Words: 2038
Consider the following examples that illustrate this point. Martha Stewart, contrary to what many believe, was not convicted of insider trading, which would have been difficult for the prosecutors to prove. When questioned by investigators about a personal sale of Incline Systems stock, Stewart chose to lie about it. The prosecutors convicted her of making false statements to investigators and Of obstruction of justice. Had she told the truth and cooperated, she may have escaped a prison term. Kenneth Lay, Enron Corp.. CEO, was managing a business in a precarious financial position.
His crime was telling employees, stock analysts, and the public that Enron was “one of the strongest companies in the country’ when he knew for a fact that it was not. Had Lay told the truth from the beginning and not participated in the “puffing up” of Enron’s airings, he probably would not have been a convicted felon whose death before sentencing resulted in his conviction being abated. Corporate executives and managers need to create a workplace where principles drive decisions and people are not afraid to express themselves openly and honestly.
With a greater emphasis on corporate transparency inspired by the Serbians-Solely Act (SOX) and other regulations, customers, regulators, and shareholders are demanding full visibility into U. S. Companies. Managers must prepare their workforce for a time when dishonesty is met with zero tolerance. The costs of dishonesty must exceed the benefits derived from dishonest behavior. A classical theory of criminology known as “rational thought” maintains that deterrence is best achieved when penalties for criminal behavior exceed the benefits derived from it.
For years, white-collar criminals have derived substantial benefits from their wrongful actions and incurred little in the way of penalties. For example, a recent fraud examination of a nonprofit organization revealed that, during a two-year period, the executive director had diverted at least $70,000 into his own pocket. What was the cost associated with his dishonesty? The organization terminated his employment but did not prosecute or seek restitution from him. He got to keep everything he stole. He will likely continue to steal from future employers until he suffers a meaningful negative consequence for his behavior.
Based on the NOVEMBER 2008 / THE OCCUPATIONAL authors’ professional experience as a fraud investigator and an attorney, this scenario is replayed over and over again in companies across the country. Many will argue that cheating has always been around, which is difficult to dispute. The level of cheating in today’s society, however, seems to have reached unprecedented levels. Consider the following examples: ; In a six- month BBC News investigation, Primetimes traveled to colleges and high schools across the country to determine how and why students are cheating.
The results of the investigation aired in an April 2007 segment “A Cheating Crisis in America’s Schools. ” ; A recent study of more than 5,000 business students enrolled at 32 different colleges and universities indicated that 56% of the graduate business students admitted to cheating during the past year. In a similar study of 12,000 high-school students, 74% admitted to cheating at least once in the past year. Former officers from dozens of Fortune 500 companies are currently in prison for cheating on their financial statements. The victimized investors were left holding a bag of losses totaling billions of dollars. After reviewing a book authored by David Callahan, The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead, former U. S. Secretary of Labor Robert Reich declared: “Finally, a lucid explanation for why America seems on its way to becoming a nation of cheaters. ” Those who cheat have concluded that the benefits of cheating or dishonesty exceed the costs associated with getting caught. For example, if a student gets caught sharing answers with others but suffers no punishment from the teacher, that student will conclude that the benefits of cheating outweigh the costs.
If a student is caught sharing answers and gets a zero on the assignment, however, that student may conclude that the cost of cheating exceeds the benefit derived from it and will probably discontinue the behavior. When the costs of dishonesty exceed the benefits derived from it, people will think twice before doing it. As evidenced by the recent flurry of convictions and prison sentences, American society has decided to get tough on white-collar Iranians. In theory, such highlighter convictions and harsh sentences should discourage future white-collar criminal activity, but on Ii time will tell.
The ‘good soldier’ defense does not excuse wrongful behavior. The SEC, along with court decisions involving accountants and middle managers, have consistently ruled that “those who assist in committing wrongful practices cannot escape culpability by asserting that they acted as ‘good soldiers’ and, thereby claim that the violate conduct was condoned, or even ordered, by their corporate superiors. ” Betty Vinson, a medieval accountant at World, had to learn this lesson the hard way. After joining World in 1 996, her life took an unfortunate turn.
In 2000, Vinson was asked by her bosses to make false accounting entries to pump up the company’s declining profits. She initially refused to make the entries, but her bosses’ persistent pressure led her to give in and make the entries. After 18 months of “cooking the books,” Vinson and two colleagues confessed their accounting misdeeds to federal officials investigating the case. Early in the investigation, Vinson assumed that she was a witness rather than a target of the investigation. After the Department of Justice moved the case from Mississippi to New York, however, he focus shifted and she became a target. James Comedy, the U.
S. Attorney prosecuting Venison’s case, declared that “just following orders is not an excuse for breaking the law. ” Ultimately, she pleaded guilty to fraud and helped prosecutors make their case against former World CEO Bernard Beers. In 2005, Vinson, who had a teenage daughter still at home, was sentenced to five months in prison and five months of house arrest. Her sad experience clearly exposes the good soldier defense as not only ineffective but also morally wrong. Those being pressured to do something unethical or illegal should follow specific guidelines. These guidelines include: Do not participate in fraud or misconduct.
