One of the depressing sidebars in this much-heralded age of corporate reform is that many folks are having trouble discerning one fraud trial from the next.

With attorney sound bites, perp walks and a phalanx of cameras surrounding the defendants, media coverage of corporate malfeasance is beginning to look like one of those revolving TV grids that appear on certain channels.

Can the average Joe (no relation to that surprisingly amusing reality TV show) sound erudite explaining the differences between the charges faced by former Tyco chief L. Dennis Kozlowski, doyenne of domesticity Martha Stewart, or one-time bar bouncer-turned disgraced communications mogul Bernie Ebbers?

During my travels, I’m often asked by readers and other members of the profession why corporate fraud receives far greater coverage now than it would have, say, even 10 years ago. My answer usually leans toward the influx of real-time business channels and online sites. Can you imagine what the coverage of the Crash of 1929 would have been like had CNBC been broadcasting from the floor of the New York Stock Exchange on a daily basis, as they do now?

But I digress.

Back to our friend Dennis Kozlowski, thrower of $2 million parties for his wife and owner of a shower curtain that cost hundreds of dollars more than the first used car I purchased. Kozlowski, Tyco’s former chief executive, and former chief financial officer Mark H. Swartz have been charged with stealing $170 million via unauthorized bonuses and arranging for the “forgiveness” of company loans.

Yet the former lead audit partner on the Tyco audit for Pricewaterhouse­Coopers said that examining employee loans was very low on the auditor’s radar, or words to that effect. The lead auditor pointed out that, during the course of an audit, auditors don’t look at every piece of paper or transaction that the company performs over the course of a year. In fact, he explained that the review of employee loans usually goes no further than the accountant verifying whether the borrower was still an employee. He also said that, as a rule, employee loans were usually low risk and not factors that would affect company financials.

But wait! There’s a plausible explanation. According to the auditor, company audits have “inherent limitations.”

As one who makes his living with words, that phrase gave me pause to think — and then think a whole lot more.

“Inherent limitations.”

As defined by Webster, “inherent” is, “Existing as an essential constituent or characteristic; belonging by nature, intrinsic.” So, if I’m to correctly understand this reasoning, you can’t expect a thorough audit, because by its nature the process of auditing has natural or built-in limits.

Inherent limitations notwithstanding, Tyco defense attorneys contended that the bonuses and loans to both men were disclosed to the auditors and were, therefore, appropriate. Prosecutors want to prove that the auditors relied on information from Tyco managers and only examined “material” transactions that might affect its bottom line.

To be fair, it’s impossible to check every manila folder purchased by the company. But do “inherent limitations” apply to mega-million-dollar loans?

I wonder what the Public Company Accounting Oversight Board would think if it heard the phrase “inherent limitations” during its inspection of the audits of accounting firms. Would its latitude on the matter be “inherently limited?”

Bill Carlino
Editor-in-Chief

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