Editor’s Note: This article is the first in an occasional series planned for this, our 90th year of publication, wherein the editors will look in the Journal’s past for interesting historical observations, timeless practical insights, and colorful diversions that we hope will illuminate the profession’s present.
In 1930, the NYSSCPA’s president, Arthur H. Carter, appointed a new committee, the Committee on Publications. One of its first missions was to undertake the responsibility of issuing periodical bulletins and other society publications. As one means to that end, the October 1930 issue of the Bulletin of The New York State Society of Certified Public Accountants was published, in the first iteration of what would later become The CPA Journal.
In this inaugural issue’s message from the president, Carter said, “Abnormal prosperity and subnormal depression in business destroy ratios, prevent reasonable comparisons, and have a tendency to warp sound judgment.” Supporting his notion that the general public and “so-called investors” were increasingly gaining respect for the world of accounting and for CPAs, Carter went on to say, “The time is fast approaching when financial statements, verified by independent accountants, will be demanded by the investor,” and “It is incumbent upon the certified public accountant to protect business organizations and the public by setting forth financial facts in statements so clear that ‘he who runs may read’ and accept them with firm confidence … Never in the history of our profession has there been a greater demand for cooperative effort of the practicing accountants in facing their problems.”
Appearing approximately one year after the Wall Street Crash and the onset of the Great Depression, this premiere issue sought to explore fraud in a substantial way. More than 30 of its 48 pages were dedicated in one way or another to addressing fraud, with such articles as “Frauds and Defalcations (From the Viewpoint of the Surety Company)” by George L. Naught and “Detection of Frauds and Defalcations (From the Viewpoint of the Accountant)” by Norman J. Lenhart. The authors looked at the environment and pondered why fraud was able to thrive and prosper.
Naught’s article was reprinted from an address he delivered before the Eighth Annual Fall Conference of the NYSSCPA. In his address, Naught said, “When we look for the causes of frauds and defalcations we find them primarily attributable to warped consciences stirred by false courage. “ He went on to say that some blamed the “confusion and violation of law” experienced as a result of World War I, business troubles stemming from a “get-rich-quick” mentality thought to be “typically American,” and even “prohibition laws,” which he claimed “caused revolt by upsetting the morale of half our people.”
Naught acknowledged that some of the most shocking trespasses were inexcusable, that they were “caused often by officials whose reputations have been beyond challenge—officials whose incomes and possessions have been more than adequate to enable them to live and maintain their families in comfort and in excellent standing, if not in luxury.” He also attributed the increase in fraud to the “rapid expansion of our industrial and financial organizations,” citing the merging of concerns that had once operated independently into “one enormous corporation, under single management” and lamenting the increasing tendency of proprietors to be out of touch with the various aspects of their business.
Lenhart’s article came from a paper he read before the same conference. In it, he said, “The detection of fraud is an important function of the public accountant … It may be said that the public accountant’s signed certificate on statements of financial position and earnings should be an assurance against misrepresentations and fraud in the statements themselves.” While taking into account all of the factors that can contribute to fraud, Lenhart said, “In the long run, the detection of or prevention of such frauds in the case of audited statements rests upon the ability and integrity of the accountant.”
Ninety years later, we’re still looking at fraud and finding that it hasn’t gone away. We’re still wondering why and who and pointing fingers, still defining right and wrong, still mystified by greed and ego, and still questioning how much is too much and when and who can say, “Enough is enough.”
