By Melanie Wiser
Steve Albrecht, associate dean to the Marriott School of Management, has identified nine abuses that allowed Enron and WorldCom to conduct the largest financial fraud in history.
His sons, Conan, a BYU assistant professor, and Chad, a graduate from the BYU business school, co-authored his findings, which were recently published in the “Journal of Forensic Accounting.”
Through his research, Steve Albrecht found the economy of the 1990s allowed fraud to be masked in apparent success.
“It was so profitable that everyone lets it go by,” Chad Albrecht said. “Everyone is making money, so no one”s complaining,”
This, in combination with fewer morals, large amounts of debt and misplaced incentives allowed for executives to lie in their financial reports to keep stocks on the rise.
“Every study points to that people are less honest now than in the past,” Conan Albrecht said.
Wall Street analysts also played a role, as they spoke mainly about the short-term behavior of the stock, forcing companies to try to keep up with Wall Street expectations.
“If you meet Wall Street expectations, then your stock stays the same,” Conan Albrecht said. “If you don”t, then your stock falls significantly. There is pressure to keep your stock the same on a short-term level.”
U.S. accounting procedures also played a role, as it is difficult for auditors to argue accounting procedures that are not generally used.
“When a company reports all their financial statements, auditors verify that it is done correctly,” Chad Albrecht said. “Most auditors lack the time and resources though to make sure that everything is done correctly.”
Another contributing factor is that accounting firms used audits to establish relationships with other companies to sell consulting services.
The final point that Albrecht makes is simply that graduates are not being educated well enough about ethics and dilemmas that they may face working for a company.
“Each one is like adding another stick to the fire,” Steve Albrecht said in his report. “The more you add, the hotter it gets. When the fire gets burning hot enough you have an Enron or a WorldCom. If you take one of the sticks away, or several of them away, the fire is not quite as bright, not quite as big.”
Low morals ultimately led executives at Enron to lie about their financial standings. Both father and sons seem to agree that more ethics training for students would help prepare them for the pressures in the accounting world.
“Graduates need to be trained in ethics more,” Conan Albrecht said. “Trained in saying, ”No, this isn”t right.” I don”t know that this is going to happen worldwide though.”
Albrecht will present his findings to the U.S. Securities and Exchange Commission in September.