KELLY RICHMOND POPE: My name is Kelly Richmond Pope. I am a professor, an author, a filmmaker, and the title of my book, wearing my author hat, is "Fool Me Once: Scams, Stories, and Secrets from the Trillion-Dollar Fraud Industry"

- [Announcer] Chapter one, "Becoming an accountant."

- Well, I chose accounting early on. My first accounting class was when I was in high school. I was in ninth grade at Charles E. Jordan High School, and I took accounting, and I was hooked. And what I realized then was I loved money. I loved money. When I was younger, I would iron my allowance on the ironing board because I wanted my dollars to be like super crisp, and I would put 'em in my wallet. But I love to understand money. And so when I took my first accounting class, I realized that the person that understood money was actually the smartest person in the room. Not necessarily the CEO, but the CFO. So I took accounting in ninth grade, 10th grade, went on to college and really never looked back. Accountants typically are very conservative, risk averse. They like structure. And accounting is really about balance. So we don't really like to say creative accounting. We don't really like that because accounting is about balance. So we're gonna talk about that, but everything is nice and neat and adds up and equals. And so what it says about someone's personality is they like order. A lot of times my friends think I'm a little OCD because I like order and structure because I'm an accountant, I'm a CPA, so I expect things to make sense. Sometimes I expect things to be black and white, and I think that's just the nature of an accountant. So I think the biggest misconception about accountants is accounting is designed to detect fraud. That's a misconception. Now, it's not that we can't. It's just that an audit is not designed to detect fraud. It's not that it can't, but it's not designed that way. So I think that's one misconception, but what I think is important is for us to understand, why does it even happen? What's the role of accounting if it can't root out fraud? And so what is the mindset? What's going on? Why do we keep hearing about this over and over and over? And so I think that a lot of times people think accounting and bookkeeping are the same thing, and there's a relationship, but accounting is a lot more sophisticated, and I'm gonna tell you why. When we think about accounting, there are two types of accounting that you have to understand. There's something called cash basis accounting and accrual basis accounting. And when you think about a business, most medium to small businesses really operate on a cash basis type of accounting system. What that means is you go in the store, you give 'em a $20 bill, you use your debit card, and you pay for a product. They recognize that they received cash and they write it on their balance sheet. Okay, I received $20 today. That's how much cash I made. And so it's a very simplistic way to understand the flows of cash, how much cash did come in, how much cash flowed out. That's a real basic understanding of cash. And so let's say you know somebody that has a barbershop or a hair salon. They do cuts. Cut's $20. They saw a hundred people that day, cash in, cash out. Simple. Okay, simple math. Accrual basis accounting is where it gets just a little sticky because accrual basis accounting is something that most of us don't think about. Now ?, you think about it if you're an investor, but just walking down the street, you don't think about how a company accounts for the sales that they acquire. Now, let me tell you what accrual basis accounting is, what it means. And this is a rule that I learned early on, probably when I was taking accounting in high school, 'cause I took my first accounting class when I was a ninth grader, and I remember this then. When I took my first accounting class in college, this is a rule that we talked about. Accrual basis accounting, what that means is we recognize revenue when earned and expenses when incurred, regardless of when cash is received or paid out. Okay, that's a big thing to remember. We recognize revenue when it's earned, not when we get the cash, but when it's earned. So when we think about a company like, let's take Nike for example, or Adidas, when we think about how those companies account for their sales, they use accrual accounting. And so what that means is we recognize revenue when earned. So when you think about some of the big frauds that have happened especially in the United States, think about Enron. If you remember that case, one of the things that Enron was able to do is they were able to book revenue based on when they thought they earned it. The problem is Enron never received cash. So in accrual basis accounting, you can recognize revenue when it's earned, regardless of when cash is received. So think about what that means. Say for instance, I have a business, a large business, and I have a friend that has a large business, and I think that my friend is going to... I'm going to get $10 million of sales from my friend. And what I don't know is my friend's business is about to go outta business. They're gonna file for bankruptcy, but I think that I'm gonna make a sale with my friend's business. So if I've sent a contract, and we've agreed on contract terms, and I think that I've earned the revenue, I can book revenue on my income statement and say I have revenue of $10 million. Well, what if I never received the cash? Now, I may be going too fast 'cause this kind of stuff excites me, but let me tell you, let me go back a little bit. Because why do people wanna book revenue? I said revenue, I said cash. I'm saying all these terms, so let me back up. When you take an accounting class, the first day you sit in the class, they're gonna tell you something called the accounting equation, and the accounting equation is exactly what it sounds like. It's an equation. And what that equation is is it says assets equals liabilities plus owner's equity. So the assets that we acquire have to equal what we owe plus a portion of what we own. that's what the equation means. And so accounting is all about timing and balance, timing and balance. And so that accounting equation always has to be intact, assets equals liabilities plus owner's equity. So if I do something on the left side of that equation, I then have to do something on the right side to make it balance. Just like when we say two plus two equals four, that's accounting, which assets have to equals liabilities plus owner's equity. Now, what happens is, when you're learning accounting, you have to understand what are some examples of assets? What are some examples of liabilities? What are some examples of owner's equity? When we think about assets, the biggest asset that most companies have is cash. And if you go and you look at a annual report of any company, you go over to the balance sheet, the first thing you're gonna see is cash and cash equivalents on the balance sheet, because cash is cash. Cash is king, you might have heard someone say before. Cash is important. So understanding the flows of cash is important. Now, cash is an asset. Accounts receivable is another asset. And so if you think about what accounts receivable is, what that means is we sell goods. And so sometimes when we sell our goods, people give us cash, but sometimes they pay on account. That's accounts receivable. It's money that I have to still receive. And so notice how I can call that accounts receivable, but I haven't gotten the cash yet for it. See, that's that accrual accounting sneaking its head back in. So we have a way to account for things when we don't have a cash flow transaction. Okay, so that's where accrual accounting is really helpful. So when we talk about cash, cash is cash, so cash works on a cash basis of accounting system, but all these other accounts I'm gonna start naming really fall under an accrual basis of accounting. Let me give you another one. So I talked about assets. So we acquire assets to give us a future economic benefit. So we buy inventory so that we can go and sell inventory and make money. Inventory is an asset. We buy land. Land is an asset. And so we hope that we build something on that land that gives us a future economic benefit. Those are examples of assets. Now we think about liabilities. Liabilities are things that we owe, so accounts payable. So when we buy something as the company, we sometimes may give cash. Other times we may purchase on our account with another organization or another company accounts payable, so we owe somebody. That's a liability. And then when we think about owner's equity. Owner's equity is exactly what it sounds like, owner's equity. How much equity do our owners own in our organization? And so those three components, assets equals liabilities plus stockholders' equity is the accounting equation.

- [Announcer] Chapter two, "Understanding the language of business."

