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Scandals put squeeze on CFOs

They speak of long hours spent complying with new federal regulations instead of building their companies. No one, though, asks them to be creative anymore.

By KRIS HUNDLEY
Published May 17, 2006

And though chief financial officers in the Tampa Bay area disagree on whether Fastow could have pulled off such a complex deceit without the knowledge of his superiors, they are certain about one thing: Their jobs have been profoundly changed by Enron and the wave of corporate accounting scandals that followed.

There's the irritation of hearing longtime golf buddies joke that CFO now stands for "chief fraud officer.''

There are the long hours and hundreds of thousands of corporate dollars spent complying with new federal regulations rather than building the business.

And there's the strain of answering to a growing number of bosses, from the chief executive and the audit committee to the employees and the Securities and Exchange Commission.

"In many ways, the CFO is the conscience of the company,'' said Wallace D. Ruiz, chief financial officer with SRI/Surgical Express Inc. in Tampa. "The employees are relying on me to do the right thing. The board is relying on me to do the right thing. And the SEC is going to make sure I do the right thing.''

David F. Walker, a CPA whose former employer Arthur Andersen LLP imploded in the wake of the Enron scandal, is now director of the accountancy program at the University of South Florida St. Petersburg. He teaches both graduate and undergraduate accounting students who aspire to CFO positions.

"I tell them that in many ways, the bar has been raised,'' Walker said of Enron's impact. "The expectations of a CFO have increased. They are broader in many ways and they also need to be founded in sound ethical behavior.''

Veteran financial executives in the Tampa Bay area said the adjustment has not come easily. Barry Black, 59, recently became CFO of Technology Research Corp. in Clearwater after many years as corporate controller of Paradyne Networks Inc., a telecom company based in Clearwater until its sale last year.

While at Paradyne, Black helped the company implement new financial controls required under the Sarbanes-Oxley Act, passed by Congress after the Enron debacle.

"That was a painful period,'' he said of the Sarbanes experience. "I'm not suggesting that companies should not improve their internal controls, but the bureaucracy, rigor and expense involved put an incredible burden, especially on smaller companies. It was pretty awful.''

Ralph Finkenbrink, CFO at Nicholas Financial Inc. in Clearwater, also slammed Sarbanes regulations, which are supposed to go into effect for small-cap companies such as his next year.

"It's typical government bureaucracy in action,'' he said. "They're making the 95 percent of companies that were doing things correctly pay the price, and the losers are the shareholders. Companies are spending hundreds of thousands of dollars to get compliant and getting virtually nothing in return.''

Finkenbrink said Nicholas, which does automotive financing, began implementing some Sarbanes requirements last year. "We spent about $50,000 to $60,000, and it had zero value to it,'' he said. "It also takes from time I spent building the company and making strategic decisions. When you're getting no value in return, you don't feel good about what you're doing and you're not happy.''

Finkenbrink, 44, said he has heard of several financial executives who have resigned in the wake of Sarbanes-Oxley. Most well-known locally is Bob Merritt, who resigned as CFO of Outback Steakhouse Inc. a year ago largely because of discontent over the new regulations.

"It's not as much fun when you're forced to do something that you know does not help the company or shareholders,'' Finkenbrink said, adding he has no intention of leaving Nicholas Financial.

"Peter Vosotas, chief executive and I started the finance company 18 years ago, and I'm not about to turn around now.''

Instead, Finkenbrink said more small, publicly traded companies like his will consider going private. Private companies are not subject to the same strict Sarbanes-Oxley regulations.

"The costs are becoming so prohibitive for being public, and the private equity groups are coming after us,'' he said, adding that his board discusses the issue at every meeting.

"We've had more calls in the last month than in the past two years.''

Finkenbrink is convinced that Sarbanes will do little to eliminate fraudulent behavior by dishonest executives.

But Ruiz at SRI/Surgical Express in Tampa said making the chief executive and chief financial officer attest to the accuracy of financial statements every quarter, one of the requirements under Sarbanes, is a step in the right direction. "It certainly focuses your attention,'' he said.

Ruiz, 55, also said he welcomed the fact that in the post-Enron era, hot-shot accountants like Fastow are no longer being touted as heroes. Fastow has pleaded guilty to accounting fraud and faces 10 years in prison, along with forfeiture of more than $29-million.

"In the past, CFOs were constantly being challenged by the management team and investment community to be 'creative,' which I used to find quite annoying'' Ruiz said. "That pressure has been significantly alleviated.''

Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

[Last modified May 17, 2006, 06:49:22]