Accounting Ethics

Accounting Ethics Violation: Roger Stadtmueller faces prison

By August 10, 2016 No Comments

There is no doubt that a person who is a CPA is by many accounts well trained.  Part of that training is a foundational principle – accounting ethics.  It is expected that those who are charged with the Accounting Ethicspublic trust – as Certified Public Accountant are – should be held to the highest ethical standards.  After all that is what accounting ethics is all about.

Roger Stadtmueller, 53, and now former CPA from Spokane, WA has pleaded guilty to three counts of making and subscribing false corporate income tax returns.  His guilty pleas set in stone his violation of accounting ethics.

Stadtmueller admitted owning Zazz Inc., a corporation under which he provided accounting and consulting services, including income tax prep, bookkeeping and financial auditing for clients. He also admitted that he made and subscribed false and fraudulent corporate returns for Zazz for calendar years 2006, 2007 and 2008, understating the corporation’s gross receipts some $1.8 million.

Sentencing is October 11. Stadtmueller faces a maximum sentence of three years in prison and financial penalties for each of the three counts of filing false corporate returns. He also agreed to pay $400,000 in restitution to the IRS.

Stadmueller isn’t alone in violating accounting ethics

According to an article in the South Florida Business Journal, “Pamella Watson, 60, operated Miami-based tax preparation business Watson & Associates Business Services. Watson is a CPA and reportedly used her business to file fraudulent federal income tax returns for her clients.”

Watson would change the refund amount and/or the amount to be paid to the Internal Revenue Service on the returns she showed to clients, according to the complaint. The false refund amount would be deposited into her clients’ accounts, while Watson allegedly received the remaining refund.

Watson’s reported scheme was uncovered when a taxpayer told the IRS the CPA had falsified his 2012 tax return, according to the complaint. Additional taxpayers were interviewed by IRS agents and shown tax returns filed by Watson that split tax refunds, authorities allege.

The Davie resident reportedly prepared 557 tax returns for the tax years between 2010 and 2013, of which about 395, or more than 70 percent, had refunds split between Watson and her clients.

The complaint states that between Jan. 1, 2011 and September 2014, over $3.4 million in fraudulently gained funds were deposited into accounts that Watson controlled. Those accounts were opened at Bank of America, Florida Community Bank, and Amerasia. The IRS investigation found that Watson had transferred almost $1.2 million to accounts at Jamaican institutions, according to the complaint.

Charges include: submitting false, factitious or fraudulent claims, charges punishable by up to 10 years in prison; aggravated identity theft, punishable by a mandatory consecutive term of two years in prison; mail fraud, punishable by up to 20 years in prison; wire fraud punishable by up to 20 years in prison; money laundering concealment, punishable by up to 20 years in prison; and money laundering, which is punishable by up to 10 years in prison.

What motivates unethical behavior?

Research has shown that three behaviors are at the core of what would cause or allow an otherwise ethical person to make unethical and potentially illegal choices. These behaviors are well documented and for those who are charged with detecting fraud (Statement of Auditing Standards #99) are called “the fraud triangle” which applies to all areas of business and construction ethics:

Need. Described as perceived pressure that a person is experiencing, is the first and critical component of what motives a person to stray from ethical to unethical. Need may come in a variety of forms. The person who is in too much debt likely experiences financial strain – which was the root of my need. Alice, a church secretary, found her need triggered by her granddaughter’s diagnosis of cancer. Infamous Bernie Madoff’s need was certainly not money; likely, he was triggered by the need to be infallible. Beam’s perceived need was likely driven by a desire to please his boss and fear of the repercussions that missing the quarter would mean. Whatever the pressure, need is the core emotional state that starts the ball rolling from a choice that is ethical to unethical.

Opportunity. It makes no difference what your need may be if you don’t have the opportunity to satisfy it then the unethical and potentially illegal choice fails. Without Opportunity there is no fuel for the potential unethical fire. I was a trusted employee, and with that trust came opportunity. London was trusted, and had been for so many years that no one could comprehend he was capable of any unethical activity. Madoff took opportunity founded in trust to a new level.

Rationalization. Need combined with opportunity provides a firm foundation, but the glue that holds unethical activity together is the ability to rationalize that what is wrong, is right. If you ask most people found guilty of unethical/illegal behavior, they will tell you they felt their actions were legitimate. I, for example, rationalized that I was not “stealing” money as long as my intent was to pay it back. Further, I solidified this mental game by paying some of the money back. “Surely, I wasn’t guilty of stealing money as long as I was paying it back.”

That, of course, is a clear example of “‘stinkin’ thinkin.’” The mind can be tricky and when you combine need with opportunity, and can rationalize bad behavior as good, you have the perfect storm to move from ethical to unethical, and potential illegal, behavior.  While we all would like to think that those employed in business would act in the highest and best interests of all concerned and with integrity.  Reality in financial services ethics is humans are all subject to “stinkin’ thinkin” and once on the slippery slope there’s a very real chance that the outcome will be bad.

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