- Let me give you an overview of most companies. All companies have a complete set of financial statements of four things, an income statement, a balance sheet, a statement of cash flows, and a statement of retained earnings. Those are your four pieces of a complete set of financial statements. Now, the balance sheet really pulls everything together because, if you think about it, what's the balance sheet made up of? Assets equals liabilities plus stockholders' equity. If you go and look at any company right now, go online, pull a company, go to the investor relations site, pull their annual report, skip over to their balance sheet, and you're gonna see that it's organized. You're gonna see assets, and then you're gonna see liabilities, and then you're gonna see stockholders' equity. And the reason why this is important to know is it's always in balance. Now, why auditors get in trouble when fraud happens is because if it always is in balance, if I take cash away, what am I plugging in on the right-hand side of that equation to make it balance? And why as an auditor am I not picking up on that? Because everything has to stay in balance. Now, I talked about the four basic financial statements. I said income statement, balance sheet, statement of cash flows, and statement of retained earnings. We talked a little bit about the balance sheet and the balance sheet, assets, liabilities, stockholders' equity. Lemme talk a little bit about the income statement. Now, the income statement is something that you've probably seen before, and the income statement is a made up of really two main components, revenue and expenses. Revenues minus expenses gives us our net operating income. And so, our net operating income is important because it tells us how profitable our company is. Now, something I've been saying to you. I've used the word cash and I've used the word revenue. They don't mean the same thing. Cash is cash. If I give you $10 million cash, you know you have $10 million cash. If I say you have 10 million in revenue, that doesn't mean you have 10 million in cash because revenue is based off of accrual accounting. And I can recognize revenue when earned, regardless of when the cash is paid. And so when we talk about revenue, you'll see a lot of times in the media about revenue recognition and when companies are allowed to recognize revenue, and there's some rules that you have to follow before you can recognize revenue. But I wanna just give you three types of examples of revenue that I just want you to be familiar with. And so there's something called recognized revenue, accrued revenue, and deferred revenue. We're gonna use some word association here just to make sense. Now, recognized revenue is easy because that means that I went into a store or I executed a contract with the company, and I gave them cash, and I got the product at the same time, so the transaction happened simultaneously at the same time. Okay. So say for instance, my company engaged with Nike, and I bought $10 million worth of goods from Nike. I gave Nike the money, they gave me the goods. So Nike can recognize revenue at that point in time, okay? The cash and the goods exchanged at the same time. Make sense? Okay. Now, when we think about accrued revenue, there's a timing issue. So remember, accounting is really based on balance and timing. Timing is key. And when we talk about accrued revenue, what that means is we gave the customer the products, but we haven't gotten the cash yet. That's still owed to me. So that's something called accrued revenue. And here's where it gets a little confusing, because accrued revenue is actually on the balance sheet. It's not a revenue account. It's actually on the balance sheet. It's an asset because it's something that is still owed to you. Okay? So accrued revenue means you got the products. As the company, you haven't gotten paid for it yet. Okay? Now, deferred revenue means... Just think about what a deferral means. We think about deferred revenue, what that means is you've gotten the money first and you're waiting to get the product. So think about a subscription service, think about a streaming service, think about Netflix. You pay your Netflix first, and then you get access to the service, okay? So you pay your money upfront and then you get access to the product. So when we think about timing, accounting is about balance and timing. And so these revenue accounts are about timing. Recognize revenue, that's easy. Products, cash, happen the same time. When we talk about accrued revenue and deferred revenue, that's different. Accrued revenue, product first, then cash. We think about deferred revenue, revenue first, then product. Okay? So why does all this matter? The reason why it matters is because every company wants to be able to recognize revenue when they want to. Okay? Nobody wants to wait. So if you are a publicly traded company, and you have an estimate that you told Wall Street you're gonna meet, and your revenue numbers need to be 10 million or $20 million because that's what you estimated it to be, and let's say you're under that estimate. You're trying to call everything you possibly can call revenue revenue. So if you have some accrued revenue, you want that to be recognized revenue. If you have something called deferred revenue, you want that to be just recognized revenue. Why does it matter? Accrued revenue is an asset. Deferred revenue is a liability. Both of those accounts sit on the balance sheet. Where you want them is on the income statement. So that's why you see companies recognize revenue in crazy ways sometimes because they want every revenue to be recognized revenue because of whatever they've told Wall Street. Does that make sense? So it's why people, I hate to say it this way, but it's why people lie about revenue, because think about this. Let's go back to the income statement. Revenues minus expenses gives you net income. So the higher revenue is, the higher net operating income is. So you want your revenue number to be as high as you can. Now, why do you care? Why do you want your net operating number to be high? Well, there's something called earnings per share. And so when a CEO, CFO, COO, you name it that has a C in front of their title, a lot of times when they get hired, they are offered stock options. And so stock options are really, really valuable. When you think about the equation of earnings per share, a component to the numerator is net operating income. So the higher the numerator is, the higher the earnings per share number is gonna be. And the more shares you have, the more valuable it becomes. So you want that revenue number to be as high as possible. Does that make sense? I wanna sum it all up to tell you how it relates because the income statement, where that fits in on the accounting equation is on the right-hand side under that owner's equity category. So the revenues minus expenses gives you net operating income, fits into that owner's equity side of the equation because owner's equity is a revenues minus expenses gives you net income. So the more net income you have, the more equity you have in that company. And so when you think about where the income statement fits in into the accounting equation, it fits into that owner's equity category on the accounting equation. So revenues increase your net operating income, expenses decrease your net operating income, okay, because revenues goes up, expenses go down, and so that means your net net operating income goes up. And so the way it all fits together is net operating income is something that gets added to an account called your beginning retained earnings. Retained earnings, let's use some word association. Retained earnings means the money that's retained into the business. So you start with the beginning retained earnings balance, you add to that the net operating income, you subtract away any dividends, and that gives you your ending retained earnings number. That number gets added into that operating owner's equity side of that equation. So now what you're hearing me say is sort of how the whole thing works together. So the accounting equation is assets equals liabilities for stockholders' equity, but that income statement piece falls into there too under that owner's equity category. So I said revenues minus expenses gives you net operating income, and that's on that owner's equity side. Well, I've also talked to you about the statement of retained earnings because beginning retained earnings plus net operating income minus dividends gives you ending retained earnings. So that statement is even fitting into that equation too. Now, the statement of cash flows, that's a statement that finance folks love because cash is king. And so understanding the inflows and outflows of cash is really key. And a lot of times it gives us an insight of the liquidity of a business. And so, the first thing on the balance sheet, remember I said is cash and cash equivalents. We have a whole statement that's looking at the inflows and outflows of cash, and that is the statement of cash flows. So when you think about accounting being about balance and timing, it all has to make sense. It has to make sense. And so if you've noticed how I've listed the financial statements, income statement, balance sheet, statement of cash flow, statement of retained earnings, you have to do the income statement first because the net operating income component gets added into the statement of retained earnings that shows up on the balance sheet. So they're all related. They all talk to each other. Accounting is like a superpower. If you understand it, you can ask really intelligent questions, or at least you can scare somebody to think that you're asking an intelligent question. Because if someone is stealing and you say, "Well, what period should that have been recognized?" they're gonna say, "They understand some accounting." So it doesn't take a lot to just be able to ask a really important question, but I think understanding the reason why, why would someone wanna overstate revenue? Why would someone want to understate expenses? Well, if you do that, it makes your net operating income higher. If your net operating income is higher and you're a publicly traded company, earnings per share matters. If you ever look at your phone, I'm sure no matter what provider you have, there's a ticker tape at the bottom that's showing you how stocks are trading every day, all day. And so those numbers are coming from accounting transactions that are made that sit on the balance sheet, that sit on the income statement, that sit on, well, that are discussed and the flows on the statement of cash flows. So the whole thing really makes sense, but high level accounting is about balance and timing.

- [Announcer] Chapter three, "Auditors ethics and trust."

