Accounting professor emphasizes good decisions
Jack Dorminey had about seven seconds to save his life. One wrong move, any panic or even a moment of indecision, and he would surely plunge to his death.
It was his sixth jump of the day, and the Shenandoah Mountains from 15,000 feet above sea level should have been beautiful, with mid-October's brilliant oranges, reds and yellows painted across the horizon. That was what he'd expected to experience when he jumped from the Beechcraft King Air, checked the altimeter on his left hand and pulled the chord to release his parachute after falling to around 12,000 feet.
"I knew the chute had failed as soon as it opened because it put me in a spiral that was spinning at an increasing rate," he recalled. "The g-forces from the spin were increasing, and I could not gain control." The 39-year-old accountant and sky-diving enthusiast was hurtling toward the ground at more than 60 miles per hour. "Not a survivable configuration," recalled Dorminey, who today is an assistant professor of accounting in the College of Business and Economics.
He didn't panic. With some difficulty, given the g-force he was under, he managed to get rid of the main parachute and then used his body to reduce the spin. He might have panicked and immediately pulled the reserve parachute release while still spinning. Another jumper, just weeks earlier, faced a similar situation, pulled the reserve too soon and died after the spin entangled the parachute.
"It took seven seconds from the main chute failure to when I opened the reserve chute, and I had to make a total of six decisions," he said. "It took me the first two or three seconds just to get the malfunctioned main (parachute) to cut away."
Making good decisions is what he teaches accounting students, too. He doesn't require his students to jump from 15,000 feet, but he does try to bring the real world of finance and accounting, and some drama, into the classroom.
"It's difficult to make it clear in the classroom how important say, ‘asset quality and loan-loss reserve" can be in real life, but I try." The fact is, asset quality affects how well a bank can handle an economic downturn. Additionally, abuse of the loan loss reserve account can lead to jail time. Dorminey witnessed just such a scenario as a bank examiner and holding company inspector at the Federal Reserve Bank in Richmond, Va. "Just like anything mechanical, the best way to learn how a financial system works is to see it taken apart," he said. And that's just what happened in the early 1990s when Dorminey was only 27 and just starting his career with the Fed.
He was assigned to accompany bank examiners and other officials to a bank where irregularities and fraud were suspected. "I saw four bank executives being led out in handcuffs," he recalled.
As it happened the four were accused of being part of a multimillion dollar fraud. On that day, Dorminey signed a check on behalf of the Federal Reserve for over $100 million to cover some of the bank's losses (through the Fed's Discount Window) as the institution dissolved before his eyes.
"I watched as someone removed the bank's charter from the wall. That's what they do when a bank ceases to exist. They actually physically remove the charter from the wall. It was very dramatic, and I'll never forget it."
And what was a key term? Loan-loss reserve (LLR). It's an account used to set aside corporate capital to absorb losses in a loan portfolio. If a bank over-allocates to this account income is lower; under-allocate and net income is higher.
"The directors would make loans to friends (usually the friend of a friend of a friend), disburse the funds for the loan, and then report that the borrower had gone bankrupt and no money could be collected," Dorminey said.
"So, the borrower had the money, and the bank—so the story would go—did not have the ability to collect. The loan then would be written off against the loan loss reserve account. Because the LLR was now lower (because of the write-off), it needed to be increased, and that was done by recognizing an expense to increase the reserve. The fraud was not directly with the LLR, but rather with making a loan that no one intended to repay. That is how we found it—looking at the write-offs."
Accounting can be dramatic after all. "It's hard to make this clear in the classroom," he said, "but I think it's really important. I believe an understanding of accounting is needed to grasp finance and vice versa. My experiences at the Fed have proved useful in both my research and teaching. I would have to say that the experience as an examiner is particularly useful in that regard."
During his years with the Federal Reserve Bank of Richmond (1989-2009), Dorminey became acquainted with Jeffrey Lacker, who has been president of that bank since 2004, and made an impression. He was charged with creating a model to make the bank's currency processing more efficient and also saved the institution millions of dollars when new machines were being bought for the purpose.
Lacker told Dorminey he should get a Ph.D., advice he ignored at first. However, he eventually saw the logic behind the suggestion and enrolled at Virginia Commonwealth University in Richmond. He was able to continue his job at the Fed part time and was awarded a Ph.D. in 2009. He received an undergraduate degree in finance and management from Virginia Tech University in 1988 and an MBA there in 1989.
Dorminey joined WVU as an assistant professor in 2009. His research interests include banking and governmental reporting and reporting choices in the context of risk. He has had articles published in Issues in Accounting Education, The CPA Journal, Research in Accounting Regulation and Advances in Accounting. "Beyond the Fraud Triangle," an article written with WVU's Scott Fleming and Richard Riley, along with Mary-Jo Kranacher of York College, was published in Fraud Magazine in 2011. Dorminey's teaching interests are heavily focused in financial reporting and advanced financial reporting topics.
Although he hasn't jumped out of an airplane for several years, he still holds an FAA airman certificate as a senior parachute rigger. "I have packed more than 1,100 reserve parachutes for sport skydivers, along with 45 ejection seat parachutes for pilots. Of those, 120 were used by my customers. All opened and saved their lives."
Repetitive practice, attention to detail and thinking ahead are critical to success as a skydiver, parachute rigger, and as an accountant.