As the 26th president of the United States, Theodore Roosevelt, once said: "To educate a man in mind and not in morals is to educate a menace to society."

For corporate America, those words have never rung so true.

In the days since





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declared that they had overstated their fortunes by billions of dollars, investors have been asking how no one spotted their accounting gimmicks earlier.

Some experts say that the rules of accounting are simply too convoluted, with too many gray areas open to different interpretations. Others say that executives, and perhaps even the inside auditors, aren't knowledgeable enough to detect accounting fraud. Still others say the accounting profession has become unchaste, a field in which the only morality that is taught concerns how to get around it.

Didn't Know

All of those arguments are true, to some extent.

"There's an awful lot of ignorance," said Orie Barron, associate professor of accounting at Penn State Smeal College of Business.

According to a study by

Chief Executive

magazine, only 28.5% of CEOs at Fortune 700 companies have MBAs, and only 13% actually have a background in finance. So while many executives should be aware of basic accounting, they aren't experts.

"That's why there are CFOs," said Leslie Gains Ross, chief knowledge and research officer at consulting firm Burson-Marsteller. "Most CEOs implicitly trust their CFOs."

As do auditors, who base most of their decisions on the information they receive from the company. If the CFO is doctoring the books, it could be hard to detect.

But how hard?

Management consultant and author Bette Price of the Price Group says it is unrealistic to assume that no one but the CFO was aware of the accounting improprieties at Xerox and WorldCom.

"To say these company leaders and board members had so much lack of understanding that they couldn't figure out what was going on would be like a master plumber saying he has no idea how the water gets from the feeder into the kitchen line," she said. "If they're this naive, they shouldn't have been in their positions."

The fact that members of the audit committee didn't ask the right questions and that the CFOs who perpetrated the fraud felt they could operate with impunity prompts the question: how?

Bankruptcy, Moral and Otherwise

"Lack of understanding is not the problem, nor are complicated rules of accountancy," Price said. "The problem is the abuse of how accountancy is supposed to work, and instead using that knowledge to manipulate the result."

In other words, the issue seems to come down to a basic lack of professional ethics in the workplace and a corporate culture that often cares more about nepotism, popularity and personal gain than about shareholder's long-term interests.

"We can pass all sorts of rules and regulations but if you have individual human beings who behave unethically, how do you get past it?" said Julia Grant, professor of accounting at Weatherhead School of Business. "You wish they were more ethical, or you pass rules that will give them a higher penalty in the hopes of forcing ethical behavior."

Although the


has taken some steps to improve enforcement, and chairman Harvey Pitt has said "serous jail time" is necessary for serious financial crime, experts say more work needs to be done.

The Direction of Rot in a Fish

One idea being floated is that CEOs should be forced to take legal responsibility for mistakes or fraud within their firms.

Even if the CEOs at WorldCom, Xerox and


really were unaware of the accounting scams, many observers say they are still responsible, because the chief executive sets the moral tone.

"If the CEO's personal signature is on the balance sheet to validate its accuracy, then, presumably, he will want to make darn sure it is accurate," said Carol Bowie, director of governance research at the Investor Responsibility Research Center in Washington, D.C.

Another proposal gaining traction would increase the independence of board members and audit committees. Many members on WorldCom's board either were executives or had been executives at the firm at one time, giving them at least the perception of divided loyalties, according to Tom McLane, vice chairman for the Directorship Search Group.

McLane said boards should have one or at most two insiders, while the audit committee should be completely independent.

"CEOs seem to be controlling the board rather than the board controlling the CEO and the board represents the shareholders," he said. "It is just the reverse of what it ought to be."

Penn State's Barron suggests that a code of ethics should be taught in universities, so the next generation of accountants and business executives no longer look at a company's finances and say "How can I stretch the rules?" but instead say "How can I apply the rules in an appropriate and ethical way?"

"I hear people say let's increase the budget for the SEC, let's change the accounting rules, but I hear almost no one talk about what's happening with accounting education," he said.

Barron noted that there is very little drive among schools to introduce the subject of professional ethics to students.

"They should understand what it costs them if they violate the

ethical code and we should make more of what we sell about being good cops as opposed to just people who know the technical rules," he said.