- So one thing that we talk a lot about in accounting, in accounting and in working with auditors, is the financial statements are the property and responsibility of management. Okay? So management compiles them, management puts the transaction, makes all the decisions around the transactions. The auditor comes in to say what management has said is true or false. And so that's what an auditor comes in to do. They're coming in at a certain point of the year and taking a sample of transactions and making a determination about a year's worth of work. And so what's really important is management has to understand that they are responsible for the financial statements. So I think about just myself, I sit on a board of a nonprofit. And one of the things that was really important for us is to make sure that we had a strong management team, and we wanted to make sure that not only did our CEO understand accounting, and understand about revenue recognition, and understand about the accounting equation, and the income statement, and the statement of cash flows, but also our CFO and director of finance. So everybody, it's a shared responsibility, but auditors are just coming in and saying, "What management has said is correct." And the reason why this is important is because investors, creditors, lenders, potential investors rely on this information. So we need auditors to come in and swoop in and say, "Yes, management is telling the truth," or "No, be aware of these financial statements." And so that's why auditors are so important. So you might be asking yourself, "Well, why does fraud happen if auditors are supposed to come in, review everything, and say opine if things are the way they should be?" Well, there's a little bit of conflict here because guess who pays the auditors. The client. So how would your client like it if you have bad news to tell them about the financial statements that they just put together? So accountants and auditors often find themselves in a really tough dilemma. So you think about some of the big scandals that we've seen. Did Arthur Andersen who was the auditor for Enron, did they really wanna lose Enron as a client if they said, "These transactions, you don't have the right things disclosed. This is wrong, this is wrong, this is wrong, this is wrong." You know what Enron would do? They just go find another firm. So, auditors and accounting firms have a really tough position because they're trying to manage client expectations and also follow what they know that they have to follow mandated by the SEC, mandated by the AICPA. They know this. So it's a tough road that they have to travel, but it's the life of a CPA, a life of an auditor. What would the world without accountants look like? I think it would be the Wild Wild West in business because there would be no one to say that the transactions are valid. And so this is really not a far off question because when you look at the data just in the past two years, 300,000 accountants have left the field. That's a huge, huge number and a big concern because of, when you think about what an accountant does, a CPA does, what an auditor does, you need someone to say, "My numbers are what they say they are. So think about accountants like the mechanics of... We have mechanics in the auto industry, accountants are like the mechanics of business transactions. They're the ones that are telling you what you, "What I said is actually true, and you can trust me. You can invest with me. You can lend to me." If you don't have anybody that can say that, can you imagine? Who can you trust? I mean, I could just tell you invest 10 grand with me because I said I made $50 million last year, and there's no one to verify that that's true or false. And so an auditor gives me assurance that what I'm saying is true. If they go away, I can say whatever I wanna say when I say it. And how are you going to feel? How are you going to trust? So accountants give a sense of trust. And if they go away, who do you have to give that sense of trust? So it's really concerning because it's something that we're seeing in the field right now. There are less students choosing accounting as a major. There are less students sitting for the certified public accounting exam. And so we're sort of at a crisis mode now because who's gonna do your tax returns if you don't have any CPAs or accountants? Who's gonna do that? And so what we're starting to see now are smaller firms, midsize to smaller firms even using accountants and professionals overseas, and that's something that didn't happen in the past because there were enough people here. I think what's changed is the way we work. Accountants, there's some brutal working hours in there. And so there's something called busy season. And busy season happens from February 1st to April 15th. And I'm not gonna lie, you work, work, work, seven days a week, like Sunday you're at work, because there is just the amount of business transactions that are happening that have to be verified or tax returns that have to be completed by a certain deadline just happen in that period of time. And so what we are seeing is people don't wanna work like that anymore. And so as people's desires to work have changed, we are seeing that people are just burnt out and tired of working that way. I think that accounting has been a very traditional field for a very, very long time. And we aren't the best profession to use a lot of remote work. We're client-facing. So being in a role that you're just on Zoom with a client can open a client up to some security risk. Think about this. Something that an auditor does is they do inventory checks. Because if you're a company that maintains inventory, you need an auditor to go in and say, "Well, we have 50 gallons of gasoline." You need an auditor to confirm or verify that that happens. You can't do that remotely. And when this was happening during the pandemic and we had to do remote type of audit work, it was concerning because there's risk that's introduced into a very traditional process that was meant to be a face-to-face, hands-on process. So the role of accountants is very, very serious. I mean, think about what if all the lawyers went away? What if all the doctors, all the surgeons, all the dentists went away? Accountants are really in that same group. What would you do if you couldn't get your teeth cleaned? That would be a problem, right? Accounting is the same way. What would you do if you have no one to verify that your transactions are what they say? That would be a scary time? Well, I think what we've seen a lot is a lot around the great resignation, I wanna say we should have known, but just think about, demographically, what's happening specifically in the United States. Less babies are being born and people are living longer. And so when you think about what's happening, if you have those demographic shifts, you have less people going into a certain field going into other fields. We would've never known that social media would be a major, that ESG would be a major, cybersecurity would be a major, a lot of the IT jobs would be what they are today. We didn't predict the growth in other areas. And I think what we've seen is so many professionals that might have once majored in accounting have gravitated to these other fields. So I think that we probably took our eye off the ball a little bit, and now we're playing catch up. And so we're playing catch up with a group of Gen Z learners that want to work differently. If I tell my students that you have to work from February 1st to April 15th, seven days a week, maybe a gazillion hours a week, they're gonna look at me like, "Why would I do that?" Now, another problem that we haven't talked about is the pay. There's been a lot of research that's talked about the pay has stayed the same for 20 years. So why would I wanna go work like that when I can work less and make more in another field and have a better work-life blend? So I think that we are seeing shifts now. We're seeing that busy season is being more relaxed. We're seeing more leniency towards remote work when it can happen, but you still sometimes need to be on the client's side, but we're a lot more lenient, what I've seen, than we were 10 years ago. But things are gonna have to change in order to appeal to the high school student that's thinking about, "What am I gonna major in?" I'll tell you something else that has not helped us, that has helped other professions. And as silly as this may sound, I'm gonna tell you what's helped other professions. TV. You have great shows about medicine, what, "Grey's Anatomy." You had great shows back in the day about lawyers. "LA Law." You name one good accounting show out there, you name it, and you can't. But I probably could make a good accounting show, but I'm just saying like those things have really helped promote other professions. So I think what we've also missed is a marketing opportunity that other professions have had, even police officers. If you go to any first grade class and you ask them, "What do you wanna be when you grow up?" Firefighter, teacher, doctor. You might hear a lawyer if their parent is a lawyer, but tell me when you've heard somebody say an accountant. But you think about what they see. They see a lot of movies about these professions, but you don't see this profession. So I think that that has something to do with it too. Every organization in the United States and Canada has recognized the accounting crisis that we're in, and we are trying our hardest to fix it. We are... Campaigns of what a CPA does, what an accountant does, what are all the fun things and the variety that you can have with this career. But I think what has been one of our hindrances is we have something called the 150-hour requirement. And what that means is if you major in accounting, you have to have 150 credit hours before you can sit for the CPA exam. And so that has made college longer and more expensive, and remember we're paying a little bit less or our pay hasn't changed. So we're now competing with finance jobs, with IT jobs, with even engineering jobs. And so when you have some of the barriers that we've put in place, it makes the degree a little bit harder. So when I majored in accounting just yesterday, I didn't have to deal with the 150-hour requirement. You could go to college for four years, sit for the CPA exam, because a CPA, and start your career. But now what we've done with the 150-hour requirement is you now have to go to graduate school. Now you think about it. There's a lot of kids that go to graduate school and they wanna get their MBA, but now what you're having to do is you have to go to graduate school, get a master's in accounting. And if you wanna go get an MBA, you gotta go back to graduate school to get that. So it's increased the cost of education, and I think that's also been a barrier too. So what we've seen is organizations really starting to pay for that fifth year of college. Deloitte is one of the programs that has really stepped up, KPMG too, where they're offering scholarship dollars for students to go back. Stay in school, we'll pay for your fifth year. We'll pay for you to sit for the CPA exam. We'll pay for your study materials. We just wanna get you through. So you're starting to see organizations really make a push to help students in a way that you didn't see in the past. The best case scenario is we start to credit internships as credit hours. And students when they go in the summer and they intern at a firm, they can get some student credit hours that count towards that 150-hour requirement so that we are retaining and encouraging more students to become certified, so certified public accountants. That would be the best case scenario that we're putting in place strategies that really encourage more. Worst case scenario is we have everybody retire out of the field, and we are now going to majors that don't understand accounting but they are gonna start opining on financial statements, which could be a little tricky. So now we are going to try to train and educate HR majors, management majors, marketing majors on generally accepted accounting principles because all the accountants are gone. And so now we're gonna try to force feed accounting into people that never really understood it or wanted to understand it, and they are then gonna assume the roles that once accountants had. So what really makes our field so important is we are regulated to opine on publicly traded companies. So what happens if you don't have anybody like that? To be honest with you, I'm really concerned. I don't know. The worst case scenario scares me because there are more people retiring out of the field that are coming into the field. And so, I've even noticed not only are there more high school programs reaching out to accountants, we're going to middle schools now, talking to middle school students about what an accountant does. And I don't think there's anything wrong with that because we have programs that teach kids about medicine in middle school. Why can't they learn about business? Why can't they learn about the roles of what accountants play in business? So I'm scared to think about worst case scenario because I really, really, really hope we don't get there, but we're getting close. I used to spend a lot of time talking to high school students. And so when I have my recruiting hat on, what I really try to focus on is speaking about accounting as a skillset, and it's a skillset that allows you to be entrepreneurial if you wanna be. So you can go work in a firm, you can go work in a public accounting firm, you can work for one of the big four public accounting firms. You can go into a privately held company. You can go into a large organization or you can start your own business. And there have been people that have started their own business that have had very, very successful accounting firm. So I talk about that. I also talk about, when I have my recruiting hat on, I talk about accounting in fields that they don't expect. So, fashion, movies, NBA, sports, you talk about the role that they play there. I even sent an email to a group of students after the Super Bowl in the US this year, Rihanna performed. and her first song was about her accountant. I'm not gonna say the title, but her first song was about her accountant. Rihanna's mother was an accountant. They need to understand the role that accountants play. And so I try to bring some of those popular culture moments with students so they can understand the role that they play. I think that technology has actually helped the role of accountants because there is a lot of mundane routine operations that those first, second, and third year staff accountants can find themselves doing, and that might turn off a few people. And so I think that using artificial intelligence, there's things that we can do to automate some of those routine things that accountants do or have done in the past so that the real valuable client work, decision-making, the fun stuff you can actually do. So I think that what we've even seen in higher education is we've started to adapt far more data analytics courses, far more AI type homework assignments, and that work is now incorporated into what we're teaching so that they will be prepared for the job market. So I think technology has been a good thing for accountants. So yes, and so I talk about red flag triggers, and we all have them, and I think that everyone should sit down and either put it in your phone, put it in your journal. What are your red flag triggers? And so I have a few. Some of them are more serious than others, but there's a few. For example, if you are on LinkedIn in this day and age and you don't have a picture, that's a trigger for me. I think it's a phony account. if you still have a Hotmail account, for me, that's a trigger 'cause everyone has a Gmail account. Who has a Hotmail account anymore, or a Netscape account? If you have that, which I know people that still haven't, or MSN account, that's another one. I'm just like, hmm, maybe this isn't a real account. That's just sort of my triggers. I think if you are over a certain age, let's say 45, and you still have mail that's sent to your parents' house, that's a red flag for me. I'm like, "Why would that be?" Another trigger, again, some of these, although they may sound silly, this is how your identity can be stolen. It's really... You think about it. I'm trying to think of some other ones. Another red flag of mine is if you tell me you only check your email once a day, I don't believe that. I can't work with you because that is not true. Who doesn't check their email? Research shows that people check their email 15 times at a minimum a day. So I don't believe that. So those are just some of my red flags, but I am very cautious because that helps me think about how I'm dealing with people. I've gotten strange messages from colleagues saying, "Hey, Kelly, can you open this account or send me the back of a gift card. I want you to go to the store and get a gift card for me." I've gotten these emails and I'm like, "I don't even know this colleague's cell phone number. Why are they emailing?" And it was fraud. So as silly as it might seem, it will protect you. It will protect you from getting money stolen from you.

- [Announcer] Chapter four, "Better understanding fraud."

- So "Fool Me Once" came about because I did a documentary years ago about a woman that embezzled $53.7 million from a small town. And I learned so much about myself, about people, about victims, about whistleblowers. And once I did the documentary, I felt like there was something more that I needed to explain to the general public about fraud, how it happens, how people commit it, how people whistleblow about it. And so that was really the birth of "Fool Me Once." It really was a self-reflection because I've had so many experiences with fraud cases. And so, fraud cases include a perpetrator, a victim, and a whistleblower. And so, I like to refer to them as perps, preys, and whistleblowers. So those are really my three indices of fraud. And so the book really dives deeper into what type of perpetrator. Are the various types of perpetrators you could be? The various types of prey you could be, and the various types of whistleblowers. One thing that a friend told me that I'm just gonna steal their line, and they said fraud never sleeps. And it's really a global problem. Fraud is a trillion dollar problem, about $5 trillion today with that number increasingly rising annually. So it affects everybody, every industry, every country. You name it, there's fraud. If there are people, there could be fraud. And so for that reason, no one is immune to it. And so I think what attracted me originally to the subject is how universal it was. There's no one that you can walk up to and say, "Are you not concerned about fraud?" Everyone is. And so that just fascinated me, really the behavioral aspects of fraud. So when I started studying fraud years ago, I was introduced to the work of Donald Cressey and Donald Cressey is known as the criminologist that introduced the fraud triangle. And the fraud triangle has three indices, opportunity, rationalization, and pressure. And I was always fascinated by the rationalization component of the fraud triangle and always felt that there needed to be more research there. A lot of times what Cressey's work focused on was embezzlement, which is one type of fraud. And he often talked about that the reason why people engage in fraud is a lack of morality. And it's more complex than that. And so that was really what my passion really drove me. And I started going around the country and doing on-camera interviews with white collar felons, whistleblowers, and victims of fraud because I wanted to understand more about that rationalization component because explains so much. It helps us learn about how we can protect our organizations when we can understand how a person rationalizes these types of behaviors. I think fraud is a victimless crime because we often have a definition about what we think a crime is. So I physically attack someone or I physically steal something from someone, and we think that's a crime. A lot of times fraud is victimless because there's some research that talks about the psychological distance between an act and a crime. So if there's more distance between you and what you are stealing, then you sometimes think it's victimless. For example, I remember reading a study, I think it was Dan Ariely, his research. and he was talking about how people behave when they're thinking about cheating in golfing. And he surveyed some people, and what he found was people were more in agreement to cheat if they used a golf club to move the golf ball than if they used their hand. And so what he's describing is this psychological distance between what it means to cheat. So a lot of times people think making an entry or booking a false entry is not the same thing as stealing money out of someone's purse or someone's wallet. And so I think that's what allows us to say, it's okay for me to book this because there's no human being actually associated with it. We don't see them. We don't have to explain anything to them. So I think it makes it easier for us to say, "I wanna overstate revenue and understate expenses, and it's okay because no one's really gonna get hurt. It's just a company." But we don't think about that company leads to people, that leads to people's jobs, that then leads to people's ability to take care of themselves, take care of their families. We don't think about all of that when we think about that one number showing up on a financial statement. When I started thinking about my own experiences with fraud, and specifically perpetrators, I started to do some research. And the simple rationalization of crime is a really interesting concept because what it says is the bigger the reward, the more likely we are to steal. And I'll give you an example of what I mean by that. I remember one day in class, a lot of times before I talk about fraud, I don't use the F-word. I don't say fraud. I'll give them an example. And so I went in class and I said, "What if you walked in today and you saw a bag of money sitting at the front desk, what would you do?" So everyone sort of looks around at each other 'cause no one wants to say anything at first. And so I said, just just tell me what your thoughts are. You see this bag and there's just money pouring out of the bag. What do you do? What do you think? And they start thinking, and I start to write their answers on the board, and they'll say, "Well, how much money do you think is in bag?" They'll ask, "Does the room have cameras?" They'll ask, "How old am I? Have I passed a CPA exam? Am I married? Are my parents alive?" And so what they're doing, what my students are doing, these are graduate students, is they're rationalizing if it's worth it for me to take. And so if that reward is big enough, then I'm gonna risk it, I'm gonna take it, I'm gonna try. And so that's typically how I introduce the rationalization component when I'm teaching students, because I want them to see how relatable it is for any of us to rationalize why it's okay to take something. So when I'm with... When I read a good fraud case, I think about what type of perpetrator it is because there's this misconception that all perpetrators are the same. People steal for greed. And that's not true. There are different reasons why people can