Accounting plays an important role for a wide range of business organizations worldwide. The integrity of the numbers matters for all businesses, profit and non profit (Weygandt, 2012). In recent years past, we have learning of increasingly more companies who have been accused of engaging in unscrupulous accounting practices. As a result of the unethical practices, consumers and investors have begun to lose faith in companies, corporations, and banks. As many corporate executive from companies such Enron, WorldCom, and Tyco, were implicated in unethical accounting practices during the late 1990’s and early 2000’s, executives from Adelphia Communication Corporations did not escape the trend. The executives and senior management at Adelphia entered into transactions that blurred the lines between the employees’ financial interests and those of the company. The company guaranteed over $2 billion of loans to Rigas family members that were never repaid. Using corporate assets for personal gain is use is a direct violation of several restrictions under the GAAP (Weygandt, 2012). Company History
In 1972, John Rigas bought a cable company in 1952 for $300 in Coudersport, Pennsylvania. In 1972, he and his brother Gus created Adelphia Communications Corporation. Adelphia is Greek for Brothers and was adopted as the name of the family run business. The Rigas brothers later purchased Century Communications for $5.2 billion which made it the 6th largest cable company in the United State with 5.6 million subscribers (Albrecht, 2005). At its peak, the Adelphia Corporation owned a hockey team, offered internet and cable services, and was a telephone and long-distance service provider. Unethical Conduct
Adelphia backed $2.3 billion worth of personal loans to the Rigases. Family managers at the company doctored the books to pass audits and expectations and misleadingly inflate stock prices. The Rigases created shell companies which were subsidiaries of Adelphia to create the appearance of legit business transactions. Fund transfers were made through journal entries that gave Adelphia more debt and the Rigases multi-million dollar assets at no cost. These loans were shifted to unconsolidated affiliates, and Adelphia used sham transactions and fictitious documents to show the loans had been repaid (Albrecht, 2005). According to the SEC, through combining company funds with family resources, Adelphia funded personal projects for Rigas family members that included: “personal loans, private real estate purchasing, purchasing of apartments in Manhattan for private use, acquisition of land for personal golfing, cash payments to the hockey team, $252 million to pay margin calls, or demands for cash payments on loans for which the family had put up Adelphia stock as collateral” (2002). The executives at Adelphia transferred revenues from of the company’s subsidiaries and other businesses ventures into a special account. The special account was used to fund personal interest, fund personal accounts, and pay bills of members of the Rigas family. The financial revenues from Adelphia’s lines of credit were illegally converted to personal and discretionary funds for the Rigases. The executives doctored financial records at Adelphia and created sham transactions and phony companies to inflate the firm's earnings (Albrecht, 2005). The purpose behind inflating earnings was an attempt to cover the increasing unpaid debt. The practices of Adelphia’s executives were initially uncovered in March 2002. The unethical accounting practices were discovered in a footnote of a quarterly earnings statement. The information from the statement exposed a loan from Adelphia to the Rigas in excess of $2 billion by way of an agreement with the company. The deal between the family and Adelphia intermingled the company’s debt with the family’s debts. The Scandal
Once the scandal came to light, several members of...