This article was originally published in the September/October 2010 issue of ICPAS INSIGHT Magazine.
Where do you draw ethical boundaries in a down economy?
Times are tough. The tight labor market, client fee sensitivity and talent retention issues are major factors businesses now face, and the accounting profession is no exception.
As fiduciaries, accountants are concerned not only with their own business practices, but also with those of their clients. Distressed businesses are stressed businesses, each of them facing difficult ethical decisions on a daily basis.
Over the past 20 years of relative prosperity, the rationale for fraud ran along the lines of self-enrichment and entitlement; in other words, the “I need to get my share, too” mentality. Just look at celebrity CEO fraudsters who live lavishly and treat their business’ coffers as though they were private funding accounts.
Today, however, we’re seeing a dramatic shift in rationale. Owners and managers are facing possible extinction if they miss financial covenants, and are being confronted with creditor demands for quicker repayment. “Aggressive” accounting practices are therefore surfacing.
Simply put, more businesses are trying to alleviate the effects of shrinking revenue bases, reduced cost structures and greater competition. As human beings, we see the clear difference between the business owner who misrepresents financials to add another Monet to his/her collection and the business owner who misrepresents financials to keep the business afloat. Creditors and other fraud victims, however, don’t necessarily make this differentiation. After all, fraud is fraud.
Leigh D. Roadman, Esq., a Member in the Litigation Practice Group in Clark Hill's Chicago office and whose practice focuses on white collar criminal defense, has witnessed the change in the landscape firsthand. Roadman explains that, “When times are tough, some people who would otherwise never consider doing something wrong cross the line. While meeting one’s obligation to pay employees or suppliers is the right thing to do, funding those payments with money obtained fraudulently is still wrong. Increasingly, people who are desperate to keep their businesses going choose wrong over right because closing their business is the only other alternative they see.”
This, in a nutshell, is the unique nature of the shifting ethical boundary. At what point does an accountant say, “Enough!”? It depends on the situation.
I constantly remind the professionals I teach to listen to their inner voices or to take note of the queasy feeling that comes over them. If something just doesn’t seem right, there’s usually a good reason for it. Step back and evaluate deeper. Avoid playing the role of psychologist by guessing others’ intentions. And definitely avoid playing the role of confessor, forgiving others’ transgressions. Clients retain financial experts for their accounting acumen and insights, not to act as their consciences. Stick to what you know best: The numbers. The numbers are black and white and have no motive or rationale. Forensic accountants factor the human element into every investigation but rely on the numbers to tell the story.
Broaching an ethical boundary, as is the case in most fraudulent schemes, typically starts on a modest scale. In fact, ethical boundaries are rarely stretched at a single transaction. Have you been asked to stand behind a number you know isn’t accurate? Have you taken part in accounting that is increasingly aggressive and, if so, did you stand by or say something?
As the government prosecutes overly aggressive accounting practices more and more, the marketplace continues to grow increasingly hostile towards financial chicanery. This trend also is trickling into the private/civil sector as organizations internally fight for survival. Stakeholders are willing to pursue deals gone bad when they suspect they’ve received bogus financial data.
Remember, both what is ethical and what constitutes aggressive accounting are purely subjective matters. If something troubles you, don’t let someone else’s ethical template sway you. Fraudsters love to act in a vacuum, so taking a stand at the onset is the best defense against answering tough questions years (and dollars) later.
Be willing to discuss a situation with someone you trust, like a supervisor, a significant other or a colleague. Often, this independent third party can give you objective insight into whether your concerns are legitimate.
Most importantly, don’t live in an ethical grey area where your opinion is swayed by popular opinion; keep your ethical boundaries clear and present.
Note: Every effort has been made to update pertinent employment information and relevant details since the date of the original publication.