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By: Bailey McCann, Private Equity Strategies

In the fight against financial reporting fraud, members of the financial reporting supply chain have a new tool to advance their fraud deterrence and detection capabilities. The Anti-Fraud Collaboration the Center for Audit Quality (CAQ), Financial Executives International (FEI), The Institute of Internal Auditors (The IIA) and the National Association of Corporate Directors (NACD) have published the "Hollate Manufacturing Case Study," a study of a potential material fraud at a fictitious public company in order to raise awareness of environments in which financial reporting fraud might flourish. The case study and a companion discussion guide provide a roadmap to help audit committees, financial executives, and internal and external auditors engage in interactive discussions on what could have been done to mitigate the risk of fraud.

"Historically, financial reporting fraud is the workplace fraud that has had the highest cost impact on public companies," said CAQ Executive Director Cindy Fornelli, in an interview with Private Equity Strategies. "All parts of the supply chain need to have a healthy skepticism about what they see."

To that end, this group of partners is working with Harvard Business School faculty to create a case library that walks investors and firms alike through indicators of financial fraud. The CAQ released a guidebook along the same lines earlier this year. All of the materials including video will be made available for free. The discussion manual will only be made available to professionals trained on the case study method in an effort to aid teaching programs.

"The second case will look at what you can do if you suspect that there is fraud taking place," Fornelli says.

Video will also be a key component of the resource. The videos feature insight from Willis Emmons, Senior Lecturer and Director of the Christensen Center for Teaching and Learning at the Harvard Business School. The videos also feature V.G. Narayanan, Thomas D. Casserly, Jr., Professor of Business Administration at the Harvard Business School, leading a discussion of the Hollate Manufacturing Case Study.

In all, the resource library is designed to help both potential investors and employees in firms guard against fraud. The guide lists a number of recommendations including setting clear ethics guidelines and ensuring that there aren't incentives for fraud. It also notes that setting up options for whistleblowers could be advisable to give employees a means of reporting possible fraud.

The inclusion of whistleblowers in the list of recommendations is notable in light of recent actions in the federal government and the third circuit court around whistleblowing. Some observers have noted that investigations and indeed prosecutions of financial fraud have dropped off since the early 2000s. However, there are some indications that may be changing.

According to the SEC, one of its biggest areas of fraud in 2012 was accounting. The regulator is also adding new technology to help officials analyze accounting reports. A recent Forbes piece also notes an uptick in the number of accounting re-statements, which have previously been indicators of fraud.

In March, the Third Circuit Court also reversed a decision to rule in favor of whistleblowers that report fraud with good faith intentions. While the rulings have been controversial, legal authors Debra S. Katz and Matthew LaGarde write in the National Law Journal, that the court is actually on the right track in creating an environment in which whistleblowers feel protected in coming forward. In that piece, they argue that one of Sarbanes-Oxley's "most potent tools to prevent future economic catastrophes is its whistleblower provision."

"Financial reporting fraud has a profound negative impact on investors' confidence in public companies and the capital markets," says Fornelli, "we want to help people be able to see the red flags on their own."

Watch a the CAQ's new video about fighting fraud below: