1. Maryland Consortium for Adjunct Faculty Professional Development (MCAPD) Ninth Annual Fall Conference “The Heart of Engagement” Anne Arundel Community College October 3, 2015 The Importance of Teaching Ethics to Students in Community Colleges By Professor S. Sengamalay MPA (Harvard), CPA (USA), FCMA, FCIS,(UK), FCA (Sri Lanka) Senga1

2. Historical Episodes of Ethical Lapses by Country’s Political Leaders  Edward Kennedy, Senator, MA (Chappaquiddick), 1969  President Nixon (Watergate), 1972  Gary Hart, Presidential Candidate (Donna Rice), 1987  President Clinton (Lewinsky affair), 1998  Speaker Gingrich, (violation of House Ethics Rules), 1999  John Edward, Presidential Candidate, (extramarital affair), 2007 Senga2

3. Historical Episodes of Ethical Lapses by Country’s Political Leaders (Continued)  Eliot Spitzer, Governor, NY State, (prostitution), 2008  Mark Sanford, Governor, SC (extramarital affair), 2009  A. Schwarzenegger, Governor of California, (love child), 2011  Anthony Weiner, Congressman, NY (sexting scandal), 2011  Ray Nagin, Mayor of New Orleans (bribery and corruption), 2014  Bob McDonnell, Governor of Virginia (receiving gifts), 2014 Senga3

4. Record of Congress More than Two Dozen Indicted since 1980  “Rep. Chaka Fattah joined an ignominious – but surprisingly large – club this past week: members of Congress indicted while in office.”  “Fattah stepped down as the ranking Democrat on an Appropriations subcommittee in the wake of the indictment but insisted that he planned to run for reelection in Pennsylvania’s 2 nd Congressional District in 2016.”  “….. Given how strongly Democratic his District is – President Obama won it with 90 percent of the vote in 2012 - Fattah might win no matter what happens in court. But that wouldn’t change the fact that he is now one of the more than two dozen members of Congress to be indicted while in office since 1980” Source: Washington Post, Outlook Section August 2, 2015 under the title: Rep. Chaka Fattah, for more charges than years in office (by Chris Cillizza) Senga4

5. Historical Episodes of Ethical Lapses by Country’s Corporate Leaders  Union Carbide (Worst Industrial Disaster due to ‘corporate negligence’), 1984  Xerox (Accounting Fraud, re: Photocopiers), 1997 to 2000  Enron (Accounting &Audit Fraud), Largest Corporate Bankruptcy, 2001  WorldCom (Accounting Fraud), Largest Bankruptcy, 2002  HealthSouth (Stock Fraud), 2002 Senga5

6. Historical Episodes of Ethical Lapses by Country’s Corporate Leaders (Continued)  Tyco International, (Theft of company money), 2002  ImClone Systems (Insider Trading), 2002  Compass Group (Bribery in UN Peacekeeping Contract), 2005  BP (Largest oil spill & Violation of Clean Water Act), 2010  Ponzi Scheme, Bernard Madoff (Investment Fraud), 2011 Senga6

7. Some Notable Frauds involving Public Funds in USA 1. Medicare ( Source: Washington Post – June 18, 2015) “Government arrests 243 in largest crackdown on health-care fraud  In Miami, the owners of a mental-health treatment center allegedly billed Medicare for tens of millions of dollars’ worth of intensive therapy that actually involved just moving people to different locations. Some of them had dementia so severe that they couldn’t even communicate.  In Los Angeles, prosecutors say, one doctor collected $23 million for more than 1,000 power wheelchairs and other equipment his patients didn’t need — which he often didn’t even provide.” Senga7

8. Some Notable Frauds involving Public Funds in USA 1. Medicare (Continued) (Source: Washington Post – June 18, 2015)  “And in Michigan, another physician allegedly prescribed unnecessary narcotic painkillers in return for the use of his patients’ IDs to generate additional false billings. When they tried to escape the scheme, authorities say, he threatened to cut off the medications, to which his patients were addicted.  It turns out that the government was checking on these and other doctors, nurses and providers of psychotherapy, home care, drugs, physical therapy and medical equipment. In the single largest crackdown in an eight-year campaign against health-care fraud, the Justice Department charged 243 people Thursday with $712 million in false billings to Medicare — the medical insurance program for the elderly — and Medicaid, which serves the poor.” Senga8

9. Some Notable Frauds involving Public Funds in USA 2. Social Security (Source NY Times, January 7, 2014) “Ex-NYC Police Officers, Firefighters Charged in Social Security Disability Fraud  The Manhattan District Attorney's office charged more than 100 people, including 80 retired New York City police and firemen, with Social Security disability fraud Tuesday. The scheme, which allegedly goes back to 1988, involved the filing of false mental disability claims by as many as 1,000 people. The scofflaws made out with hundreds of millions of dollars of ill-gotten gains.  The perpetrators claimed they were disabled by psychiatric disorders, leaving them unable to work. Some said the Sept. 11, 2001 terrorist attacks caused their plights. But the Internet contains damning evidence against them.  Photos on the web show one supposedly disabled person riding a jet ski, another piloting helicopters and still another teaching martial arts.” Senga9

10. Some Notable Frauds involving Public Funds in USA 2. Social Security (Continued) (Source NY Times, January 7, 2014)  “One of the accused received benefits for having a fear of crowds, but sold cannolis in Little Italy during the San Gennaro festival that draws more than 1 million people to the neighborhood.  The alleged fraudsters collected $30,000 to $50,000 per year.  A total of 106 people are being charged, with four of them accused of directing the scheme. That includes a lawyer, a pension consultant and a union official for New York City police detectives.  The four leaders allegedly directed policemen and firemen applying for Social Security disability insurance to fake psychiatric illness so that they would receive undeserved benefits, The Times reports.  Prosecutors say the leaders told their charges to look unkempt and act disoriented during the interviews doctors used to judge the veracity of their applications.” Senga10

11. Some Notable Frauds involving Public Funds in USA 3. Individual Income tax ( Source: Detroit Free Press – March 11, 2015) “What should real filers do when hit by tax-ID fraud?  It's a question that's popping up now in the middle of tax season. The con artists typically steal ID and then file fake returns in January. Then, when the legitimate taxpayer tries to electronically file a return, it's a no-go. The real filer's return is rejected as a "duplicate" because a refund has been issued and the filer's Social Security number was already used to file a 2014 return.  The red flags to tax-related ID fraud can be shocking. One Troy resident reported to police in early March that he received a tax refund check in the amount of $9,832. Not so small problem? The man had not yet filed his federal tax return. (The fraudsters in this case likely were goofballs who were in too much of a rush, tax experts said, because the right boxes need to be checked so the refund is directly deposited in an account the con artist controls, such as a prepaid card.)”red flags to tax-related ID fraud Senga11

12. Some Notable Frauds involving Public Funds in USA 3. Individual Income tax (Ctd.) (Source: Detroit Free Press, March 11, 2015)  “George W. Smith, a certified public accountant at George W. Smith & Co. in Southfield, had clients who received letters from the Internal Revenue Service's Integrity & Verification Operations department about a review relating to the use of the Earned Income Tax Credit or business income. But the real taxpayers had not even filed returns at the time they received the letters.” Senga12

13. Some Notable Frauds involving Public Funds in USA 4. Individual Tax Fraud ( Source: Huffington Post – June 28, 2015) “Tax Fraud: IRS Could Issue $26 Billion In Tax Refunds To Fraudsters Over Next Five Years  In the battle between the Internal Revenue Service and identity thieves, the thieves are winning.  In the next five years, the U.S. may issue as much as $26 billion in tax refunds to fraudsters that engaged in identity theft, according to Congressional testimony made on Tuesday by J. Russell George, the Treasury Department's inspector general for tax administration. (H/t The Washington Post.)” In the next five years, the U.S. may issue as much as $26 billion in tax refundsH/t The Washington Post Senga13

14. Some Notable Frauds involving Public Funds in USA 4. Individual Tax Fraud (Contd.) (Source: Huffington Post – June 28, 2015)  “This scam involves fraudsters who steal people's identities in order to file fraudulent tax returns and claim refunds on their behalf. Of the 2.2 million fraudulent tax returns the IRS received in 2011, 940,000 returns were associated with identity theft, according to George's testimony.George's testimony  This type of fraud is a growing problem for the IRS. Over 640,000 taxpayers were affected by tax fraud in 2011, more than double the number of taxpayers affected in 2010, according to statistics provided by George cited by the Wall Street Journal.” Over 640,000 taxpayers were affected Senga14

