Can ethics be taught? As an accountant, and an aging one at that, I am not qualified to answer this question. But Socrates debated this very question with his fellow Athenians almost 2,500 years ago. And his conclusion then apparently was that it could be. But then again, Socrates had not met Sam E. Antar.
This past week I spent several very entertaining and interesting days with Sam E. Antar who profoundly affected the way I view white-collar fraud, and the ability of auditors to detect it. Did he “con” me? Was I another one of his unwitting victims? Perhaps, but I now realize that accounting and auditing professionals are particularly at risk to “crooks” like Sam. But before I share my observations with you, a bit of background is in order.
Business ethics training is clearly a big deal today, its increased importance largely the result of recent high profile corporate failures, and regulatory attempts to prevent their reoccurrence. Just look around you. Most business schools now have required ethics courses for both undergraduate and graduate students. Ethics education requirements also are now the norm for the licensing and certification of both financial and management accountants. In fact, these new ethics training rules have prompted many professional associations to create a “new ethics training industry” to meet the continuing professional education (CPE) needs of their members.
But does any of this work? Despite their having taken semester-long ethics classes, I still catch students cheating on exams and course assignments. What does this tell us? And then there are the numerous ads for “free” or “cheap” on-line training courses. This Grumpy Old Accountant is beginning to wonder whether the professional organizations that promote these CPE programs have actually taken their own courses. Just how much ethics can one learn in an on-line course in a couple of hours? After all, don’t you get what you pay for? And some of you will no doubt remember the Grumpies’ rants about how “the large accounting firms have effectively demagnetized the profession’s moral compass,” in “Accountants Behaving Badly.”
So what’s the problem? Philosophy professor Joseph R. DesJardins defines it clearly when he acknowledges that teaching ethics is simply a “difficult task.” And I agree with him completely, while believing that training offers only a partial solution to the increasingly complex ethical dilemmas we face in accounting today. Cultural reforms and enforcement cannot be ignored either. There is just no quick fix…and apparently Crazy Eddie’s former auditor doesn’t believe any remediation is in order to address their “rogue” auditor’s recent behavior. But I digress…
So, where does Crazy Eddie come in you ask? This past week I decided that “desperate times call for drastic measures,” particularly when it comes to trying to convince my graduate accounting students that ethical and transparent financial reporting and effective auditing are important. Who better than a convicted felon and mastermind of one of the largest securities frauds in US history to “lecture” my students on white-collar fraud. Yes, Sam E. Antar, former chief financial officer of Crazy Eddie, who has admitted to such inappropriate behaviors as skimming, money laundering, and insurance and securities fraud.
Now let’s be clear…Sam has made numerous speaking appearances to a wide variety of organizations and students, and consults regularly with governmental agencies on white-collar fraud. So, apparently this is how Sam “makes a living” these days (at least we can only hope). But spend a couple of days with this former criminal, and you’ll find out that he is not just another consultant spewing out the purported benefits of the Cressey “fraud triangle.” What makes this man unique (and dangerous) is his complete lack of remorse for his past crimes. In his own words:
And it is ironic that this lack of remorse is viewed by some accounting professors as deplorable, making him unfit for the classroom. Perhaps that’s why he has never spoken to the American Accounting Association, the professional organization for accounting academics. On the contrary, this is exactly the type of person our accounting faculty and students need to meet and question: a predator, a charmer, a scammer.
Yes, it was fascinating to relive the Crazy Eddie accounting frauds (and they were numerous), particularly since I was a KPMG auditor (Crazy Eddies’ firm) during the public company phase of the Antar family’s scam. It was interesting to see how the Antar “crime family” adapted its business model to strategy changes from skimming as a private company, to inflating profits as a public company, all in pursuit of the “game.”
Imagine just how corrupt the family was, that it even sent young cousin Sam to business school to learn accounting for the public offering phase of the Crazy Eddie fraud. Oh, and by the way, Sam was an honor student in accounting, and passed all of the CPA exam in his first attempt. Here are a couple of questions for you…if Sam had taken an ethics course in college, what grade do you think he would have earned? Do you think the class would have redirected him from a life of crime? The answers to both queries are pretty obvious, right?
