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AN EXAMINATION OF THE VIRTUES OF ACCOUNTING EXEMPLARS

What makes a good accountant? Extant accounting research has identified a number of qualities or virtues important to an accountant’s success.¹ Mintz (1995, 247) lists the following virtues necessary for accountants:

Libby and Thorne (2004) similarly list “independent,” “objective,” and “principled,” but also add “going beyond the minimum” and “putting the public interest foremost.”

Professional accounting ethics differs from general business ethics in that members of a profession agree to hold themselves to a higher standard of conduct for the purpose of serving the public interest. Members of accounting professional organizations such as the International Federation of Accountants, the American Institute of Certified Public Accountants, and the Institute of Chartered Accountants of England and Wales all have professional codes of conduct to which members promise to adhere. Mintz (1995) summarized Pincoffs’s (1986, 75–79) beliefs “that virtues (and vices) are dispositional properties that provide grounds for preference (or avoidance) of persons and, therefore, they can help us decide with whom we want to enter into a relationship of trust.” While the list of virtues is long, we argue that these qualities can be synthesized into two complementary categories – character and competence. Character is anchored by integrity, with honesty and candor doing what is right and just to serve the public interest. Competence requires the exercise of due care in the continual quest for excellence through education and experience.

In this chapter, we identify a number of accounting professionals who exemplified these virtues in the performance of their professional responsibilities. Armstrong et al. (2003, 1) stress the importance of identifying and promoting moral exemplars “to increase ethical motivation among accounting students, faculty, and practitioners.” By identifying these individuals and highlighting their actions, we hope to extend the research in this area to further strengthen professionalism and ethics in the accounting discipline.

What would you do if you were informed that the CEO of the engagement you were working on has put out a contract on your life? In Frank Wilson’s case, he shipped his family off to his in-laws and kept working. The CEO? Al Capone of the Chicago Syndicate.

Alphonse “Scarface” Capone is arguably the most notorious criminal in US history. Bootlegging, gambling, gun smuggling, prostitution – Capone had his hand in all of these illegal businesses in the 1920s. His reputation for brutality was well known. He reportedly beat two of his capos to death with a baseball bat when he suspected them of collaborating with law enforcement authorities. He was also allegedly responsible for the St. Valentine’s Day Massacre in which seven members of the rival Bugs Moran gang were lined up against a wall and brutally machine-gunned on February 14, 1929.

Because of his reputation for violence to those who opposed him, none of Capone’s underlings were willing to cooperate with the government to bring the mafia boss to justice. Failing to find witnesses to testify against Capone for murder, extortion, bootlegging, or any of the other crimes he had allegedly committed, the relatively new US Treasury Department Bureau of Internal Revenue (now the Internal Revenue Service) Intelligence Unit was tasked with trying to find Capone guilty of tax evasion.² Wilson was assigned to bring down the Chicago mobster because of his experience in bringing tax evaders to justice (including Capone’s brother Ralph) and his dedication to his profession. In fact, Wilson was handpicked for the Capone case because he was seen as incorruptible. One colleague stated that he was intimidated by Wilson and that, “If assigned to do so, Wilson would investigate his own grandmother” (Spiering 1976). His courage was also evident. Elmer Irey, his boss at the Treasury Department, noted that “He fears nothing that walks; he will sit quietly looking at books eighteen hours a day, seven days a week, forever, if he wants to find something in those books. He is soft-spoken and unemotional. Only the endless stream of nickel cigars he massacres keeps him from being a paragon of virtue” (Troy 2017, 1).

Although trained as a trial lawyer, Wilson’s talents lay in forensic accounting: “He relished going back again and again over the same documents, receipts, records – perhaps for the thousandth time – to indict someone, or to compel him to testify” (Spiering 1976). His effectiveness in deciphering Capone’s money laundering schemes was the reason that the mob boss ordered the “hit” on Wilson and his family.

While working late one night, Wilson stumbled upon a small black ledger in an old filing cabinet seized in a Federal Bureau of Investigation raid of one of Capone’s notable gambling operations. This was the “needle in the haystack” that ended up breaking open the investigation. In Wilson’s own words (Wilson and Whitman 1947, 15),

If Wilson was able to connect this income to Capone, he would have damning evidence against the Chicago mob boss in his tax fraud case. Using the relatively new science of handwriting analysis, he was able to identify the ledger’s author, the casino’s bookkeeper, Leslie Shumway. By promising Shumway and his family protection (and simultaneously threatening to release him on the streets after several days in custody), Wilson secured Shumway’s cooperation and agreement to testify (Wilson and Day 1965).

With this amount of money rolling into the operation, Wilson realized that banks would need to be used in Capone’s operation, as only so much could be kept safely on Capone’s properties. After targeting daily deposits of over $10,000, Wilson was able to identify Fred Reis as Capone’s courier. Knowing of Reis’ taste for good living and his aversion to bugs, Wilson had Reis locked up in solitary confinement in a roach-infested jail until he agreed to cooperate (Wilson and Day 1965).

With the testimony of Shumway and Reis (supported by incriminating documents Wilson and his investigators were able to locate), the Department of Justice was able to secure Capone’s conviction for tax evasion. On October 17, 1931, Capone was found guilty on five counts of tax evasion and sentenced to 11 years in prison (Spiering 1976).

Wilson’s work on the Capone case led directly to his involvement in a second “Trial of the Century.” In March, 1932, just months after the Capone conviction, Charles Lindbergh’s 20-month-old son was kidnapped from the Lindbergh estate in Hopewell, New Jersey. Lindbergh, known as “Lucky Lindy” and the “Lone Eagle,” was a national hero following his solo flight across the Atlantic in 1927. From prison, Capone contacted the Lindbergh family and stated that it was a mob operation and that he could help negotiate the “Eaglet’s” return. Knowing that Capone had had no contact with the outside world (and was secretly being monitored by a Treasury Department investigator posing as an inmate), Wilson reached out to the Lindbergh kidnapping investigators to let them know that Capone’s offer had no value. At the same time, he offered his assistance to the investigation (Wilson and Day 1965).

At Wilson’s urging, the Lindbergh family paid a ransom of $50,000 to the kidnapper in gold certificates. Use of these gold certificates would facilitate the identification of those individuals still using gold certificates.⁴ Additionally, at his urging, law enforcement officers recorded the serial numbers of the gold certificates (Wilson and Day 1965). These innovative forensic accounting methods directly led to the identification and capture of the Lindbergh baby-murderer⁵ when German carpenter Bruno Hauptmann used one of the ransom gold certificates to purchase gas for his new car. While $14,600 of the ransom money was found in the wall of Hauptmann’s garage, Wilson and his investigators conducted net worth analysis and expenditure analysis to account for another $35,000 of the ransom money (including a new car, stock market losses, and trips to Europe) (Wilson and Day 1965). It didn’t help Hauptmann that he quit his job the day after the ransom was paid or that he kept meticulous records of every cent he spent until the day after the ransom was paid. Using handwriting analysis similar to that used in the Capone case, Wilson illustrated compelling evidence that Hauptmann had also authored the ransom notes (Wilson and Day 1965). Bruno Hauptmann was convicted of murder and executed in 1935.

Wilson’s career of dedicated service after his role in these two cases did not end. Because of his money laundering investigation experience, he was named Chief of the US Secret Service (the Secret Service’s mission is to protect the president and prevent counterfeiting). He served in that role from 1934–1946, including providing security for President Franklin Delano Roosevelt during World War II. Wilson later served as security consultant for the US Atomic Energy Commission. After a long career of public service in which he exhibited a great deal of courage and professional competence, Frank Wilson passed away in 1970 at age 83.

The subprime lending crisis saw quite a few bad actors and very few heroes. Joseph St. Denis was one of the “good guys” (American Accounting Association (AAA) 2012). Similar to the other exemplars examined in this chapter, St. Denis demonstrated competence and character and gained notoriety as someone who would do the right thing under challenging circumstances.

St. Denis began his career in public accounting as an auditor with the accounting firm Coopers and Lybrand (now PwC). He then moved to the Securities and Exchange Commission (SEC) from 1998–2004, where his positions included assistant chief accountant in the division of enforcement. His SEC enforcement actions included such notable cases as Enron and Peregrine Systems and his technical competence was demonstrated in published articles on International Financial Reporting Standards, accounting risk, accounting for stock options, and accounting fraud. He also published a 2004 study on derivatives disclosure that was considered in development of FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. Upon leaving the SEC in 2004, St. Denis joined the Public Company Accounting Oversight Board (PCAOB) as a staff member in the office that developed into the Office of Research and Analysis (ORA). St. Denis clearly demonstrated his professional competence and knowledge of accounting principles through his work in public accounting and at the SEC and PCAOB (AAA 2012; PCAOB 2009; St. Denis 2008).

In fact, his accounting knowledge and expertise landed him what he called his “dream job.” St. Denis left the PCAOB in 2006 to become the vice president of accounting policy at American International Group (AIG) in the company’s financial products group (AIGFP). St. Denis noted that this position was created in response to material weaknesses identified by AIG’s auditor and to provide more control over AIGFP’s accounting policy while serving as an accounting policy resource for AIGFP’s staff for accounting transactions. His duties included working with other AIG components, including the financial services division and the office of accounting policy, on AIGFP’s accounting policies, including complex policies relating to unusual transactions (AAA 2012; St. Denis 2008).

Unfortunately, St. Denis’ dream job soon became a nightmare. During 2007, St. Denis became aware of margin calls on AIG’s Super Senior Credit Default Swaps portfolio, for which he had been intentionally excluded from the discussions of the valuation of those products. When he asked his boss, Joseph Cassano, why he had not been included, he was told that they were afraid his principles “would pollute the process” (St. Denis 2008). After reflecting on these developments and believing that he was not able to do his job in a professional manner, St. Denis resigned his position and, by doing so, he forwent his year-end bonus, which would have been in the hundreds of thousands of dollars (St. Denis 2008).

St. Denis’ demonstration of character in resigning from AIG under challenging circumstances brought him congressional attention as one of the few in the financial industry who acted with integrity, rather than furthering his own self-interest. His congressional testimony highlighted the fact that during 2007, AIG executives knew about potential issues with valuing credit default swaps, resulting in the $123 billion federal bailout of AIG ( Jonas 2008).

After departing AIG, St. Denis returned to the PCAOB as an associate director in the Division of Enforcement and Investigations. In June, 2009, he was named director of the PCAOB’s Office of Research and Analysis. ORA staff members “identify and evaluate emerging audit and accounting matters that may present elevated risk of audit failure” and work with the PCAOB Division of Registration and Inspections on audit areas for inspection (PCAOB 2009, 2012). St. Denis remained in this position until May 2012 and, upon his departure, was praised by PCAOB Chairman James Doty: “Joe’s insight, innovations, and assembly of a highly professional team of experienced auditors, data analysts, and quantitative experts have placed ORA on a firm foundation to support the PCAOB and its oversight activities” (PCAOB 2012). During his tenure, the ORA created and managed the PCAOB Academic Scholarship Program, in which civil penalties collected by the PCAOB are used to support accounting students. This program has awarded millions of dollars in scholarships since its inception (PCAOB 2012).

Everyone wants to believe there are good people out there who want to make the world a better place. This belief may be even more prevalent among those who work in the nonprofit arena, themselves serving organizations with noble causes, helping people get a meal, a roof over their heads, a place to belong, a leg up, or an education. In this environment, it is especially encouraging to know that some altruistic donors believe in a cause enough to give anonymously, helping out without drawing attention to themselves. This context fueled the rapid growth of the Foundation for New Era Philanthropy, the Radnor, Pennsylvania, nonprofit corporation founded in 1989 by John Bennett, a passionate individual with a long history of serving nonprofit organizations.

Originally created to “engage in providing, free of charge, managerial and consulting services to nonprofit organizations” ( Joint State Government Commission 1995, 12), New Era Philanthropy quickly morphed into a new kind of nonprofit, matching funds from established charitable organizations, from churches to colleges, with anonymous donors who believed in their causes. Their credentials were impeccable, with oversight from board of directors members like William Simon, former US Secretary of the Treasury, to rumored donors as influential as billionaire philanthropist Sir John Templeton. As word of New Era’s good work spread across the nonprofit world, leaders of these organizations hoped they might receive an invitation to participate. Organizations as prestigious as the Carnegie Foundation and Harvard University as well as relatively unknown schools and churches accepted invitations to have their endowments and building funds doubled by New Era providing matching funds from likeminded anonymous donors.

New Era grew rapidly. “The foundation relied upon its favorable reputation and demonstrated legitimacy by ostensibly performing as promised” ( Joint State Government Commission 1995, 2). In the fall of 1993, Glen Thornton was looking to build a new church. In his role as chairman of the board for the independent evangelical Minnehaha Community Church near Portland, Oregon, he oversaw the building fund of the small, but growing, congregation of a few hundred members that had outgrown their existing home. Having raised about a quarter of a million dollars, he was contacted by the Pacific Northwest Conservative Baptist Association, who wanted to help. They were working with New Era Philanthropy, who in turn had six to eight anonymous donors who wanted to see new churches planted in the region (Thornton 2018a).

In order to receive a matching donation to fund the new church’s construction, Thornton was to put the church building funds in the hands of New Era Philanthropy. Not only was this a sign of good faith, but it also provided proof that the church had indeed raised their own funds and was serious about completing their project. After six months, the anonymous donors would double whatever amount Minnehaha was able to raise. Minnehaha’s board contacted several references to confirm that New Era was legitimate. In addition, the pastor also contacted a personal friend who attended New Era Philanthropy President John Bennett’s church, who gave a glowing recommendation of Bennett’s character.

That fall, Minnehaha sent their building fund to New Era. A few weeks before the six months had expired, New Era sent them a letter stating additional funds were available to double their money again, should they choose to leave it with them for six more months. After some deliberation, they accepted Bennet’s offer. Six months later, in January, 1995, Minnehaha received a check for nearly a million dollars. With the matching money in hand, Minnehaha built their new church, another satisfied beneficiary of New Era Philanthropy.

Earlier that year, Albert Meyer took a job teaching accounting at Spring Arbor College in the small Michigan town by the same name (Carton 1995). He and his family had immigrated to the United States from South Africa a couple of years earlier, and he was working part-time in the college’s business office to make ends meet. While doing some low-level bookkeeping, he found a troubling $294,000 bank transfer. Why was the college sending their library fund to the Foundation for New Era Philanthropy?

Unsatisfied with the administration’s explanation, he went on to contact Era’s President John Bennett. Bennett’s explanation made perfect sense. The interest earned from these holdings was used to cover New Era’s operating costs, allowing 100% of the anonymous donors’ contributions to go straight to the charities they supported.

Still, Meyer wondered. Bennett’s explanation made sense, but was it true? His answer was good enough for hundreds of others. Why wasn’t Meyer satisfied? His response was a blend of character and competence.

Meyer exhibited an unusual combination of persistence, professional skepticism, and courage in his character, buoyed by the competencies he had gained through his years as a professional accountant. He would later quip, “I have a character flaw. I’m stubborn” (Thornton 2018c). While, in hindsight, it might look to the casual observer like Meyer had 20/20 vision, in real time, Meyer’s quest to determine whether fraud existed at New Era was anything but clear.

To start with, Meyer knew his suspicions might be wrong. On the one hand, New Era’s operations smelled like a Ponzi scheme. Meyer had just recently read Charles Ponzi’s book about his infamous fraud scheme, so “I had a good grasp of how Ponzi schemes operated” (paying early investors back with later investors’ money). Still, if one assumed the existence of an extremely wealthy donor or donors (such as Sir John Templeton who was known to have had prior associations with Bennett), then New Era’s story made complete sense.

But, Meyer wondered, why did recipient organizations have to put their funds with New Era? When Meyer contacted Bennett for an answer, his explanation made sense. The interest earned by New Era from the funds held in escrow provided the resources needed to run their own operations. Even ignoring his suspicion that this could be a Ponzi scheme, Meyer wondered what might happen if New Era filed for bankruptcy? Spring Arbor College’s funds were unsecured, and they had no collateral. This didn’t seem prudent to Meyer. Why didn’t New Era just charge them a participation fee? Bennett claimed that the anonymous donors wanted to make sure the organizations they supported had skin in the game. Indeed, this was confirmed by the fact that the size of the donation was directly proportionate to the funds provided by each nonprofit organization.

It didn’t help Meyer’s quest for the truth when the last thing his employer wanted was for him to rock the boat. This was especially true while their library fund was still sitting in New Era’s bank account. Meyer received a significant amount of pressure from the college’s president to leave the matter alone. When Meyer continued to ask questions, the pressure mounted. An accountant working for the CPA firm that audited New Era warned him that his college was in danger of being excluded from future opportunities. Bennett also intimated to the university president that Meyer should back off. When New Era’s check eventually came in, the administration took the opportunity to rub Meyer’s nose in their success. New Era had come through, so Meyer was wrong.

Still, Meyer wasn’t satisfied. Even with his own organization out of the woods, he felt that, as a professional accountant, he had an obligation to serve the public interest. If this was a Ponzi scheme, there was much more at stake than his own college. It was this duty that motivated him to continue his investigation.

In May, 1995, after a two-year dogged pursuit, Meyer found the evidence he had been looking for (Allen and Romney 1998). Using New Era Philanthropy’s tax return obtained from the Internal Revenue Service, he found that they had reported just $34,000 of interest earned on nearly $20 million dollars of funds they held for hundreds of nonprofits across the country. Based on Meyer’s calculation, New Era should have earned closer to $500,000 interest. At that, Meyer said, “I knew I had him” (Thornton 2018c).

Having obtained his “smoking gun,” he was able to get the attention of a reporter for The Wall Street Journal and a lawyer from the Securities and Exchange Commission. Overnight, the Foundation for New Era Philanthropy collapsed. At that time, it was the largest Ponzi scheme in history, with assets of only $85 million to offset $551 million of liabilities. Over $506 million of their liabilities were unsecured ( Joint State Government Commission 1995).

Upon revelation of the massive fraud scheme, Minnehaha Community Church returned 100% of the matching funds they received (Thornton 2018a). Other early beneficiaries acted similarly, and groups affected by the collapse of the Foundation for New Era Philanthropy eventually received about 65% of their investments back (“Defrauded Charities Will Get 65% in U.S. Settlement of Case” 1996). Without Albert Meyer’s courage, persistence, and competence, things might have been much, much worse.

Regardless of how you feel about those you work with, it’s hard to imagine that your colleagues might be fraudsters. It is even more unimaginable that the fraud would become the biggest in corporate history, especially when your colleagues are your friends, you attend each other’s baby showers, maybe even belong to the same church. Yet fraud, simply defined, is theft by deception. So who would be more likely to deceive you than those you trust the most?

This is the unlikely situation that Cynthia Cooper, as the lone female VP at WorldCom, head of internal audit, found herself. She documents WorldCom’s fall from grace in her illuminating autobiographical book, Extraordinary Circumstances: The Journey of a Corporate Whistleblower (Cooper 2009).

WorldCom was one of the fastest growing companies in the world at a time when the world was full of fast-growing companies. It was the darling of Wall Street, and as the lone Fortune 500 Company headquartered in Cooper’s home state of Mississippi, beloved by the people who lived there. Even the president of the United States praised its success. Attending WorldCom’s opening of their new facility in Virginia on March 1, 2000, President Clinton gushed, “I came here today because you [WorldCom] are a symbol of 21st century America. You are the embodiment of what I want for the future” (Cooper 2009, 180).

For Cooper to land such a distinguished position while only in her 30s became even sweeter when WorldCom chose her hometown of Clinton, Mississippi, population 23,000, as their headquarters. Her own well-paying job was only one among many that the company brought to town, and the resulting economic boom made WorldCom a source of pride to Cooper and her community.

Led by maverick CEO Bernie Ebbers, WorldCom had exploded into the booming telecom market like none other of its time. In the wake of the break-up of AT&T in 1983, Long Distance Delivery Service (LDDS) started out as a small reseller of long-distance phone services. On the verge of collapse, LDDS hired Ebbers as CEO in 1986, the only investor in the company at the time who seemed to have the business savvy needed to turn the fledgling company around. By parlaying his early business experience in purchasing and turning around small hotels, he adapted his same aggressive strategic approach into buying long-distance resellers. Betting everything he owned, he became LDDS’ biggest stockholder, a stake that would eventually catapult him into the top 200 richest people in the United States.

His first five years as CEO, from 1986 to 1991, Ebbers grew LDDS’s revenues 80-fold, to $700 million. Taking the company public in 1987, Ebbers made acquisition after acquisition, eventually surpassing even the long-standing industry giant AT&T. Ebbers was dubbed the “telecom cowboy” for his wild, Wild West persona, cowboy boots and blue jeans. Under his lead, LDDS was renamed WorldCom in 1995. By June 1999, the company’s market capitalization had reached $115 billion, the fifth widest held stock in the country.

But WorldCom’s rapid expansion, driven by acquiring companies not only in America but across Europe and Asia as well, left it with a “quagmire of duplicate systems and processes” (Cooper 2009, 191). This made Cooper’s role as head of internal audit very challenging, especially in an environment in which the CEO lacked the understanding of the importance of the internal audit function. With him unconvinced of its importance, her internal audit team was perennially underfunded and understaffed.

In late March 2000, the record economic expansion driven by a dot.com bubble imploded in a matter of days. This was especially true of tech companies, including the 16 telecom companies in the Fortune 500. Though by this time Ebbers had amassed a fortune, with properties ranging from over a million acres of forest and ranch lands to a trucking company, his acquisitions were almost all through debt, collateralized by his WorldCom stock. He was known to frequently chastise colleagues who sold company stock or exercised their stock options, chiding them about how much better off they would have been to retain their shares.

The plunge in the market, however, led to a series of margin calls on Ebbers’ debt. WorldCom’s board of directors was concerned about how investors would respond if Ebbers dumped a large block of stock at a time when the industry and WorldCom’s stock price was in decline, so they agreed to loan him $50 million to cover the call. But as WorldCom’s stock price continued to fall, this turned out to be only the first of many such loans over the next two years. Buoying WorldCom’s stock price became Ebbers’ primary concern. He encouraged his CFO, Scott Sullivan, to make sure the company met analysts’ earnings forecasts.

In January 2002, Ebbers called on Cooper’s internal audit division to investigate an alleged commissions fraud scheme. The investigation uncovered over $10 million in commissions to salespeople that they hadn’t earned; several employees were dismissed from the company as a result. But this fraud turned out to be only the beginning.

Shortly thereafter, the disgruntled head of the wireless division questioned a reduction in the allowance of uncollectible accounts without his authorization. This fact, coupled with news of Arthur Andersen’s poor performance on the Enron audit, convinced Cooper to turn the internal audit team’s focus to external financial reporting. Further investigations over the next couple of months revealed that allowances for uncollectible accounts in WorldCom’s wireless division were understated by $300 million. Sullivan argued that other divisions more than made up for the shortfall, but Cooper wasn’t convinced. She demanded Sullivan report the drop in earnings.

In late May, 2002, Cooper read a newspaper article in a local Texas paper that recounted the story of a former WorldCom analyst who was laid off in March 2001 after calling out potential abuses related to capital spending at MCI, WorldCom’s subsidiary. Despite an already strained relationship with Sullivan, Cooper determined to look into potential abuses in capital spending and instructed her team to see if there was anything to the former employee’s claims.

Stonewalled by Sullivan and blocked by the accounting and finance staff, which denied her direct access to accounting records, Cooper persisted in her quest to determine if assets reported in the financial statements were accurate. Unfortunately, KPMG had just replaced Arthur Andersen as WorldCom’s external auditor. Cooper was unable to obtain Arthur Andersen’s working papers related to capital assets, which were tied up with legal complications stemming from unpaid fees by WorldCom. Undeterred, Cooper engaged an IT staff member who had recently developed a new software for searching their complex accounting system. It took so much computing capacity, however, that it temporarily crashed the IT system. Not wanting to draw Sullivan’s attention, Cooper and her team began to work at night. This gave them the opportunity they needed to search for more accounting fraud.

The work was slow in yielding results, but despite concerns for her job and those of her team, along with concerns for her personal safety, Cooper continued the hunt. Eventually, they came across an asset account titled “prepaid capacity.” No one on her team understood the account. Upon further investigation, they found that no one else understood the accounting either. By carefully analyzing a maze of transactions designed to cover the accounting tracks, they traced the account approval to Betty Vinson. She reported to David Myers, a director of accounting, who reported directly to Sullivan.

Cooper’s team had uncovered a fraudulent scheme, masterminded by Sullivan, to capitalize operating leases related to line costs. By adding these costs to prepaid assets rather than properly expensing them as period costs, WorldCom was able to increase both net income and assets. Starting with financial analysts’ forecasted earnings expectations, Sullivan had worked backwards, backing into the capitalized lease amounts. When totally unwound, Cooper found $3.8 billion of inappropriate journal entries, all directly increasing the bottom line. It was the largest fraud in US corporate history at the time.

Sullivan would later testify that he was able to keep the fraud hidden from external audit, the board, internal audit, analysts, and investors, until Cooper and the internal audit team discovered it in June 2002. He also testified that he lied to Cooper and her team and instructed the accounting team (David Myers, Betty Vinson, and Troy Normand) to do the same. Myers testified that he limited the internal audit team’s access to the accounting system and instructed others to do the same. When forensic accountants completed their investigation, they uncovered a fraud of nearly $11 billion.

Bernie Ebbers was sentenced to 25 years in prison, with Sullivan, Myers, and Vinson all receiving prison sentences. Arthur Andersen, effectively destroyed by their failed Enron audit, settled the lawsuits against them for $65 million. Twelve board members also settled for $55 million, including $25 million from directors, an amount set at one fifth of each of their net worth.

In an interview with Thornton (2018b), Cooper reflected back,

In exposing the massive fraud at WorldCom, Cooper exhibited courage, a quiet confidence and persistence, and ultimately the competence needed to unravel a fraud that no one else had the courage or will to face.

Abraham “Abe” Briloff is the accounting educator who may best exemplify the characteristics of competence and character. Dr. Briloff served as an accounting professor at City University of New York’s Baruch College for over 60 years and for 45 years wrote books and articles for Barron’s that were focused on accurate financial reporting. His attempts to raise accounting standards and improve accounting professionalism led to his being considered by many to be the conscience of the profession.

Briloff was not above criticizing a corporation’s financial reporting or the accounting profession in attempting to advocate for increased accuracy and transparency. He did this in a variety of ways. He frequently highlighted instances in which CRAP (cleverly rigged accounting ploys) substituted for GAAP (generally accepted accounting principles) (Criscione 2009). For example, his many Barron’s articles pointed out accounting problems with companies such as Leasco Corp., Lockheed, Gulf and Western, General Motors, Waste Management, Metromedia, IBM, and Disney (Briloff 1980; Criscione 2009; Weiss 2012). Some of these cases were elaborated on in his book Unaccountable Accounting: Games Accountants Play (1972), in which he noted that while the expanding role of corporations and the executives who control them required independent auditors to ensure transparency and accountability, the auditors were falling short in this role (Briloff 1972). Briloff recommended measures to different groups (financial analysts, investors, government officials, corporate management, and the accounting profession) that would improve the state of affairs. He also advocated for a “Corporate Accountability Commission” with representation from accounting practitioners, academics, banking, labor, investment, consumers, and government that would focus on proper financial disclosures for corporations (Briloff 1972). Two decades later, Briloff revisited the topics in Unaccountable Accounting, noting the absence of progress; he attributed this to the oligopolistic nature of the large accounting firms, which had decreased from eight to six and maintained significant power over the accounting profession and its regulators (Briloff 1993).

Throughout his long career, Professor Briloff continually demonstrated competence and character. His competence was frequently displayed through his analyses for Barron’s and his books. His Barron’s articles resulted in lawsuits against both Barron’s and Briloff by some of the companies he examined. None of these proved to be successful. Furthermore, markets paid attention to his analyses. Foster (1979) studied the market reaction to companies negatively profiled by Briloff and found approximately an 8% drop in stock price on the day Briloff’s article appeared. Foster also found that this price decline persisted after 30 days. Desai and Jain (2004) examined the long-run negative market reaction to companies criticized by Briloff in his Barron’s articles between 1968 and 1998. They found decreased stock prices of 15.51% and 22.88% for one year and two years, respectively. Their follow-up discussions (Desai and Jain 2004, 54) with Briloff highlighted his competence:

Professor Briloff’s superior technical competence is arguably only exceeded by his exceptional character. As already noted, he advocated for accuracy, transparency, and accountability in financial reporting and did so for decades. Even though he retired from Baruch College in 1987, he continued to recommend improvements to financial reporting and the accounting profession. He appeared before Congress 15 times between 1970 and 2002, providing testimony on different financial and accounting problems during that period. His 2002 congressional testimony, after the well-publicized accounting failures that led to the passage of the Sarbanes-Oxley Act of 2002, addressed such issues as accounting firms providing consulting services and the need for better internal controls. These were topics that Briloff had identified as problems many years earlier. His perseverance was also notable, as he worked into his 90s despite suffering from glaucoma-related blindness for the last 10 years of his life. In these later years he was assisted by his daughter Leonore, a CPA, who would help Briloff with research that while challenging, provided meaning to his life (Weiss 2012). A reporter (Weiss 2012, 38) who interviewed Professor Briloff as he approached his 95th birthday provided commentary on his positive character traits:

Upon Professor Briloff’s passing in 2013 at the age of 96, one of his colleagues at Barron’s noted “In describing Abe, especially in eulogy, it’s tempting to call him a combination of an Old Testament prophet, John Milton, Sherlock Holmes, and the blind superhero Daredevil. But none of those guys did the math” (Alpert 2013). This unique combination of talents, along with his demonstration of competence and character, help explain why we will not see the likes of Abe Briloff again. He remains a shining example for other accounting educators and researchers interested in improved financial reporting transparency and accountability.

Arthur Levitt was the longest-serving Securities and Exchange (SEC) Commissioner in history, holding that position from 1992–2001. As SEC chair, Levitt was focused on protecting individual investors and noted for his efforts to promote integrity in financial reporting, address the management of corporate earnings, and improve accounting transparency and accuracy. These topics were addressed by Levitt in “The Numbers Game” speech (Levitt 1998) given on September 28, 1998, at the New York University Center for Law and Business. This high-profile speech focused on earnings management as firms attempted to meet Wall Street corporate earnings projections. Levitt outlined five “accounting gimmicks” that were detracting from the integrity of financial statements: (1) “Big Bath” restructuring charges; (2) creative acquisition; (3) “Cookie Jar Reserves”; (4) misuse of the materiality concept when recording errors; and (5) manipulating revenue recognition. Levitt called for a number of measures to address these issues, including accounting rule changes to increase transparency, improved revenue recognition guidance by the SEC, and additional SEC oversight and enforcement for firms that appear to be managing earnings.

Chairman Levitt also focused on the role of audit committees and the accounting profession in The Numbers Game speech. He noted the important role of audit committees in protecting the interests of investors and recommended that audit committee members have a financial background, meet frequently, and ask difficult questions to both management and the firm’s auditors. He also called for improved audit performance amid the recent high-profile accounting failures. He highlighted the role of auditors as the “public’s watchdog” and emphasized the need for proper auditor objectivity, integrity, and judgment (Levitt 1998).

Levitt was well-prepared for the SEC chair position, having spent 28 years on Wall Street (16 years at a brokerage firm and 12 years at the American Stock Exchange, including 11 as chair of the AMEX), and four years as the publisher of Roll Call, which reported on Congress and permitted him to work with many congressmen and their staff members. Levitt’s focus on individual investors was influenced by his father, Arthur Levitt, Sr., who served as New York state comptroller for 24 years, during which he protected the New York public employee pension fund from state and local officials who wanted to use the fund to support state and municipal finances, such as a potential bailout of New York City (Levitt and Dwyer 2002).

Chairman Levitt made various proposals to improve financial reporting transparency and accuracy, thereby providing better information for investors. These included his support of a Financial Accounting Standards Board (FASB) proposed rule calling for the expensing of stock options, his advocacy for Regulation Fair Disclosure, or Reg FD, and his support for limiting the consulting that accounting firms could do for their clients (which would promote the desired independence required of auditors) (Levitt and Dwyer 2002). Levitt was particularly concerned about auditors providing consulting services to their clients due to the significant growth of the practice and the possible independence problems. In 1976, audit fees comprised 70% of audit firm revenues; this decreased to 31% in 1998 (Levitt and Dwyer 2002). As Levitt noted in his book Take on the Street (Levitt and Dwyer 2002, 118):

Levitt experienced mixed success in enacting these proposed changes. On a positive note, even though Reg FD received opposition from certain business leaders and even one of the SEC commissioners, it was enacted in October 2000. Reg FD led to more company disclosures to shareholders and the press. Levitt regards Reg FD as the most significant rule to increase investor confidence that took place during his tenure as SEC chair (Levitt and Dwyer 2002). However, he was not able to achieve similar success with the expensing of stock options, which amid significant political pressure was watered down to simply require that stock option grants be disclosed in the notes to the financial statements. Similarly, limiting the consulting activities of accounting firms received a political backlash as the accounting profession lobbied Congress, providing over $14 million in contributions during the 2000 election cycle. The proposal was ultimately weakened to only curtail certain types of consulting (e.g., maintaining accounting records for a client), while essentially permitting almost unlimited information systems consulting and up to 40% of internal audit work for audit clients (Levitt and Dwyer 2002).

Levitt’s tenure as SEC chair was characterized by his many displays of competence and character. The measures he proposed to increase the quality of financial reporting and limit auditing consulting opportunities were sound and consistent with helping individual investors. He was not above admitting when he was wrong, as he suggested was the case with his ultimately withdrawing support for the FASB proposed rule on expensing stock options. In cases when he did back down, he tried to balance progress on the proposals discussed earlier with preserving the FASB role as standard setter and maintaining the SEC budget so it could remain an effective regulating agency. Similar to the case of Professor Briloff discussed previously, Levitt’s outspoken positions appear to have been vindicated when a variety of his concerns (e.g., auditor independence issues, the role of audit committees) were addressed in the Sarbanes-Oxley Act passed in 2002.

