The Accountants and Regulators Role in the Current Collapse (You Can Choose Which One)
posted on: Monday, January 26, 2009
By Gary Snyder
We have seen what appears to be a collapse of some of our major institutions. The degree of breakdown is yet to be totally quantified, but it seems that almost all of the organizations whether it be the for-profit, the government or nonprofit sectors have all been devalued.
For each of these to fail, there must have been some failure on the part of the auditors and accountants, as well as the regulators.
Because regulators are paying almost no attention, the regulated appear to be winning. The regulators have been co-opted by the regulated, resulting in little oversight.
For-profits
In the case of for-profits, it seems like a run away. The regulated wins. A regulator, the U.S. Security and Exchange Commission (SEC) has failed on a multitude of fronts. Ever heard of Madoff? The SEC, after an apology from its Chairman, is looking into how its auditors never followed up on numerous Madoff complaints. As a result, the chief accountant in its enforcement arm had tendered her resignation. Because of its ongoing failures, the agency’s very existence is in danger as Congress weighs a big regulatory overhaul expected this year.
The accounting firms seem to have gotten away with fraud-like behavior for as long as they collected their fat fees. (AIG/Freddie Mac: Pricewaterhouse; Merrill Lynch/Bear Stearns: Deloitte & Touche; Lehman Brothers: Ernst &Young; Enron: Arthur Anderson). The taxpayers get to pick up the tab for both the regulated and the regulators incompetence. The federally mandated audit committees and independent audits are supposed to lead to enhanced oversight. It doesn’t seem to be working. When finding a weakness, it takes the regulators years to issue a ruling and just weeks for the regulated to figure a way around it.
The government
The government---at all levels---has had numerous examples of malfeasance that should have been detected. Take, for example, the Washington DC Tax Office scandal. For 20 years the auditors failed to detect a $50 million thievery. It’s the biggest embezzlement in the city’s history. The scam: A mid-level manager, taught by her co-workers, took cash and gifts from property owners in return for erasing penalties on overdue taxes, stole refund checks issued to deceased taxpayers and created property refunds with no oversight. Only as a result of this fiasco is the city now seeking better checks and balances. There are hundreds of similar examples…each year.
Nonprofits
The nonprofit sector may be the shining example of virtually no accountability. Because of the effective efforts of its leadership seeking self-regulation, there is no federal agency that has oversight of charities. There is a hodge-podge of watchdog agencies that monitor fewer than 10% of all charities in the U.S. They base their results on that which gets submitted in the IRS Form 900, which in many instances is unreliable. All 990 submissions are seeking to show better overhead and fundraising. Studies have shown that agencies improperly allocate fundraising costs to programs (25% with a least $1-5 million in contributions report zero fundraising expenses); report net proceeds rather than total cost of the fundraising campaign; report smaller than realistic management and general expenses (to get higher ratings by watchdogs; have no measurements around the outcomes of their activities.
Other studies have shown that as much as 13% (almost twice that of the for-profit sector) of the collected charitable dollar is either misused or stolen. Base on that assumption, in 2006, $40 billion had not reached the intended.
Auditors that have looked the other way have aided many misdeeds. The Roslyn school district and half of the other Long Island schools lost tens of millions of dollars to fraud. When exposed that there was “a pattern of appalling inadequate (accounting) work” as well as a violation of basic accounting practices and ethical standards, the auditing firm closed its doors. There are many other similar examples.
Both the nonprofit and for-profit sectors are weakly lead and under-managed. A common denominator in all failures is that the boards are ineffectual. Board members are seldom held accountable. In many instances there are conflicts of interests with accountants and boards looking the other way.
Taxpayers, stockholders and stakeholders just accept this malfeasance as a cost of doing business. Others suggest that we should just accept it as the way the world works. I would hope that there would be more outrage and we would not accept such misbehavior.
Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.