15. Some Notable Frauds involving Public Funds in USA 5. Five Famous Tax Cheats (Source: Investopedia – January 24, 2010)  “Who doesn't want to avoid taxes? Judge Billings Learned Hand famously summed up the American tax situation, saying, "anyone may arrange his affairs so that his taxes shall be as low as possible... for nobody owes any public duty to pay more than the law demands." Avoiding taxes is one thing, but income tax evasion is another. Tax evasion occurs when a person or business uses illegal means to escape paying taxes, whereas tax avoidance is the practice of using legal means in order to lower the amount of taxes owed. These famous tax evaders found ingenious (and illegal) ways to avoid paying up. Find out how much they owed, and how they were caught.”income tax evasiontax avoidance Note: Hand has been quoted more often by legal scholars and by the Supreme Court of the US than any other lower-court judge – Source: Wikipedia Senga15

16. Some Notable Frauds involving Public Funds in USA 5. Five Famous Tax Cheats (Source: Investopedia – January 24, 2010) 1.Walter Anderson “Anderson's case is the largest tax evasion case in the history of the United States. This former telecommunications executive was accused of hiding his earnings through the use of aliases, offshore bank accounts and shell companies. In 2006, Anderson entered a guilty plea in which he admitted to hiding approximately $365 million worth of income. He was sentenced to nine years in prison, and restitution of $200 million.” Senga16

17. Some Notable Frauds involving Public Funds in USA 5. Five Famous Tax Cheats (Ctd.)- Source: Investopedia – January 24, 2010 2. Al Capone  “This infamous mobster's name has been associated with a variety of illegal acts including bootlegging, prostitution, and murder. However, only one illegal act landed Al Capone in prison - income tax evasion. Under Capone's watch as boss of the Chicago Outfit, the organization generated estimated revenues of $100 million per year.  Due to the removal of the word "lawful" from the 16th Amendment in 1916, even income earned via illegal activities is subject to tax. This put criminals like Capone in a bind because they could either admit breaking the law and file proper taxes (essentially confessing), or cheat on taxes and risk getting jailed for evasion. In addition to paying fines and the outstanding tax bill, Capone was sentenced to 11 years in prison.” Senga17

18. Some Notable Frauds involving Public Funds in USA 5. Five Famous Tax Cheats (Contd.)- Source: Investopedia – January 24, 2010 3. Joe Francis “The "Girls Gone Wild" creator is no stranger to controversy. In 2007, he was charged with felony tax evasion for reportedly filing false corporate tax returns. Authorities accused Francis of filing over $20 million worth of false business expenses in order to keep from paying taxes. A guilty plea allowed him to escape the felony charge.” 4. Wesley Snipes “Federal prosecutors have accused the "Blade" star of many offenses. Snipes allegedly hid income in offshore accounts and did not file federal income tax returns for several years. The actor's federal tax debt is estimated to be in the range of $12 million. In 2008, Snipes was acquitted of felony tax fraud and conspiracy charges, but was found guilty of misdemeanor charges. Snipes was sentenced to three years in prison and is currently out on bail while he appeals the conviction. His accountant, Douglas P. Rosile, and tax-protester Eddie Ray Kahn were charged as co-defendants. Rosile was sentenced to four and a half years. Kahn was sentenced to 10 years.” Senga18

19. Some Notable Frauds, re: Public Funds in USA 5. Five Famous Tax Cheats (Contd.) - Source: Investopedia, January 24, 2010 5. Leona Helmsley “Dubbed the "Queen of Mean," this hotel operator reportedly told a former housekeeper, "We don't pay taxes. Only the little people pay taxes." Helmsley and her husband, Harry, accumulated a multi-billion dollar real estate portfolio. Despite their immense wealth, they were accused of billing millions of dollars in personal expenses to their business in order to escape taxes. In 1989, Helmsley was convicted on three counts of tax evasion. She served 18 months of federal prison time. Coincidentally, she was ordered to report to prison on income tax deadline day, April 15, 1992.” Conclusion “Some people go to creative lengths to save money, but there is a clear line between creativity and breaking the law. Avoiding taxes is legal and understandable, but tax evasion comes with tough consequences. As we can see from the troubles of these five people, what you may save now will not be worth what you have to pay later.” Senga19

20. A Notable Ethical Lapse (Example from Closer to Home) Source: The Chronicle of Higher Education – September 3, 2009 Montgomery College, in Maryland, Puts President on Leave for Rest of His Term  Brian K. Johnson, president of Montgomery College, has been placed on administrative leave with pay, the chairman of the Maryland institution's Board of Trustees said after emerging from a four-hour closed-door meeting of the board on Thursday night.  The board also voted not to renew Mr. Johnson's contract, which expires June 30, 2010. The president's current annual base salary is $233,210. Hercules Pinkney, a former provost at the two-year college, has been named interim president and will begin to serve immediately.  "We arrived at these decisions after much discussion and deliberation," said Michael C. Lin, the board's chairman. "We take our responsibility of oversight of the college seriously and feel this action is in the best interest of the Montgomery College community." Senga20