engage in fraud, why people become perpetrators. And so when I was thinking about the book, I was thinking about my rollercoaster of emotions that I've had. I have interviewed perpetrators and I just empathize with them. But then I've interviewed other perpetrators where I'm just angered by what they've done. And so that made me think there are... How can I advance a theory where there are different types of perpetrators, and force people to understand that all perpetrators are not the same. So I came up with these three. Intentional perpetrators, accidental perpetrators, and righteous perpetrators. Now, intentional perpetrators is what we binge when we watch Netflix, when we watch Amazon Prime. I mean, it's what the movies are made of. You can name any show that you're watching now that's a true crime show, it's about an intentional perpetrator. But the accidental and the righteous perpetrators, those categories should make you feel a little bit more uncomfortable because you may relate to them in a way that you never imagined that you would. What I've noticed with the intentional perpetrators I've interviewed over the years is they're so likable, and they're charismatic, and they draw you in, and you just sort of get in this trance of hearing their story. You're sort of scared of 'em at the same time, but they're charismatic so they can work a room. And a lot of times I don't ask them if they're remorseful because maybe I don't believe what they're gonna say, but I don't ask that question because I think that a lot of times they're angered that they got caught. And so they may have continued whatever the crime was, but because they got caught, if it was a whistleblower, whatever the reason is, that tends to be the emotion that they're referring to. I mean, if you ask the question, "Are you upset that you did it?" They're gonna say yes 'cause they're going to jail for 3, 10, 20 years. So I tend to not ask that question, especially if I understand the scheme that they were involved in. But one of the characteristics that I've noticed through the years is just how likable they are. And so all of the perpetrators I've interviewed over the years, they become like friends because you learn so much about their lives. And so the intentional perpetrators, their stories are wild, their personalities are big, and they're very forthcoming about, "Hey, this is what I did. This is why I did it. I'm gonna share it with you. I'll share it with your students. I wouldn't do it again, but maybe." They sorta always say those kinds of things. And so you just don't understand it, but it's this wild feeling that you have about them, and it's why we're so addicted to the stories. So some of the most infamous intentional perpetrators, Bernard Madoff, the Enrons of the world, Jeff Skilling, these are people that set out to defraud. They know all the internal control weaknesses inside an organization, and they tend to be pretty savvy, pretty arrogant, pretty confident. And notice these are traits that we tend to admire in a corporate structure, but they are the type of people that they'll ask for forgiveness. They'll just go for it and ask for forgiveness later. That tends to be the profile of an intentional perpetrator. So they tend to have a significant level of authority in the organization because it allows them to advance whatever they're trying, whatever idea they're trying to advance. So when you think about Madoff, and you think about that fraud, Madoff was powerful. No one questioned him. Everybody wanted to be invested in his fund, and there were very little internal controls around him. What he said is what happened? And so he's a good, well-known intentional perpetrator. Now in my documentary, "All the Queens Horses," the perpetrator there was this woman by the name of Rita Crundwell. Now, she might not be as well known, but Rita Cranwell is known as the largest municipal fraudster in US history. And so she's a primary intentional perpetrator, someone that knew the system inside and out. She was a city comptroller of Dixon, Illinois. And so everyone trusted her. No one questioned her. I think the way she lived, she was likable. She was that person that she would receive your invitation to your party, to your wedding, and she'd send you a nice gift. She was that employee that when she went on a trip, she'd bring you back a box of chocolates. So she was socially likable. No one ever said anything bad about her. And I've been to Dixon multiple times, so many times I probably should have a place there, just a rental house. But she always was described as a likable person. And I think you have to be likable to some degree in a corporate structure to be able to engage and hide a fraud for a very long time. Now, in Rita's case, $53 million over 20 years, you gotta be a little likable to keep that going for so long to keep people at bay. And so why did Rita need $53.7 million? For quarter horses. Not only did she buy horses, she owned over 400 quarter horses. 400, that's a lot of horses. It's very expensive to have an operation like that. She had real estate. She had cars. She had jewelry, just anything you can imagine. And this is the typical profile of an intentional perpetrator. They have an endless supply of money from the organization that they're stealing from, and Rita did it for 20 years. And so intentional perpetrators are different than conmen though. So they don't set out to just think about how I can defraud every person that walks down the street. They know their organization well, they know the internal control weaknesses inside the organization, and they use that and exploit it for personal gain. That's an intentional perpetrator. And they are, in my archetype system, they're the most dangerous because when they... They have power. They typically have access and they can wreck havoc when they want to. So just think about how the Madoff scandal impacted thousands of people, millions. Well, millions of dollars, thousands of people. Another well-known intentional perpetrator that you may have heard of is Sam Bankman-Fried, really classic, intentional perpetrator. Someone who knew how to exploit the system. No one ever asked questions. People just invested in his exchange and no one seemed to question anything. So those are examples of intentional perpetrators. And again, we are addicted to their stories. Now, the question is why. Why are we so addicted? Do we question? Could we do what they did? Is it that they take so much? Is it that so many people just watch them do what they do and no one stops them? There's a reason why we're addicted, and there's a reason why these stories are so popular. But intentional perpetrators anger me because I don't understand why the auditors don't stop them, why the employees can't stop them, why the board doesn't stop them, why the audit committee doesn't stop them. I mean, why do they keep rising to the surface? And so it angers me. And so I have those intentional perpetrators come to my class, talk to my students. I go around do on-camera interviews with them because, as much as they anger me, they fascinate me too. So we were talking about intentional perpetrators. We're gonna switch gears and compare the polar opposite kind of person, which is a righteous perpetrator. Now, granted, all perpetrators broke the law and they go to jail. We all understand that, but we're really thinking about why did they do it. And so the righteous perpetrator was a category that was inspired really from my own personal fraud story as a child. So I grew up in Durham, North Carolina. And years ago, when I was in high school, my neighbor was sentenced to federal prison for money laundering and embezzlement. And this family had everything. he had a nice car, a nice house, wife, kid, dog, picket fence, you name it. They had it all. And so when I overheard my parents talking about this fraud case, and I was younger, but I was even nosy back then, 'cause I when my parents were talking, I was just like, "What did the neighbor do?" Anyhow, so when I started looking and reading about this case, what was really fascinating is his rationalization. The reason why he did it, not for personal gain, but to help a friend. He wanted to help a friend's business. So there are people that will engage in fraud to help a family member, help a friend, help a colleague at work. Granted, we know they committed a crime and they went to jail, but we're really talking about why they did it. What I've noticed about the righteous perpetrators, those stories, when those perpetrators come to my class, my graduate students are holding onto their every word. And they empathize with them in a way that they do not show with an intentional perpetrator. So intentional perpetrators, they may be angered, but that righteous perpetrator, their heart goes out to them because, well, they were doing it to help a friend. They didn't mean to do it. They didn't even get any money from it, but they were just trying to help. I spent some time at a conference. And during the conference, I went to visit a women's prison and I wanted to talk to some inmates who had engaged in fraud. And so I met this woman, and her story's in the book, but I met this woman who was in prison for I believe six to eight years because what she wanted to do was help the residents in her community because she looked at her boss, and her boss was a person that was charging really high rents and not given her neighbors good quality living. And she felt like she had the power to right or wrong. And so what she started to do was to create fictitious invoices so that her friends, her fellow neighbors could get jobs so they could survive. And so when the money didn't add up and her boss was wondering, "Why don't I have enough money in my bank account? Where are things going?" and she couldn't really answer that question, he realized that she had created fictitious invoices and was embezzling from his organization. Now, why was she doing it? To help other people. And when I down with her, she was actually proud of what she did because she was helping others, sort of like the Robin Hood syndrome, rob, steal from the rich to give to the poor. She was exactly that person and she was proud. And this woman, she was married, she had kids, and yet she felt like she was doing a public service by doing this to help the community. Another example of a righteous perpetrator, and her story just sits on my heart, so close. This woman by the name of Kayla Ravello, her story is in the book as well. And Kayla was a Wall Street corporate lawyer. I mean, she was an equity partner at some of the top law firms on Wall Street. And she had power, she had privilege within her organization, and people trusted her. And so Kayla had the opportunity to hire outside vendors to do some of the work that her law firm was engaged in. And what she decided to do was hire her husband. Now, some of us might not think, "Well, that's not fraudulent. Maybe nepotism, but it's not fraudulent." I'm just gonna help a friend. We refer business all the time. Doesn't seem wrong, right? Probably not. So she didn't tell anybody that the firm that she recommended was her husband's firm. So she had an inclination that probably I should keep that a little bit secret. But what happened is he was awarded a contract. It was a printing contract because she was doing... Her company was doing litigation cases, and so there was a lot of photocopying involved. And so her husband's copying business got the contract, things were going fine until he started submitting phony invoices for work that had not been done. So Kayla was in a tough place because, "I didn't tell my partners that my husband was doing the work, and now my husband is not doing the work, and I'm