What it takes

Professor inspired passion for integrity in accounting
Howard Schilit MS '74

When these scandals hit the front page, none of that news surprised Howard Schilit. Since 1994, his firm, the Center for Financial Research and Analysis in Rockville, Md., has been warning investors about companies that lie about their finances to inflate their stock prices. Schilit's book, Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Finance, explains how to read a balance sheet without falling for the tricks that fool investors into taking disastrous risks.

The man Business Week has called the "Sherlock Holmes of Accounting" and one of the nation's top 50 savvy investors tuned in early to the danger of fraud in his profession. As a graduate student at Binghamton University's School of Management, Schilit studied with accounting professor Philip Piaker, one of the first experts to point out the conflict of interest built into the relationships between many corporations and their accounting firms. Too often, when a company hired an accounting firm to conduct a financial audit, it would also choose that firm's consulting arm to help guide its business practices.

Auditors were supposed to conduct a rigorous, objective review. But when an accounting firm was selling other services as well, auditors tended to go easy on the work produced by their colleagues on the consulting side. If the consultant and client resorted to dirty tricks -- perhaps recording phantom revenues or misrepresenting expenses -- the auditors would let these pass.

As a professor of accounting at American University in Washington, D.C., from 1978 to 1995, Schilit, like his mentor at Binghamton, stressed ethical behavior. Students flocked to his class to hear true stories of how corporations used dishonest accounting practices to dupe investors and regulators.

Schilit dedicated Financial Shenanigans to Piaker. He makes regular gifts in Piaker's name to the Piaker Enrichment Endowment, which enables a professor to conduct summer research on accounting ethics. "Philip Piaker was an important mentor," Schilit said. "He started me on the road that I'm still exploring today. I'm pleased for the opportunity to honor his memory and help researchers who share our interests."

Both Schilit and the University hope to see the fund expand someday to support the Piaker Professorship in Accounting. "With a faculty member dedicated to the subject of honest financial reporting, Binghamton University could send a whole generation of accountants into the world well-prepared to raise the level of integrity in the profession," he said.

While he has made gifts for many years, his devotion to the Piaker Enrichment Fund took on an even more personal tone one year when Megan Jones '04, then an accounting major in the School of Management who was working on a charitable giving campaign, telephoned to ask for Schilit's support. "I love your book!" she told him, recognizing Schilit as the author of Financial Shenanigans, which she had read for a class.

"Of course, I was flattered," Schilit said. "But more than that, I was delighted to see the passion for ethical accounting, which my professors at Binghamton first kindled in me, passing to another generation."
"Dr. Schilit's book really reminds the reader that integrity and honesty are not optional in this profession," said Jones. "Acting ethically is mandatory -- we have a high degree of responsibility to the public."

-- Merrill Oliver Douglas, MA '82