Enron 101: accounting strategies
Even a small company can learn from the Enron school
of scandal. Sure, the bigger they are, the harder they fall, but
the accounting issues that toppled the energy giant can bring down
any size operation.
Don't let your company follow bookkeeping bad examples.
Here are ways to ensure your company and employees behave in a profitable
-- and ethical -- manner.
Don't cheat. "You can't win the game if
you don't play by the rules," says Robert Gass, president of
WBD Accounting Inc., a CPA firm based in Sunrise, Fla. "And
there are enough legal ways that you don't need to do this fancy
stuff to make money."
Know the basics of accounting. While you may
not be keeping your own books, that doesn't mean you should be totally
ignorant of financial matters. "Take some accounting courses
so you know the fundamentals," Gass says. "If you don't
understand what your accountant is doing, you're paying the guy,
so ask him to explain it."
Take an active part in your company's bookkeeping.
"Ask questions," says Curt Anderson, CEO of Fair, Anderson
& Langerman, a CPA firm based in Las Vegas. For example, find
out whether your accountant takes aggressive or conservative accounting
positions. "Don't blindly turn over your finances to an accountant
who isn't willing to work closely with you as a client, as a neighbor,"
Cultivate an open relationship with your accountant
and auditor. "Encourage your auditors to discuss their
work openly with you and to not fear the consequences of their discoveries,"
says Anderson. Spend time working with your financial professionals
so you are familiar with your company's bookkeeping
Establish a professional distance. Prohibit
the hiring of consultants, auditors or other professionals who have
worked on your company's account. "This will establish the
perception of independence between auditor and client," Anderson
Stay away from dubious deals. If a business
deal makes no economic sense but might temporarily help your bottom
line, steer clear of it, advises Michael Shaub, a professor of accounting
at St. Mary's University in San Antonio. See if a transaction passes
the grandmother test. In other words, if you'd be afraid to tell
your grandmother how you were making a living, then you probably
shouldn't be doing it.
Don't set impossible revenue goals. If your
company's yearly goals are unreasonable and your employees are afraid
to tell you so, don't be surprised if they find ways, albeit illegal,
to keep you happy.
Avoid inner circles with members who all think
the same way. Part of Enron's problem was a group of higher-ups
who convinced each other that the questionable accounting was above
board. Don't fall into that trap. "Insist on having at least
two board members who are truly independent of the company and [are]
unafraid of telling management the truth," says Professor Shaub.
Don't hire accounting "yes men."
It's human nature for employees to want to tell the boss what he
wants to hear. But that can be dangerous when it comes to company
accounts. Instead, work with bean counters who will take an objective
look at your company's finances and won't be afraid to be honest
when it comes to bad news. The hiring of truth tellers, says Shaub,
"may be as important to the company's success as hiring intelligence
Give employees ways to voice their objections.
Workers who believe their colleagues or company officers are
doing something wrong or illegal need to be heard. And be sure you
have the management in place that will listen to whistle-blowers
and who will act on complaints.
Cultivate integrity. Make your own personal
a part of your company's culture. "All the rules and regulations
will not make up for personal integrity in business," Anderson
Recognize that wrong decisions can be made -- and
corrected. No company is immune from occasional bad and unethical
business decisions. Correcting and recovering from these missteps
is what sets a business apart. It's a matter of having the right
mechanisms in place so such wrongdoing is caught early before any
damage is done.
"The large majority of discovered fraud in the
United States takes place in small businesses, and it is almost
never discovered by the auditors," Shaub says. "It is
usually discovered by honest people in the company who notice something
out of the ordinary."
Jenny C. McCune is a contributing
editor based in Montana.
-- Posted: June 19, 2002