CORPORATE ACCOUNTING Experts: More scandals are coming

Some companies are hiding accounting problems, hoping the SEC is too busy to notice, experts say.
DOW JONES NEWSWIRES
NEW YORK -- Many in the accounting industry are concerned that the list of corporate scandals could get longer.
Specialists in uncovering corporate irregularities believe there are any number of companies that have problems hiding in their books and the questions are only when or whether they will be uncovered.
"What is there that tells us that we have seen all of it?" says Carr Conway, a former investigator with the Securities and Exchange Commission. "The answer is nothing."
A number of companies guilty of financial shenanigans are "just waiting and hoping that the SEC has such a full plate that it won't notice them," adds Conway, who is now senior forensic accountant with Denver-based Dickerson Financial Investigation Group. "I suspect there are some more Enrons out there."
The SEC's discovery of additional "Enrons" may be slowed by its limited resources, as well as the recent upheaval at the agency, including the resignation of its chairman, Harvey Pitt.
But revelations of corporate malfeasance may come by other means, particularly with companies facing much greater scrutiny from directors, employees and investors. That extra scrutiny is prompting a growing number of companies to launch accounting investigators to check their books.
"There are things that you could sweep under the rug a year ago if you were a board member that you'd be just too scared to do now," says Miami-based forensic accountant Lewis B. Freeman.
More alert
With employee whistle-blowers sounding alarms, more cases of fraud "will come to light -- it's not a 'may,'" says Larry Morriss, a forensic accountant with Crossroads LLC, an Irvine, Calif., firm specializing in investigations of corporate book-cooking.
Nowadays when an alarm is sounded, companies are much more inclined to hire forensic accountants, who perform an array of services, from audits of a company's financial statements to undercover interviews and surveillance.
Crossroads, which typically gets hired by a company's attorneys when there is reason to suspect wrongdoing, has picked up a half dozen new cases of possible accounting fraud recently.
Morriss, who declined to name the companies, citing client confidentiality, says none of the firm's new cases look poised to uncover inaccuracies as massive as WorldCom Inc.'s.
Huge scandals
WorldCom settled an SEC civil suit charging fraud for misleading investors by misstating and hiding expenses. WorldCom has admitted at least $9 billion in erroneous accounting, and the telecommunications company filed the largest bankruptcy in U.S. corporate history in July.
Enron, the first of a wave of accounting scandals, collapsed into bankruptcy last year amid charges that company officers engaged in fraud through transactions with off-the-books partnerships that inflated the company's profitability.
The willingness of companies to engage in questionable bookkeeping seems to have risen along with the soaring stock market in the 1990s, as executives scrambled to pump out ever increasing earnings.
"Boards of directors and management have a tendency to take things much more seriously now and engage outside investigators," says Larry Redler, head of forensic accounting at Grant Thornton, the fifth-largest accounting firm in the United States. "Executives are paying attention to whispers that previously they would have ignored."