How easy is it for fraud to spiral out of control?

Just ask Aaron Beam.

He is co-founder and former CFO of HealthSouth Corp., home of a $2.7 billion accounting fraud that took place between 1996 and 2002. Beam served three months in jail for his role in starting the fraud. In the process, he lost most of his personal wealth and now does lawn care for a living. He's trying to make things right, though, by sharing the lessons he has learned with business students.

He also told his story to Edward Teach in this fascinating CFO.com Q&A. The article includes the following exchange, which illustrates just how quickly a seemingly minor infraction can snowball into major corporate fraud:

CFO.com: You kept committing fraud until you quit in 1997. How did you feel during that time?
Beam: I felt rotten. It was terrible. My hope was that after we had done it once, we wouldn't have to do it again. But after doing it for four quarters, I felt like it wasn't going to end, so that's when I left. We had dug ourselves a hole.

CFO.com: After you quit, did you ever talk to your successors about the fraud?
Beam: I never really had any conversations with them. I moved 250 miles away. … By 2003 I was living under the assumption that the fraud had ceased and everything was OK. It was a huge surprise to me when it was reported that the fraud had continued for all those years. I was amazed that it had gone on that long — I didn't think it could.

CFO.com: (Former HealthSouth CFO) Weston Smith finally blew the whistle. Do you regret not having done so yourself?
Beam: The correct thing I should have done was, at the critical point when we weren't going to make our numbers, I should have said no (to any illegal actions). If I got fired, I got fired. Once you actually commit fraud and have blood on your hands, getting out of the trap is very difficult.

That last sentence is prophetic — and true of almost any nefarious activity. Do it once and it becomes easy to do it again. The best path, as Beam admits, is to not do it at all.

Trouble is, not all ethical violations are as cut and dried as those that took place at HealthSouth. All too often, says Greg Conderacci, people find themselves dealing with ethical shades of gray.

“The question is, how do you make ethical decisions when you're dealing with an ethical dilemma, not an issue of ethical discipline?” Conderacci, an instructor with the Business Learning Institute, said during an interview at the Maryland Business and Accounting Expo. “Many of the things we let slide as routine can really have serious ethical consequences. The important thing is to get people thinking ethically, to be sensitive to issues that they might just pass over. It's about seeing ethics in areas where you normally would not look for ethics. It goes beyond the rules and regulations that are just the beginning of ethical behavior.”

And while not diminishing the ethical responsibilities of corporate leaders (“If you're a CEO, you're really a Chief Ethical Officer,” he said), Conderacci believes doing the right thing is everyone's responsibility.

“Not only is it important that the tone is set properly at the top,” he said, “but that tone must cascade all the way down, because a company's reputation can be ruined by people all the way up and down the line.”

The MACPA offers a ton of ethics training. Visit our online CPE catalog and search for “ethics,” then tell us: How are you promoting ethical behavior in your organization?