21. A Notable Ethical Lapse (Example from Closer to Home (Continued) Source: The Chronical of Higher Education – September 3, 2009 (Continued)  The board's decision comes after more than 200 faculty members voted no confidence in Mr. Johnson at a meeting last week. They have accused the president, who came to the well-respected 60,000-student college in 2007, of excessively spending college money and missing important meetings and events.no confidence  Between July 2007 and April 2009, Mr. Johnson spent $58,165 on food, hotel rooms, and transportation, according to expense reports obtained by faculty union leaders through a public-records request. Among the expenses charged to his college credit card were a $4,051 hotel bill in Delhi, several hundred dollars for floral arrangements, a single charge of $302 at a Borders bookstore, another single charge of $182.42 at a CVS, and a $750 tab from Lifestyle Transportation, a limousine service in the Boston area.  Mr. Johnson, in a written statement this week, offered explanations for many of the expenses. Among other things, he said that the card “covers costs that include vehicle maintenance, gasoline, office expenses, travel, etc.” Senga21

22. Identity Theft Fraud Some Frightening Statistics Types of identity theft fraud and percentages of how victims’ information was misused in 2014:  Government Documents or Benefits Fraud – 38.7%  Credit Card Fraud – 17.4%  Phone or Utilities Fraud – 12.5%  Bank Fraud – 8.2%  Attempted Identity Theft – 4.8%  Employment Related Fraud – 4.4%  Other Identity Theft – 21.8% (Source: Washington Post Digest – June 27, 2015 Quoted from Federal Trade Commission, Insurance Institute) Senga22

23. Teaching Ethics to Students Q. “Is it possible to effectively teach students to become more ethical business leaders?” A.“You probably can’t take someone who is dishonest at their core and educate that out of them. But what schools can do is help people understand the complexities of the situation that they’re going to go into, and you can give them a lot of practice around such situations. That can be extremely helpful in taking people who have a fundamentally positive ethical behavior and helping them tap into the ethics they have inside.” Source: Washington Post Business Section, August 9,2015. “The secret to inspiring the next Tim Cook” - An interview with Duke University’s Fuqua School of Business, Bill Boulding, by journalist Lillian Cunningham. Senga23

24. Ethics A Critical Component of Fiduciary Role The Standards of conduct by which one’s actions are judged as:  Right or Wrong  Honest or Dishonest  Fair or Not Fair Source: Financial and Managerial Accounting by Weygandt, Kimmel and Kieso (Textbook for Accounting) Notes: Being Legal does not always mean being Ethical (Higher Bar to be cleared for Ethics) Being truly religious contributes to ethical behavior? Senga24

25. Fraud Triangle Opportunity Financial Pressure Rationalization Source: Financial and Managerial Accounting by Weygandt, Kimmel and Kieso (Textbook for Accounting) Senga25

26. Corruption (Food for thought)  Corruption based on Need (Inadequate compensation to meet personal and family needs)  Corruption based on Greed (Questionable Rationale? – arrogance, one-upmanship - e.g. Hedge Fund Manager Rajaratnam)  Can only be reduced, not totally eliminated?  Question of whether the country’s economy is strong enough to bear the cost and still survive or even thrive? (e.g. US, South Korea, Japan)  US Foreign Corrupt Practices Act (Europe?)  David Rockefeller’s Quip? Senga26

27. Corruption Perception Index (CPI) Where does USA Stand? Transparency International 2014 CPI Ranking, out of 175 Countries: 1.Denmark 2.New Zealand 3.Finland 4.Sweden 5.Norway 10. Canada 11. Australia 17. USA 103. Mexico Senga27

28. What can Community College Educators Do? (in the Classroom)  Incorporate Ethics into the Curriculum (all courses)  Talk of Examples (refer to good Role Models)  Share Examples of Employers’ Business Code of Conduct given to Employees  Explore with students generational differences in behavior (e.g. Baby Boomers vs. Generation X and Millennials, interactions with humans vs. machines)  Talk frankly about cost of cheating in class and exams, plagiarizing, abuse of technology, etc.,  Narrate experiences from own career and life  Plant Seeds of professionalism and integrity in students and talk of the benefits of honesty in one’s career  Explain options available and choices to be made by students irrespective of their chosen career path Senga28