We have seen what appears to be a collapse of some of our major institutions. The degree of breakdown is yet to be totally quantified, but it seems that almost all of the organizations whether it be the for-profit, the government or nonprofit sectors have all been devalued.
For each of these to fail, there must have been some failure on the part of the auditors and accountants, as well as the regulators.
Because regulators are paying almost no attention, the regulated appear to be winning. The regulators have been co-opted by the regulated, resulting in little oversight.
For-profits
In the case of for-profits, it seems like a run away. The regulated wins. A regulator, the U.S. Security and Exchange Commission (SEC) has failed on a multitude of fronts. Ever heard of Madoff? The SEC, after an apology from its Chairman, is looking into how its auditors never followed up on numerous Madoff complaints. As a result, the chief accountant in its enforcement arm had tendered her resignation. Because of its ongoing failures, the agency’s very existence is in danger as Congress weighs a big regulatory overhaul expected this year.
The accounting firms seem to have gotten away with fraud-like behavior for as long as they collected their fat fees. (AIG/Freddie Mac: Pricewaterhouse; Merrill Lynch/Bear Stearns: Deloitte & Touche; Lehman Brothers: Ernst &Young; Enron: Arthur Anderson). The taxpayers get to pick up the tab for both the regulated and the regulators incompetence. The federally mandated audit committees and independent audits are supposed to lead to enhanced oversight. It doesn’t seem to be working. When finding a weakness, it takes the regulators years to issue a ruling and just weeks for the regulated to figure a way around it.
The government
The government---at all levels---has had numerous examples of malfeasance that should have been detected. Take, for example, the Washington DC Tax Office scandal. For 20 years the auditors failed to detect a $50 million thievery. It’s the biggest embezzlement in the city’s history. The scam: A mid-level manager, taught by her co-workers, took cash and gifts from property owners in return for erasing penalties on overdue taxes, stole refund checks issued to deceased taxpayers and created property refunds with no oversight. Only as a result of this fiasco is the city now seeking better checks and balances. There are hundreds of similar examples…each year.
Nonprofits
The nonprofit sector may be the shining example of virtually no accountability. Because of the effective efforts of its leadership seeking self-regulation, there is no federal agency that has oversight of charities. There is a hodge-podge of watchdog agencies that monitor fewer than 10% of all charities in the U.S. They base their results on that which gets submitted in the IRS Form 900, which in many instances is unreliable. All 990 submissions are seeking to show better overhead and fundraising. Studies have shown that agencies improperly allocate fundraising costs to programs (25% with a least $1-5 million in contributions report zero fundraising expenses); report net proceeds rather than total cost of the fundraising campaign; report smaller than realistic management and general expenses (to get higher ratings by watchdogs; have no measurements around the outcomes of their activities.
Other studies have shown that as much as 13% (almost twice that of the for-profit sector) of the collected charitable dollar is either misused or stolen. Base on that assumption, in 2006, $40 billion had not reached the intended.
Auditors that have looked the other way have aided many misdeeds. The Roslyn school district and half of the other Long Island schools lost tens of millions of dollars to fraud. When exposed that there was “a pattern of appalling inadequate (accounting) work” as well as a violation of basic accounting practices and ethical standards, the auditing firm closed its doors. There are many other similar examples.
Both the nonprofit and for-profit sectors are weakly lead and under-managed. A common denominator in all failures is that the boards are ineffectual. Board members are seldom held accountable. In many instances there are conflicts of interests with accountants and boards looking the other way.
Taxpayers, stockholders and stakeholders just accept this malfeasance as a cost of doing business. Others suggest that we should just accept it as the way the world works. I would hope that there would be more outrage and we would not accept such misbehavior.
Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.
posted by Gary at
10:50 AM
1 Comments:
Isnt it interesting that the biggest school theft in US history and the biggest theft of any type (Madoff) have in common the Roslyn area? The most decadent and discusting people live there so it dosent surprise me!
By
Anonymous, at 8:06 PM
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