What control mechanisms are most effective in preventing corporate fraud? To answer this question, we study all reported cases of corporate fraud in companies with more than half a billion dollars in assets between 1996 and 2004. We find that no single mechanism dominates the revelation of fraud. The most important sources of information are employees (13% of the cases), analysts (12%), and newspapers (another 11%). Industry regulators play a small role in whistle blowing but the SEC does not contribute much to the discovery of fraud. Auditors also serve only a minor role, albeit their activity increased after the Enron scandal. Remarkable for their absence are underwriters and banks. Moreover, examining the duration of these improprieties allows us to infer the relative efficiency of these mechanisms. The most efficient external whistleblowers are the analysts (on average they discover a fraud after 395 days). When they fail it takes two years on average for a fraud to be discovered.
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