Accounting fraud pays - or getting caught doesn't hurt. Mostly.
AS A JOURNALIST I must confess I don’t usually read the accounting books that drop onto my desk on a weekly basis but Michael Jones’ hefty tome – Creative Accounting, Fraud and International Accounting Scandals – is different. Indeed, it is a rare thing in this sector, a real page turner.
Jones edits a collection of works on scandals from around the world but it was a short passage in the concluding chapter that caught my eye. He makes the observation that of the 30 directors and managers jailed as a result of the scandals covered by the book, half received sentences of less than five years.
Jones makes the point: “Overall, it seems that white collar crime carries very low tariffs.” He also notes there is very little sequestration of assets by way of punishment.
He goes on to comment that if the penalties for directors are relatively light (though we should not forget the execution in China of Taifu Shen, CEO of the Great Wall Fund, for embezzlement in 1994) the treatment of auditors is even more lenient. Generally, auditors escape with censure or fines. In only four of the cases reviewed was the audit firm broken up – two in China, one in Japan and then Arthur Andersen following Enron.
Jones concludes: “Frequently, the main losers appear to be employees. Who often lose their jobs (and often their pensions), and investors and creditors, who often lose their money.”
The response to accounting scandals is often more regulation and as a result fresh volumes of legislation. I hate to come over all authoritarian, and I don’t believe the sentencing habits of China are kind of example, but surely governments, at some stage, should think about stiffer sentences. Victims suffer real consequences. Loss of pensions, pay, savings and financial security. White collar crime can bring huge rewards. Perpetrators should also feel there is a much bigger downside than what’s currently on offer.
Creative Accounting, Fraud and International Accounting Scandals, edited by Michael Jones is published by Wiley