Nevertheless, here are some of the very troubling insights that I took away from my two-day “retreat” with Sam. First, and probably the most disturbing, is that 10 percent of the public is absolutely unethical and incapable of behavioral change. In making this claim, Sam cited a study by Crowe Horwath, and pointed out that Cressey’s “fraud triangle” does not account for such individuals, since they do not (or even need) to explain or justify their behavior. This “evil” 10 percent simply like what they do, and don’t need to rationalize. As Gordon Gekko noted in the movie Wall Street: “It’s not about the money…it’s about the game.”
What are the implications of Sam’s sobering assertions? If he’s right, ethics education may be pointless for this “criminal” element of our society. Equally troubling is that this 10 percent is quite likely to be attracted to the capital markets (as was Gordon Gekko), like a “moth to a flame.” This means that accountants and auditors will undoubtedly encounter these individuals at some point during their careers. This Grumpy Old Accountant worries that today’s accountants and auditors simply won’t recognize the “devil” when they meet him or her. Why you ask?
My second big takeaway from Sam was how white-collar criminals operate. Exploitation and façade accurately describe the way they function. According to Sam, this evil 10 percent exploits your humanity. They take advantage of your ethics, morality, and good intentions. The more ethical and moral you are, the easier it is for the scam artist to con you because you simply can’t believe that people act inappropriately, or contrary to your own personal moral code. In short, you are “ripe” for exploitation.
What does this mean for our young, impressionable, idealistic accountants entering the profession? They are like “lambs to the slaughter.” They generally come from good schools, moral families, and most have been raised to believe in the good in people. They are clearly incapable of dealing with the likes of Sam Antar, particularly when he employs two other tools of the white-collar criminal: flattery and distraction.
Complementing a person’s appearance or intelligence lowers the victim’s defenses. Will auditors (both junior and senior) recognize that this is happening? And distractions can be particularly effective in reducing audit quality. Sam reports that as CFO one of his goals was to get his auditors off schedule by pushing 80 percent of their audit work into the last 20 percent of their scheduled audit time. The result: either more errors in the test work performed or procedures would be scrapped altogether for the sake of completing the audit as scheduled. Do our auditors today consciously think about such things?
As a side note, Sam suggests that accountants with “street smarts” probably would make better auditors. Given their “inner city” backgrounds they have been raised around the criminal element, are less trusting, and are more likely to recognize when they are being scammed. This observation may just highlight another crack in the large accounting firms’ audit models, given that they hire almost exclusively from the top business schools, where “street smarts” is neither on the admission criteria or in the curricula.
Finally, there is the white-collar criminals use of façade. These evil-doers routinely cloak themselves with an aura of “false” integrity to gain the trust of their victims. For example, they may be well respected “pillars of the community” known for their charitable contributions, or even recognized by industry professionals for their accomplishments. The façade makes it less likely that someone will question their actions and behaviors. When it comes to auditing, how likely is it that today’s large accounting firm auditors will challenge their famous big-shot clients? Do we really expect them to “bite the hand that feeds them?” So, what is Sam Antar selling today? Is he all about improving ethics in today’s society? Is his goal to improve auditing and fraud detection? Or is this all some clever new façade to gain our trust? I don’t know, and frankly, I don’t care!
All I do know is that two days with Sam Antar left me with more questions than answers. This convicted felon is causing this Grumpy Old Accountant to reevaluate his positions on a number of issues:
- What is the “best” way to prepare our accounting students for dealing with the ever increasing moral lapses found in business today?
- Can regulatory intervention like Sarbanes Oxley really make a difference when it comes to the evil 10 percent?
- Should auditors be focusing more on detective controls and substantive testing than preventive controls?
- How can large accounting firms effectively promote auditor skepticism when they simultaneously differentiate themselves as “valued business advisors” to their audit clients?
In short, are today’s accountants and auditors really ready to deal with white-collar criminals? Again, did Sam Antar “con” me? Perhaps, but at least I now recognize the possibility.
This essay reflects the opinion of the author and not necessarily that of The American College, or Villanova University.