Participation in fraud or misconduct at the request of another does not absolve an employee of criminal liability in the event of a subsequent prosecution. DO not conduct an internal investigation without first checking with an employment attorney. Many whistler’s policies prohibit employees from obtaining evidence for which they do not have a right of access. Such access may be considered improper activity. Similarly, policies also preclude weightlessness from acting on 55 their own in conducting investigations. They should refrain from participating n the investigation activities other than as requested by the investigators.
Report and document concerns to the appropriate person upward in the organization. Documentation is very important. A paper trail can be useful in any subsequent hearing or trial of the matter. These documentations become part of the record and are much more compelling to jurors and courts than “he said, she said” testimony that is unsupported by physical evidence. These documents may be important during the investigation phase as well. There is a powerful incentive for an employee who uncovers improprieties, which may be inadvertent or Honesty is the best policy.
Accountants have both a professional and a moral duty to be honest in all of their dealings. Unknown to upper management, to secretly collect evidence and then go to a lavaВ»year, rather than stopping the fraud early and inside the company. (Stephen Moore and Phil Kernel, “The Weightlessness Industry: It’s a Growth Industry That’s Dragging Us Down,” National Review Online, May 10, 2005, www. Nationalities. Com/Moore/ moore200505100827 . Asp). Weightlessness often quietly collect evidence for months while fraud continues.
Individuals whose actions are not driven by visions of sudden wealth often believe that employers may retaliate against hem if they come forward. Those individuals should know that employees who work for publicly traded companies are protected from discriminatory acts by their employers, or any officer, employee, contractor, subcontractor, or agent of the company for providing information, causing information to be provided, or assisting in an investigation by a federal regulatory or law enforcement agency, a member or committee of Congress, or an employee’s supervisor.
Individuals who file, or cause to be filed, participate, or assist in a proceeding relating to an alleged violation of ail fraud, wire fraud, bank fraud, securities fraud, or violation of SEC rules or regulations are also protected (1 8 LIST section 1 AAA). There are numerous other whistler’s protection laws at both the federal and state levels. Do not copy or remove corporate records. Copying or removing records may be a crime in itself. Weightlessness are prohibited from obtaining evidence for which they do not have a right of access and should honor the “clean hands doctrine. Under this doctrine, a person who has acted wrongly, either morally or legally-?that is, who has unclean hands-?will not be helped by a rout when complaining about the actions of someone else (Baron’s Law Dictionary 75, Bad deed. , 1991). Do not expect to get rich from a whistler’s lawsuit. While there are cases of individuals getting rich as a result of whistler’s lawsuits, it is not the norm. Most weightlessness come forward because they feel morally compelled to do so.
Even those who meet with financial success often say that it was not about the money, but about doing the right thing. The False Claims Act (Civil False Claims Acts, 18 USC section 3729) is the main federal legislation that is used to combat fraud in government contracting. While the law dates back to the Civil War, the 1986 amendments to the act have led to increased use. Those new provisions allow weightlessness to recover windfall rewards of 15% to 30% of the eventual financial penalty or settlement.
According to Moore and Kernel, this allows weightlessness to enrich themselves with reward money. They point out that two of the most famous jackpot award win nurse in recent years were David Franklin, who was paid $246 million for blowing the whistle at Pfizer, and Doug Duran, profiled in Forbes, who has received $1 73 million for doing the same at two different medical companies. Moore and Kernel describe weightlessness as a rapid growth industry in the United States, with employees, enticed by the quick route to wealth, becoming on-site snoopers against their employers.
Moore and Kernel report that these windfall rewards serve as a powerful incentive for an employee who uncovers improprieties, which may be inadvertent or unknown to upper management, to secretly collect evidence and then go to a lawyer, rather than stopping the fraud early and inside the company. Some lawyers are also getting rich off whistler’s awards and can walk away with millions of dollars for each winning case. According to Moore and Kernel, the theory behind these rewards to weightlessness makes sense.
Without the conscientious employee exposing wrongdoing, none of the fraudulent payments involved in these cases might have been recovered. They add, however, that dangling these jackpot rewards in front of employees often has exactly the opposite effect, by preventing companies from early detection and correction of erroneous billing practices. Learn the Lessons The recent increase in corporate malfeasance offers four constructive lessons of note for accountants and other financial professionals. First, honesty is the best policy. Accountants have both a professional and a moral duty to be honest in all of their dealings.
Second, the costs of dishonesty must exceed the benefits derived from dishonest behavior. The time has come for the accounting profession to adopt a zero- tolerance policy for dishonest behavior by employees, clients, and others. Third, the good soldier defense does not excuse wrongful behavior. Even when pressured by others to act dishonestly, accountants can be held criminally or civilly responsible for their unethical behavior. Finally, when pressured to engage in unethical activity, accountants should carefully insider the legal ramifications of their response and consult with an attorney expel rinsed with such situations.