trying to save my marriage and keep everything together at home. What do I do?" Kayla had the power to approve the invoice. Should she approve or should she not? So what do you think she did? She approved the invoices, the fictitious invoices. Now, this is a really long story, and my only point here is the only reason why she did this is to help her husband. She was an equity multimillion dollar partner. She didn't need the money, and she was trying to preserve her marriage. And long story short, he was arrested for something outside. You gotta read the book to find out. He was arrested for something else he was doing. And when he was arrested and the police started looking into his life, they noticed, "Hey, your wife..." First of all, her husband had this business that was making millions of dollars and his wife was an equity partner in these law firms at this law firm, and they started looking into her life and realized that this embezzlement scheme was in the making. And that's how they both ended up going to federal prison. Now, why did she do it? To help her husband. That's the only reason why she did it because she didn't need the money. Righteous perpetrator. And what's interesting is a lot of us may do something to help a friend, to help a family member, to even help a colleague. And we might not think initially it would lead to prison, but it can. That's the righteous perpetrator category. So as I've interviewed and met righteous perpetrators over the years, I tell you, there are times when my eyes are swelling with just holding back tears because I feel so bad for them. But what I've also noticed is the number of people that will help them. So there was one righteous perpetrator I interviewed years ago. Her name is Elise Dixon, and she was involved in a mortgage fraud scheme. And I won't go into the story, but what I will tell you is she had a great law firm offer pro bono services for her because she was a good person. They understood how it happened. She was trying to help a friend. And so what I've noticed about the righteous perpetrator category is people will help them. And a lot of times when you talk to perpetrators, they'll say, "I lost friends. No one will return my phone calls." But when there are intentional perpetrators, that happens. But when they're righteous perpetrators, people come to their aid and help them and give them second chances. And so I've noticed, I've just watched my students interact with the righteous perpetrators. They're emailing them. They're giving them contact information. They even sometimes have given them... I saw this job announcement. Maybe it's something that you could do. They just go out of their way to try to help. And I think it's because they can empathize with what they did. Not to say they would do the same thing, but they can understand how it happens. Now, if you were ever to be a perpetrator, and I know when I say that, they make you feel a little uncomfortable, but if you were ever to be a perpetrator, it could be a righteous perpetrator or an accidental perpetrator. And those two categories should really scare you a little bit, Because the likelihood of you being an intentional perpetrator is probably slim to none. But the likelihood of you wanting to help a friend, turning a blind eye to a transaction, and being righteous perpetrator, the statistics are higher there, and the accidental perpetrator should scare you even more. When I was thinking of this category, I was very strategic about using the word accident because an accidental perpetrator is somebody they're a team player. They are a people pleaser. They don't rock the boat. You ask them to do something, they do it. They trust, they trust blindly. They are loyal. And that might sound like you. Think about this. If your boss, your supervisor asked you to do something and you trust them, you probably don't think twice about it. If they asked you, "Go and book this entry, we can reverse this entry next period. We just needed to make the financial statements look the way we need. We'll fix it later." You trust this person. You might do it. Now, that entry that you book in your financial statements could be fraudulent, and you're not thinking about that because you have 100% trust in your supervisor's command of you, but it could land you in prison. Now, that's the accidental perpetrator dilemma that they find. They wanna please. They wanna follow the boss's orders, but the what if the boss's orders are faulty? What do you do? Do you speak up? Do you say something? These are the people that sometimes just stay quiet. And this has happened to all of us. We can probably sit and think on one or two hands the number of times that we've sat in a meeting, someone's asked us to do something and you're just like, "Nah, I'm not signing off on that. I'm not putting my name on that." But there might be a time that you didn't do that and you put your name on it and hoped that nothing would go wrong. That's the accidental perpetrator, and that could be any of us, any of us. And so there was a gentleman that I interviewed years ago, and the way I met him is his legal counsel reached out to me. And as part of his sentencing, they wanted him to share his story with students. And so somehow people knew that I was going around the country and doing these interviews with people. And his legal counsel reached out to me and I did this interview. And so Andrew Johnson was one of the nicest men I've ever met. I mean, the quintessential accountant. When you think of the word accountant, you would think of a picture of this man. Khaki pants, a collared shirt. I think he even had some pencils and pens in his shirt pocket. I mean, just what you would think an accountant would be. Super nice. And I remember when he sat down and he started sharing his story with me, I said to myself, "How did he end up going to federal prison?" No, he was sentenced to nine months or a year and a day, and he served nine months, but he's still a convicted felon. And so I remember that story. And the impact that it had on me was this. His story was so scary to me, I never showed it to my students. I never even taught about the case because I was afraid that they would be so afraid and turned off from accounting that I never really taught and showed it to them. Because what Andy did, he didn't get any personal gain, he was following his boss's orders, and his bosses really weren't interested in learning about accounting. They didn't wanna know the details about accounting. They didn't wanna hear about the accounting equation. They didn't wanna hear any of that. All they wanted to know was make the numbers work. We're trying to be acquired, just make it work, and that was what Andy's charge was. He was the person who was the director of finance, and so they didn't want the details. They just wanted the summary. And so Andy ended up engaging in what we know today as earnings management. And he knew it was wrong, but he's trying to be a team player. He's trying to keep his job. At the time, he had a wife that didn't work, he was a sole breadwinner in the household. He had to keep his job and he had a pretty good job. I remember him telling me he just built an addition on his house. So this was not a time to get laid off. So Andy made a couple of entries, engaged in earnings management. And about a year and some change later, the FBI came knocking at his door because he was working at a publicly traded company. And you can't engage in earnings management. You can't lie about your earnings. Your earnings have to come from revenue-generating operations of your business. And so you can't smooth the earnings and say, "Oh, I'm gonna make 'em look better than they should in this period." You can't do that. So Andy found himself spending or being sentenced to a year and a day in federal prison, served nine months in federal prison, but it destroyed his life. There's a lot of judgment that goes into the work of an accountant, especially the work of a CPA, certified public accountant. And so the way you might be turned off when you hear Madoff's story is not the way that you'd be turned off when you hear about an accidental perpetrator story because you see yourself in their stories. You understand the business struggles that they have. You understand the meetings that they're sitting into. You understand their pressure. And so, you see it. And so when they get to that point, that decision point of, "I'm gonna make this entry or I'm gonna keep quiet. I'm not gonna push back. I'm not gonna tell the safety team." We shouldn't do this because it could cost lives. When you don't do that, you can empathize with the shoes that that person is in. That's the accidental perpetrator. I think what's really important for all of us to do is pay attention to corporate culture. And I know that's one of the common buzzwords that we hear about, but it is so important. The corporate culture that is lived and the corporate culture that is written about can be two different things. So we might talk about we're environmentally, sustainably, ethically, we may use a lot of these buzzwords, but how do they actually act? What happens? And so when you are in an environment, especially an environment where there's rapid growth and expansion, and that's the focus, sometimes the powers that be, the C-level, the C-suite executives may be willing to cut corners. They may not have sound internal control policies. They may not even have a sound accounting system to trace and track all the transactions. If you see that, be careful. You think about Sam Bankman-Fried. Think about the organization there. If you walked into that organization and you knew that there was no policies, there's no expense reimbursement policy, you can just use an emoji and submit your request, your reimbursement, that is a red, red, red flag. I don't know what's more redder than red, but that is a red flag that you should be very careful of because that's telling you something seriously about corporate culture. Now, FTX might have talked about, "Oh, we're innovative and we're providing opportunities for banking outside of banking." They might have said all that, but how they actually operationalize their mission is very different. There were no controls. There was no accounting system when you see things like that. And you have a intact moral compass that you wanna live by, be careful of engaging with an organization like that because they are gonna push you. They're gonna ask of you things that you may not feel comfortable doing. And so I'll use myself as an example. I'm a professor at DePaul University. DePaul is the largest Catholic university in the United States. And so knowing that, there are things that I know that the university supports and there are things that I know the university does not support. If I don't support the same things that they support or don't support, maybe that's not the organization I need to be in alignment with. So you have to think about what you're getting yourself into when you align with certain organizations. So just pay attention because red flags wave in our face all the time. Sometimes we close our eyes, sometimes we turn a blind eye, but they're there, and they're there in every organization. And thinking about Andy, he was in an organization where no one wanted to hear about accounting. Now, I love accounting. I think everybody needs accounting in their life, just like you need water, air. I mean, I think it's like a thing we all need to know, but he was in an organization that no one cared. They didn't wanna hear the details. And so when you are a officer and you have a fiduciary responsibility, being in an organization like that could be challenging. So you have to be aware and pay attention.