After stepping down as SEC chair in 2002, Levitt remained an active voice for honest financial reporting and investor protection. In an address to KPMG Partners in 2003, he stressed that accounting profession measures enacted in the aftermath of the Enron and other failures would restore investor confidence and earn back the public’s trust. These included putting investors (instead of management) first, cooperating with regulators and standard setters, and proactively maintaining independence (Levitt 2004). Also, in 2003, Levitt spoke to finance executives at a CFO conference. He emphasized the important roles that they play, particularly after the demise of Enron and WorldCom:

In addition to stressing the need for improved performance from the accounting profession and finance executives, Levitt was proactive in his support for the Sarbanes-Oxley Act. In a 2004 Wall Street Journal editorial with former Chairman of the Federal Reserve Paul Volcker (Volcker and Levitt 2004), the two financial regulators defended the reforms that led to increased auditor independence, stronger audit committees, better internal controls, and improved financial reports. They argued that the Sarbanes-Oxley Act’s benefits exceeded its costs and led to higher investor confidence and an improved market system that resulted from superior regulation.

Like the other accounting exemplars presented in this chapter, Arthur Levitt is known for both his competence and character as he tried to improve the accounting profession and restore investors’ faith in the financial markets. His credibility in these areas was on display when Levitt spoke at the American Institute of Certified Public Accountants 2000 Fall Council Meeting. During his address, he focused on the vital roles of both large and small accounting practitioners and their need to promote trust and confidence in the financial markets. He also emphasized the auditing profession as a noble one and the importance of a CPA’s integrity and independence (Levitt 2000). Levitt’s dedication to these principles was recognized by Warren Buffett, who observed: “During my lifetime, the small investor has never had a better friend than former SEC chairman Arthur Levitt. His goal was unwavering: To have markets that served the interests of investors, both large and small” (Levitt 2002, cover).

In this chapter, we profiled six accounting exemplars who displayed competency, courage, and integrity in the performance of their responsibilities. Despite death threats to his family, Frank Wilson brought down Chicago mafia don Al Capone through his diligent investigation of Capone’s money laundering operations; Wilson also is credited with bringing Bruno Hauptmann, the murderer of Charles Lindbergh’s young son, to justice through his innovative forensic accounting methods. Although told not to continue her investigation by WorldCom CFO Scott Sullivan, Cynthia Cooper and her team worked late at night to uncover Sullivan’s accounting fraud at the telecom giant. AIG’s Joseph St. Denis resigned, forfeiting his massive bonus, rather than participate in the company’s risky investments that led to the financial crisis in 2008–10; he also served the public through his work with the SEC and PCAOB, including, but certainly not limited to, creating a PCAOB student scholarship from penalties resulting from corporate wrongdoing. In the accounting education profession, Albert Meyer exposed a massive fraud at the Foundation for New Era Philanthropy that targeted nonprofit educational institutions and museums, and Abraham Briloff was an outspoken critic of the accounting profession while advocating for increased transparency in corporate financial statements. Lastly, we include Arthur Levitt, Jr., the longest-serving Securities and Exchange Commission (SEC) Chairman, who made positive contributions to accounting regulation that led to the increase of transparency and the reduction of fraud in corporate financial statements. It is not surprising that five of the six individuals profiled in this chapter have received the American Accounting Association’s Accounting Exemplar Award. This award is presented to an accounting educator or practitioner who has made notable contributions to professionalism and ethics in accounting education and/or practice (AAA 2018).

There are many others who also certainly deserve recognition that, for space reasons, we are not able to include in this chapter. For example, Jaruvan Maintaka, the “Iron Lady” of Thailand, exposed fraud in the Thai government despite threats to her life. Marta Andreasson, a European Union (EU) whistleblower who fought corruption in the EU bureaucracy, was elected to the EU Parliament. Sylvester Hentschel, an examiner for Ohio’s State Commerce Department’s Division of Savings and Loans, called Home State Savings Bank “a veritable time bomb” because of its overreliance on investments with ESM Government Securities Inc.; his prescient warnings were ignored by superiors, and the bank collapsed in 1982 when federal investigators shut down the fraudulent investment fund (“Home State Warning in’82,” New York Times 1985). US Army Corps of Engineers chief contracting officer Bunnatine “Bunny” Greenhouse’s warnings about procurement fraud in the organization’s dealings with defense contractor Halliburton were similarly ignored; Greenhouse’s actions to bring the illegal contracts to light earned her the Association of Certified Fraud Examiner’s prestigious Cliff Robertson Sentinel Award. We recognize that this list of accounting exemplars is not exhaustive.⁶ There are many others who have also fought fraud and corruption whose names we don’t yet know, but hopefully by sharing the stories of those we do know, those in the accounting profession will be encouraged to exhibit similar virtues of competency and character in the performance of their professional responsibilities.