A Reputational Roller Coaster Ride for Accountants

The accounting industry has successfully redeemed its reputation from its rock-bottom low in 2002, according to Gallup’s most recent Business & Industry Sector Ratings. But even now, complacency represents a serious threat … witness the effect of the subprime mortgage scandal on Bear Stearns. While the reputation of its management may have been besmirched, the credibility of its independent auditor, Deloitte & Touche, was not … largely because its statements, in an audit released last year, warned investors of the potential problem, according to WebCPA, citing a BusinessWeek story on the topic.

It’s my view that every accounting firm PR program should have a strong component dedicated to highlighting ethical standards. After all, do any of us truly believe — to the extent that we did seven years ago — that accountants provide a rock-solid guarantee of the honesty and accuracy of the financial statements that they audit? Enron was a watershed in this respect, and public relations must take this into account.

An Unintended Side Effect of the Subprime Fiasco

Since our public relations firm is based in New York — a world center for banking and financial services — we’re following the ins and outs of the subprime mortgage crisis with more than average interest interest. In fact, our president, Ken Makovsky, has written about it on his My Three Cents blog.

One of the more interesting side effects of the scandal was reported by Bloomberg News: “Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages.”

The article goes on to report that a man named Joe Lents in Boca Raton, FL, hasn’t made a single payment on his $1.5 million mortgage since 2002, when his mortgage bank, Washington Mutual, first tried to foreclose on his home. The efforts ceased when WaMu couldn’t find the paperwork!

“If you're going to take my house away from me, you better own the note,” said Lents.

He’s one of the lucky ones. Millions of other subprime homeowners are on the verge of bankruptcy and foreclosure. If the banking industry doesn’t address its own shortcomings, it better be ready for the inevitability of regulatory intervention if we want to protect consumers and the U.S. economy.