FINANCIAL ledgers have two sides, but the fantasies of white-collar frauds usually run in only one direction: up, up and away.
In a finding that is telling about the psychology of corporate chicanery, North Carolina State professor Mark Beasley and two colleagues determined that most accounting shenanigans among publicly traded companies involve the inflation of assets or revenues, not the veiling of costs or liabilities.
You can cook the books either way. The prosecutors don't care.
But in possibly the most thorough study of recent financial statement fraud, Beasley discovered that dissembling managers prefer to accentuate - I use the word loosely - the positive.
They puff up sales, inventing customers or booking next quarter's revenue now. Wishful thinking about the worth of factories and equipment is alchemized into black and white on the balance sheet.
It's a bull market kind of fraud, can-do, forward-looking. The sky is the limit when you forge revenue and assets. You have to stop at zero when you subtract costs and liabilities.
Enron's Potemkin balance sheet nicely fits the pattern shown in Beasley's research. For the company that bragged, "We're on the side of the angels," only the ethereal, levitating type of financial irregularity would do.
Enron's chief accounting fault apparently was hiding the declining value of utility assets in India, Turkey, Brazil and other places. The dodge was more elegant than most, but its ultimate effect was to boost Enron's stated net worth by about $1 billion beyond what it really was.
Instead of marking down the value of the soured assets, Enron "sold" the plants at a pumped-up price to outside partnerships controlled by its own managers. The partnerships paid Enron with IOUs, which were then booked by the parent company as assets at a value far above the worth of the actual utilities. Pretty slick.
Other recent accounting scandals also involved phantom assets or revenue.
Sunbeam's "Chainsaw Al" Dunlap was accused last year in a civil action by the Securities and Exchange Commission of improperly shifting to previous periods sales that should have been recorded later. That's one of the most popular revenue-enhancing techniques, Beasley says.
Shareholders of drug chain Rite Aid, garbage hauler Waste Management, copier firm Xerox, food seller ConAgra and software concern MicroStrategy have also seen recent revenue mirages.
Along with the University of Tennessee's Joe Carcello and Kennesaw State's Dana Hermanson, Beasley went through every case of public company financial-statement fraud handled by the Securities and Exchange Commission from 1987 through 1997.
There were 300 in all. The research was commissioned by a consortium of professional organizations including the American Accounting Association and the American Institute of Certified Public Accountants.
Many of the companies in the study were suffering declining profits, which presumably created pressure to rig the ledgers. The chief executive was involved more than 70 percent of the time, the jiggering often came at the end of a quarter, and the average fraud spanned almost two years.
In some ways most of the study's examples differed from the bookkeeping adventures on the recent nightly news.
The frauds tracked by Beasley & Co., all before 1998, tended to occur at relatively small, inbred companies, which were often family controlled even though they had public stock and which lacked the audit committees and other safeguards of their larger brethren.
The size of the median misstatement was $4 million. Given today's billion-dollar dodges, one can only conclude that accounting finagles have scaled up in a big way, bought a suit and headed downtown. Roll up your sleeves, regulators and enforcers.
Which raises maybe the most interesting finding in the fraud study. Of all the Cordon Bleu book-cookers that Beasley examined, very few landed in jail.
The project tracked enforcement, including prosecution by the Justice Department, but at only 15 percent of the firms were executives criminally charged for essentially ripping off shareholders. Most of the responsible individuals paid civil penalties, many of them never admitting guilt.
The Feds have promised to change this.
"We are moving toward turning the numbers game into a game of Monopoly - that is, you cook the books and you will go directly to jail without passing Go," then-SEC enforcement chief Richard Walker said two years ago.
It's too early to draw conclusions about whether or not Enron officials engaged in criminal fraud. But it seems like a good time to remind Washington of Walker's promise and the deterrent value of prison sentences.