attract desirable fellows to the field, but proximity will help the students form the kind of social networks that will make supervision and enforcement more effective.