In the matter of the unemployment benefit claim of

WILLIAM J. WILSON, Employee

Involving the account of

DEALER MART, HARDLINES MARKETING, INC., Employer

A Department Deputy's Initial Determination held that in week 23 of 1989, the employe terminated his work with the employing unit and that his quitting was not within any of the exceptions in the statutes which would permit benefit payment. As a result, benefits were suspended.

The employe timely appealed the Initial Determination, and a hearing was held on October 19, 1989 before Administrative Law Judge Stephen L. Koenig, acting as an Appeal Tribunal of the Wisconsin Department of Industry, Labor and Human Relations. The Appeal Tribunal Decision, issued on November 1, 1989, affirmed the Initial Determination.

The employe timely petitioned for review by the Wisconsin Labor and Industry Review Commission. Based on the evidence and applicable law, having considered the arguments presented by the employe in his petition, and having consulted with the Administrative Law Judge concerning his impressions as to the credibility of witnesses, the Commission makes the following:

The employe, a certified public accountant, was hired by the employer, a wholesale supplier of hardware and other materials, to be in charge of the employer's accounting department beginning in August 1988. He quit his employment effective with June 7, 1989 (week 23), his last day of work. The issue for resolution is whether the employe's voluntary termination of his employment was for good cause attributable to the employing unit within the meaning of section 108.04 (7)(b), Stats. The employe asserted that he quit because the employer requested him to prepare and maintain the company's financial accounts in ways not in accord with generally accepted accounting principles, and which would involve the employe in activities contrary to the ethical standards of his profession, thus placing his professional licensure in potential jeopardy.

As controller and head of the employer's accounting department, the employe had general responsibility for the employer's bookkeeping and accounting activities. There were four accounting clerks in the accounting department over whom he had authority. When he was hired, the employe was told by Sheldon Gendelman, the employer's president and chief executive officer, that he would have the authority to reorganize and run the accounting department, and that he was to clear up and clean up procedures in the accounting department that were not in accord with generally accepted accounting principles. However, it developed that Gendelman would not support the employe's efforts to carry out the company's bookkeeping and accounting functions in a fashion consistent with generally accepted accounting principles. Particularly in connection with the closing of the corporation's books for calendar year 1988, which was taking place in the spring of 1989, Gendelman requested the employe on a number of occasions to make or leave intact entries in the employer's financial records which were inconsistent with generally accepted accounting principles and which resulted in those records incorrectly portraying the financial condition of the employer.

One such instance occurred in February or March 1989, when the employe became aware of a bookkeeping entry relating to an arrangement by which the employer was selling an item owned by another business, on a consignment basis. As part of the consignment arrangement, the employer was to be entitled to a portion of the sale proceeds. The bookkeeping entry showed the employer's interest in this proceeding (its potential share) as an item of inventory, when, according to generally accepted accounting principles, it should have been carried on the employer's books as an accounts receivable item. The result of this inaccurate accounting, was that the employer's inventory was misstated. The employe instructed one of the accounting clerks under his supervision to correct the entry, but she refused to do so. When the employe brought the matter to the attention of Gendelman, Gendelman backed up the employe in her refusal to change the entry.

In March 1989 the employe became aware that a credit of some $58,000 had been entered into the employer's accounts payable. Such an entry would presumably have reflected that the employer had returned $58,000 worth of inventory to a vendor from which it had obtained the goods, so that the cost of the goods was no longer payable to the vendor. However, when the employe inquired into the matter, he determined that the inventory in question had in fact not been returned to the vendor. This bookkeeping error had the effect of inaccurately portraying the financial condition of the employer as better than it was. When the employe brought this matter to the attention of Gendelman and proposed to make an adjustment, Gendelman instructed him not to make any adjustment, but to do so only in the next profit and loss statement. His purpose in this was to give the employer the appearance of being more profitable than it was.

At some point in connection with the closing of the books for 1988, the employe determined that the 1988 year end inventory evaluations were inflated by over $100,000 as a result of a 1987 inventory item of some $145,000 for what Gendelman described as his "back lots". When the employe inquired as to where this inventory was, he was informed that the employer did not have it. When the employe then told Gendelman that since the employer did not have the inventory, the sum had to be written off, Gendelman instructed the employe to write off only some of it in that year and to write off the balance of it the following year. The purpose of this was to improve the appearance of the employer's financial condition.

In April 1989, the employe made a report to the employer's board of directors in which he explained how, in maintaining the employer's financial records, he had accrued certain expenses to certain periods. Gendelman demanded that the employe alter the fashion in which he accrued these expenses, because if the expenses were not accrued to the periods in question it would result in the financial statement showing higher net profits, and because Gendelman wanted to give a better impression of the financial health of the employer to banks from which Gendelman was seeking an increase in his line of credit. Gendelman desired to carry his losses forward into future years by attributing expenses to periods other than those to which they should, according to generally accepted accounting principles, have been attributed. The employe revised the employer's financial records in accordance with Gendelman's requirements, under protest.

