Enron Did It- And Others Are Still At It

On of the famous features of the Enron scandal was the huge amount of stock-options issued to executives and employees, to keep everyone happy. That continued until the company collapsed and the stock was worthless. The problem is that the accountants were supposed to make sure everyone was honest, but then they turned out to be the biggest crooks of all. You have the break-up of Arthur Andersen accounting firm over the Enron scandal. Ironically, after the fall of Arthur Andersen, the U.S. Supreme Court overturned their conviction. People at Enron in general were getting paid off (so they thought) to overlook the fraud in the system. In an interview with Lynn Brewer, author of “Confessions of an Enron Executive” and a leading whistleblower, many insights are gathered on the tremendous widespread corruption there was in Enron. In a July 2005 “Computing Canada” interview, Lynn Brewer says that it’s frightening that there are thousands of whistle blowing reports against leading companies every year, but little has seem to have changed.
So the real question is how much interfering with and making sure regulations are followed will result in positive behavior? Or is the whole system out of control? Meanwhile the actual cost of complying with the “whistleblower protection” law, the Sarbanes-Oxley Act, has been higher than expected. According to the Financial Executive International (FEI) Report, costs to comply with the act were for large companies, on the average almost $5 million. Many Chief Financial Officers (CFO)s thought that it was more trouble to comply with the Act than the benefits received by doing it. Most of the CFOs thought that the main benefits were psychological; the stockholders and the public felt better about the process of compliance.
The CFOs hope that the cost of compliance will go down with the second year of complying with the Act. Section 404 of the Sarbanes-Oxley Act requires that the company’s annual report include: 1. a statement of management responsibilities to maintain internal audit controls, 2 end of the year assessment by the company’s auditor on whether the internal audit controls were working. 3. an auditor assessment of the managements assertion that these controls are really working. So the average costs are expected to go down to under $2 million for the large companies surveyed.
Finally another trick of the trade to get this endless process of outrageous financial fraud under control is “whistleblower’s hotlines”. These are supposed to be the panacea in which, the employee can get the unknown scandal directly to the CEO of the company. It only works that way if the company’s CEO is willing to listen. That is what has come out in the HealthSouth trial of Richard Scrushy. Scrushy was acquitted in 2005, but convicted on other charges in June 2006. His very alibi was that he would not listen to the news coming from the whistleblower’s hotline. Since there was fraud, at least according to the five executives that copped a plea, and admitted all, and blamed it on Scrushy, there must have been some. It won’t stop until there is more purpose in the lives of CEOs than obeying the laws of shareholder values.

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Howard Giske is a legal consultant for www.legalformsguide.com and Incorporation services .