- [Announcer] Chapter five, "Victims and whistleblowers."

- So let's talk about prey. And prey, when I was thinking about prey again, I was thinking about my documentary, "All the Queen's Horses" and Dixon, Illinois, and Dixon, Illinois and the residents of Dixon. Okay, so we'll use those as our two examples. Dixon, Illinois was an organizational target. And the residents of Dixon, they were innocent bystanders. And let me tell you what I mean by that. An organizational target is exactly what it sounds, a target, an organization that you target. And what makes them a target is when you have predictability, visible predictability. Think about a bank. Most of us have been in a bank, and all banks sort operate the same way. There's tons of movies about banks. There are tons of movies about bank heists. And if you think about 'em, they all work the same way. We know how they operate. Everyone knows how they operate. Think about a hospital. We know how it operates. Think about even a school system. We know how it operates. And so when you have visible kinds of predictability that anyone can learn, that can make you an organizational target. So using Dixon as an example, the city government ran a certain kind of way. And so because Rita knew that, it made it easy for her to know where to hit, where to take money, where not to take money, what documents to forge, what documents not to forge. That made Dixon an organizational target. When you think about innocent bystanders, Well, now, that term is also somewhat self-explanatory, but what's scary is we are innocent bystanders in so many categories of our life that that should just make you pause. And the story that really brought this to life for me was a story that I talk about in the book, and it's the story of Dr. Robert Courtney. Dr. Robert Courtney was a pharmacist in Kansas City, Missouri. And what he did is he diluted cancer drugs. So imagine that you are diagnosed with stage four pancreatic cancer or stage four breast cancer. You go to your doctor. You go to your oncologist and you're there for chemotherapy. They put the IV in your arm. They set you up. You think you're getting the drugs that you need. Well, Dr. Robert Courtney was a compound pharmacist, and what he did was, well, what he didn't do is put the correct dosage in the drug. So people were really getting saline solution instead of the necessary drugs. Now think about the role of an innocent bystander here. We have no idea that the pills that we're taking are what they say they are. We have no idea that the water we're drinking does or does not have any contaminants. as long as it's clear. We have no idea that the airplane that we get on is working, That all of the equipment has gone through all the appropriate safety protocols. We just assume and trust, and we trust blind blindly. That's the innocent bystander category. Just like we have various categories for perpetrators, and we have various categories for prey, we also have various categories for whistleblowers. And where this came from is a TED Talk I did years back. And my TED Talk, the title was, "Why do we hate Whistleblowers?" I mean, just really ask yourself that. Why do we hate a person that is willing to come forward with information that quite frankly you're scared to say? Why do we distrust that person? And so that was really the idea behind my TED talk that I did. And so when I was doing that and I was revisiting it, I said to myself, "All whistleblowers are not created the same." They're not. And so a lot of times, if I say the word whistleblower, you'll say the word snitch, rat, tattletale, traitor. Those are some of the things that we start to think about when we say the word whistleblower. And so that is just a category of whistleblowers, but all whistleblowers are not snitches, traitors. They're not all that. So it forced me to think about, let me try to change the narrative around what we think a whistleblower is and why they do it. So there's three categories that I talk about. One is an accidental whistleblower. The second category is a noble whistleblower. And the third category is a vigilante whistleblower. Now, I'll tell you where those come from. In my documentary, I remember that documentary really inspired a lot for me. And Kathe Swanson was the person that discovered the fraud that her boss Rita Crundwell was engaged in, and Kathe Swanson was just doing her job. She was not out to get her boss. She was not looking over her shoulder at what her boss was doing. She was just minding her own business, doing her job. And one day, she noticed some unusual transactions coming out of an account. Kathe is an accidental whistleblower. And when she came forward, she was celebrated. She was not ostracized. she was not attacked. She was not demoted, She was celebrated. And so when I noticed what was happening to Kathe, it really forced me more to think about these various categories of whistleblowers. Now, compare that to a noble whistleblower. Now, a noble whistleblower is a person that is among a team, and they are asked to turn a blind eye to something that they know is wrong and they don't. So say for instance, you work in a safety team, and your job is to notice all the defects on the product line. And if you speak out about a defect that you notice, it may delay a product launch, and it could lose company millions. Now, what if everybody on your team says, "Just turn a blind eye, don't say anything," or they tell a lie about what the defect is. And you decide, "I'm not doing that. It's my job to be a quality control inspector. I'm just gonna come forward and say what I know." So that's a noble whistleblower. A person that steps outside the group, says something, is the brave person that says something that nobody else will say. Now, the interesting thing about the accidental and the noble whistleblower is both of those groups don't even identify as whistleblowers. They're just doing their job. They don't understand when they need a lawyer. They don't understand when people are no longer speaking to... Well, the noble whistleblower tends to have a little blow back because they step outside of the team. So think about... A really good example was the UNC academic fraud case, and this happened years ago. There was an academic fraud scandal at the University of North Carolina at Chapel Hill for 20 years. And there were athletes that were taking something called paper classes. So classes that they didn't attend. They just got grades. There was administrators involved, other professors involved, and there was one person that stepped outside and blew the whistle on this. And so I'm using this as an example here, because Mary Willingham was the whistleblower that stepped outside of the administrative circle to let everybody know what was happening in ACC Sports at the University of North Carolina at Chapel Hill. when she did this, she was ostracized, received death threats. That's the experience of a noble whistleblower because they're stepping outside of the norm. So the last category is a vigilante whistleblower. Vigilante whistleblower, I'll even admit it, I think, most days, I'm a self-proclaimed vigilante whistleblower. I'll say it. And a vigilante whistleblower, that's snitch, rat, tattletale, traitor. That's where we tend to call a vigilante whistleblower because vigilante whistleblowers believe in justice, whether it has anything to do with them or not, they are telling. So they are the see something, say something. So if I know that your team is cutting corners, I might be on team A, and I know team B is cutting corners. I'm telling on Team B, That's what a vigilante whistleblower. Now you need all three in your organization. You can see why they're beneficial. And so what's interesting about the UNC academic fraud case and Mary Willingham is, Mary Willingham, she really started out as a noble whistleblower. She stepped outside, she said something, but then Mary was not gonna let it go until everybody across the United States knew what was going on at UNC. So she sort of toggled between a noble whistleblower and a vigilante whistleblower because she believed that she needed to fight for those student athletes that were not getting the education that they deserved at the University of North Carolina at Chapel Hill. So she became the voice of them. So those are our categories of accidental whistleblower, noble whistleblower, and vigilante whistleblower. What I think is important is understanding the rationalizations behind whistleblowers is really important when you think about establishing the appropriate internal control procedures that you need in an organization. Because if you are in a high growth organization, you may not even realize the pressures that you are putting on people that could push them into the accidental perpetrator category. If you are an organization and you don't have a sound way for people to report internally, you may not have a mechanism to support the vigilante whistleblower. So you need all of these types of controls to really help your organization thrive. One quote that I remember reading is fraud does not happen in a vacuum. It happens in a village. And so you need to understand not only the mindsets, the rationalizations of the perps, but you also need to understand what can help your organization and the rationalizations around whistleblowers. When we were reading about the Wells Fargo scandal, what I think it showed us is the everyday pressures that employees are facing. Because think about with that scandal, the tone at the top was we need to hit numbers, do whatever it takes to get there. So if that means opening up fraudulent accounts, applying for credit cards under fictitious names, do whatever you need to do to make the numbers, and that was the tone at the top from Wells Fargo leadership team, and that's concerning. If that's what employees are being faced with, if