The Unpopular World of Accounting Ethics (Part 1)

One would think that ethical practices in accounting are easy to implement, or at least find acceptance. Greed too often prevails however and it may be harder than you think.

During my college years (years ago) I was privileged to work for a large corporation in the Corporate Accounting Department. It is interesting to see what goes on behind the scenes, even for a company with high credibility ratings from outsiders and analysts. Here are a couple of examples from my experience and observation:

The quarter-end disappearing act

Quarter end was always a stressful time for those of us in the department as the Corporate CEO often screamed to the Corporate Controller, “I want three more cents per share and don’t give a damn where you get it!”

This created a frenzy of accounting department managers visiting each of us lower level accountants to seek out opportunities such as the reversal of legitimate accruals to make the numbers look better. I did my best to go into hiding during these periods so as not to perpetrate the misstep.

The year-end battle

It was very unsettling for us out in the bull pen especially late at night (long hours and late nights were required) listening to the shouting match going on behind closed doors between the corporate controller and partners of the large CPA firm arguing over certification of the financials. It generally went something like this: “We are not going to do this again this year, we are not going to certify these numbers unless you do….” prompting the controller’s cry, “Oh yes you will damn you or we will find another firm that will!”  No need to hide on that one, we just laughed at the fray.

After college I landed in a multi-unit Hotel division as assistant controller and later controller for a number of hotels. In my first city hotel as controller two events come to mind challenging my ethical standards. The first revolved around a very large cosmetics corporation client.  We hosted annual multi-date luncheons for them at a downtown convention center. These events resulted in excess of $1 Million in sales that in the 1970’s was quite a bit of change. Two issues were happening there that needed cleaning up; one I fixed and one got by me. Here they are:

Paying the serve staff

It always struck me as the hardest working people during the event were the kitchen staff who worked around the clock and were paid at or slightly above minimum wage. The highest paid were the wait staff paid by gratuity at a high hourly rate. This part is legit so I digress. In past years the waiter staff were all paid off the clock with petty cash forms; no taxes, no record. I saw this as a potential Federal crime and brought this to a head prior to the event.

The food and beverage director, as well as my boss, insisted that this staff had to be paid the full amount with no taxes as the precedent had already been set. I insisted that being the case, to gross up the wages on the forms and include appropriate tax obligations that the hotel would pay and thus lower the bottom line. I further insisted they be paid by check rather than cash as had been the practice. Carrying $25,000-$50,000 in cash downtown in a briefcase to make these payments struck me as a bit dangerous. I was unpopular with these decisions, but won the battle.

Fraudulent reporting

Here is the one I missed. The convention center billing for use was based on a percentage of sales. The sales were falsely discounted by the amount of supplies used during the event on the paperwork sent to them prepared by the food and beverage director. Although I signed the checks paying the center, I failed to scrutinize the numbers; shame on me!

Years later when I was in another city in a new hotel, I received a call from the current general manager of my former hotel informing me that the city prosecutor was charging the hotel with fraud over the false accounting practices. Apparently another company hosted the luncheon event and when the convention center staff saw the real numbers they went ballistic. Fortunately my signature was not on any of the paperwork avoiding my being named as part of the conspiracy. I dodged a bullet!

There’s more – check back for part two.