Monday, April 18, 2005

Costly Accountability

In the wake of a series of corporate financial scandals, including those affecting Enron and WorldCom, the federal Sarbanes-Oxley Act was passed to help restore trust in public companies and safeguard national capital markets. But, heightened accountability and penalty for corporations could mean higher costs for businesses, nonprofits and government, and for Texas tax payers. Today in the House State Affairs Committee, members heard testimony on HB 2842 by Chisum (R-Pampa), one of the bills created to “align Texas law with Sarbanes-Oxley and to insure officers and directors of public interest entities who willfully mislead auditors of those entities are subject to (felony) penalties.” (according to the bill analysis)

Essentially, HB 2842 makes it illegal for directors and executives of public interest entities to lie to auditors. Under this bill, a public interest entity includes financial institutions, insurers, publicly held companies, county hospitals, pension plans, school districts and municipalities.

Although, no one should lie to their auditors without penalty, making this a felony offense would likely increase the costs to a great number of institutions and add to the number of white-collar criminals in state prisons, paid for by Texas tax payers. The recommended sentence for this crime includes incarceration of up to 99 years if the violation resulted in a monetary loss of at least $1,000,000. Considering it costs $150,000 per year/ per person to incarcerate prisoners in Texas, corporate accountability could prove to be quite costly for Texas. Don’t we have sufficient existing laws to discourage malfeasance and bad business practices?