The incident which appears to have precipitated the employe's voluntary termination of employment occurred in late April and early May 1989. The employe became aware of the fact that an "executive chair" valued at approximately $800.00 had been purchased from another company (owned by Gendelman's wife) and was to be sent to a sales representative of yet another company, a supplier of the employer. The employe subsequently found out that the employer thereafter received a shipment of merchandise from the company whose sales representative the chair had been sent to, and that the employer was being charged less for the merchandise sent than it was worth, in an amount apparently corresponding to the value of the chair. This created the appearance, that the chair was being transferred to the other company in return for the provision of goods from that company, with the entire transaction not being reflected on the books. The employe informed Gendelman that the matter should be carried on the employer's books in some fashion consistent with generally accepted accounting principles, involving acknowledgement of the chair as inventory of the employer prior to its transfer to the other party, and also involving the preparation of an invoice from the employer to the party to whom the chair was sent, which could be carried on the employer's books as an item of accounts receivable, as well as acknowledgement of the consideration for the chair being carried as some form of credit to the employer's accounts payable to the other company. Gendelman, however, instructed the employe that the transaction should not be reported in this fashion, and that no invoice should be prepared to the sales representative of the other company who received the chair.

Following these incidents, the employe tendered his resignation, after explaining to Gendelman that he was concerned that his professional licensure could be in jeopardy because his participation in the types of accounting practices which Gendelman was requesting and requiring of him was contrary to the ethical restrictions of his licensure as a certified public accountant. Section 108.04 (7)(b), Stats., provides in part that good cause for voluntary termination of employment includes a request, suggestion or directive by the employing unit that the employe violate federal or Wisconsin law. The Commission considers that such good cause was shown here. Certified public accountants are licensed by the State of Wisconsin, and a license is required before a person trained in accounting can hold himself or herself out to be and practice as a certified public accountant. Section 442.03, Stats. The Accounting Examining Board of the State of Wisconsin may revoke, limit or suspend the license of a certified public accountant if he or she engages in any violation of Chapter 442 (which regulates public accountancy) or any duly promulgated standard or rule or practice, or for any other sufficient cause. The Accounting Examining Board has the statutory authority to adopt standards or rules relating to profession conduct and unethical practice. Section 442.01 (2), Stats. Every person practicing as a public accountant in the state is governed and controlled by the rules and standards prescribed by the Accounting Examining Board. In addition to this, section 943.39, Stats., provides, in relevant part, that it is a Class D felony for any director, officer, agent or employe of any corporation to falsify any record or account belonging to that corporation by false entry or omission, with intent to defraud. The accounting pratices which the employe was requested or required to engage in were, according to his credible testimony, contrary to generally accepted accounting principles and thus potentially in violation of the standards or rules or practices of the Accounting Examining Board. Some of those practices also bordered on the knowing falsification of accounts of the corporation by false entry or omission in order to mislead others (in this case, banks upon whom the employer was dependent) concerning the employer's financial condition, with the intent that this would aid in obtaining credit. Thus, the employe was subject to a request, suggestion or directive by the employing unit that he violate the law.

The Commission therefore finds that in week 23 of 1989, the employe terminated his employment with good cause attributable to the employer, within the meaning of section 108.04 (7)(b) of the Statutes.

The Appeal Tribunal Decision is reversed. Accordingly, the employe is eligible for benefits if he is otherwise qualified.

Dated and mailed August 16, 1990
110 - CD1002 VL 1080.12

/s/ Kevin C. Potter, Chairman

Carl W. Thompson, Commissioner

/s/ Pamela I. Anderson, Commissioner

NOTE: In his consultation with the Commission, the Administrative Law Judge indicated that based on his impressions of the witness's testimony at hearing, he found Gendelman to be an evasive witness while the employe was very credible. The Administrative Law Judge indicated that his decision was not based on an assessment of the relative credibility of the witnesses. The Administrative Law Judge considered it relevant that the employe did not have ultimate responsibility for preparation of the employer's profit and loss statements, as this function was performed by an outside accounting firm, and that the employe did not report his concerns about inaccurate accounting to either the banks at which the employer was a customer or to the Internal Revenue Service. The Commission finds these points less significant than did the Administrative Law Judge. While the employe may not have had ultimate responsibility for preparation of the profit and loss statements, he did have ultimate responsibility for the accuracy of the data provided to the outside accounting firm on the basis of which it prepared those statements. If an outside enforcement agency, such as the Accounting Examining Board, concluded that the financial information which the employe provided to the outside accounting firm was inaccurate, he could have been subject to discipline. Additionally, with respect to the employe's failure to alert outside agencies to his concerns about inaccurate bookkeeping, the Commission would note that it has been held that, in the case of a request, suggestion, or directive that an employe violate the law, there is no requirement that the employe exhaust or even explore alternatives before voluntarily termining employment. Koziel v. LIRC and Hackbarth Trucking, Inc ., (Case No. 89- CV-1231, Dane County Cir. Ct., October , 1989).

cc: 
John S. Joyce, Attorney
Gasparri & Joyce

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