that's what they're hearing in their weekly team meetings, that we need to hit our numbers and by any means necessary approach, that's concerning. What's also concerning is with Wells Fargo, we're talking about money, but what if we were talking about health and safety? What if we were talking about hospital protocols? What if we were talking about equipment, airplanes? Would we really want people to say, "Just get it through. If it passes good enough, that's fine. As long as we can get our model engines done, it doesn't matter if they blow up, if it gets too hot outside, just get 'em through." Those kinds of ideas are really, really scary. So I think Wells Fargo showed us the pressures of day-to-day life for employees, especially for publicly traded companies that are adhering to a number that they told Wall Street. Employees are under a lot of stress, and I don't think we realize that. Now, with the Wells Fargo scandal, what really concerned me the most was I do a lot of research on whistle blowing. And as I read it and followed the case, so you have your C-suite saying, "Go and open these accounts. We just need to make our numbers." But what was concerning is the people that tried to whistle blow were fired. That part right there was a problem because now what you're seeing is the people that are coming forward are penalized. So what does that say about society? What does it say about us when the person is... You're telling me to do something wrong and I'm telling you it's wrong, and you fire me? That's a bad precedent to set. And so, I was really concerned about, what do I tell my students? Because my ending lecture in my class is always about sort of if you see something, say something. When you walk into these organizations, you probably will be the person that sees it first, because the new person always sees something first. And so what's gonna happen? Are you gonna speak up? Are you gonna sign that document when they tell you to sign it and you know it's wrong? Are you gonna find yourself looped up into a scandal? And you didn't even mean to be there? So that's always been my lecture at the end. And when Wells Fargo happened, I was sort of stunned. I was like, "Okay, what am I supposed to tell my students now? I'm really supposed to let my babies into these organizations and this is what you're gonna do to them?" I was upset because I was like, "How can I tell them to trust the process?" So my whole conversation changed. I was like, "Okay, you need a rainy day fund just in case you need to get out of Dodge and get out of this company because you've seen something. Keep your money on the side. Don't buy a new car. Live with a couple friends first. Save your money so you're never beholden to a job because you never know when you're gonna be in these situations." And so that's something that I've learned from a lot of the people that I have interviewed over the years, is they didn't feel like they could say no because they needed the job. And so if you think about, if you ask any working adult, could you quit your job tomorrow? Could you? Most of us can't. And so if you can't, that's gonna make you, force you to agree to some things that you might not normally agree to. How can we prevent that? So, Wells Fargo, really, it put me on my heels for sure because before that I was always see something, say something, report to your... Use the internal channels. Someone will follow up, someone will support you. Find a mentor inside and outside the organization. That was always my conversation, but Wells Fargo stopped it. It made me say, "Okay, maybe these organizations are not as safe as they say. Let me give you plan B on how you can survive if you need to." One thing that what I'd do when I'm teaching is I always lead with the story of why would someone want to project something different than what the numbers show? 'Cause if you think about it, numbers on a financial statement, there's lots of stories and decisions that are behind those numbers. And so what you have to remember is there's a lot of subjectivity that goes into accounting. And so my students could easily be sitting in a room and be asked to journalize something or ask to not speak up over an incorrect journal entry that they know. And so one of the things that I always lead with is follow what the standards say. What does generally accepted accounting principles tell us to do? What does the revenue recognition principle say to do? What does the matching principle tell us to do? We have guidelines that we follow. And so if you lead with that, the likelihood of you making an unethical decision or a potential fraudulent decision can be reduced. So I try to make them, force them, to understand how pressure impacts decisions. And so there is a reason why a client is going to want to have higher revenues in quarter three if they're going through a potential acquisition, or if they're trying to raise money. There's reasons why certain CEOs or CFOs may be pressured to do certain things. Understanding those pressures can also help the future CPAs of the world understand the positions, those pressure positions that they could be placed in. Andy is a perfect example of a CPA that was placed in a very difficult situation. He knew generally accepted accounting principles, but yet he didn't feel comfortable pushing back. So I try to let my students know that it's not if fraud happens in their career, it's when it shows up, how are you going to respond? And it's not just my students. I mean it's any potential investor, any creditor. These are things that you just have to understand, and just asking three good questions about some financial transactions will get people talking and get people thinking. I think we are not always as honest with ourselves as we may need to be. And I'll tell you something that happened to me. I got a handbag that I had ordered and I was so excited to get it. It came on a Tuesday, I think, in a big box at my door, unwrapped it, there was a handbag. Super excited, thought it was over. And then the next day, another handbag came, and I didn't order two handbags. I ordered one handbag. And I opened it because I thought, well, maybe Lonnie, my husband, ordered me a handbag. He didn't, but maybe, just maybe. I got two. I don't know. So I opened it and it's the exact same handbag. And so what shocked me was what my village said to me about it. And I said, "Guess what happened. I got two bags but I only purchased one." They were like, "Girl, you're lucky." I'm like, "I'm lucky?" They're like, "Oh yeah." I said, "well, I'm gonna send the bag back." And they were like, "Are you crazy? You could sell that bag on eBay. Don't send it back. You're foolish for sending it back." And I said, "Wait a minute, you would keep this and sell it?" They're like, "Absolutely." And I'm like, "Wait, I can't do that. I mean, come on, I can't do that." And they were like, "Who's gonna find out? So I started asking people, "What would you do?" I think I asked maybe 10 people. no one told me to send the bag back. And I said, "You've got to be kidding me." And they know me. At least they could have pretended like, "Well, maybe you should send it back, but I would keep it." But they were like, "No, you should keep it. You should not send it back." And what I was shocked by, I said, well, what if, let's play this out, I keep the bag. I sell the bag on eBay, make a little profit. And then two weeks later, the company contacts me and says, "Hey, we looked at our inventory report and notice that we sent you an extra bag by mistake. Can you send it back?" Now I'm in a tough position. What am I gonna say? Am I gonna say I sold the bag? Am I gonna say, "Oh, I didn't get a bag delivered to me. You must have a mistake." What am I gonna say? I don't wanna be in that situation, but that could actually happen. So I sent the bag back. I called the store. I called the store and the woman that sold me the bag answered the phone. And I said, "Do you realize you sent me two bags?" She was like, "No, I didn't even realize it, but I'm so glad you called me because we didn't know." So I went back to those 10 people and told them I called the store, they didn't even know that they sent the bag. You know what they all told me? "You're crazy, Kelly, You could have gotten away with it." And I'm like, come on. I couldn't do that, but what if the girl lost her job? So you have to think about how your decisions impact a larger issue. And so that was really eye opening. I would've never thought to keep it. I mean it wasn't even my initial thought. So it goes to show you that when no one's looking, maybe a lot of us would just keep going, keep the bag, sell it, and go out to dinner. Maybe a lot of us would do that. Because if we think that we're not gonna get caught, then maybe we would do it. Something I do in my class is, at the very beginning, they have to do an ethics survey. They have to find 5 to 10 people, and they have to go through these various scenarios to ask, how would a person respond? And so one of the examples is this. You hop in a cab. I don't use Uber. You hop in a cab and the cab driver gives you a receipt. And when you go back to your office to submit the receipt for the reimbursement, you can't remember how much tip you added. So you just add $5. Is that okay? And so that's one of the scenarios. Another scenario... I have all these scenarios in the book too because I think it's a really good conversation starter, but this is the one that gets people. I ask them, "You and a colleague go to lunch. You and a colleague in the same industry go to a work lunch. You spend five minutes talking about work stuff and an hour talking about personal stuff. Is this a work lunch that you would expense out?" I have never done this story where I've gotten 100% agreement. About 50% say that it is a work lunch, 50% say it's personal. The 50% that say it's a work lunch say, "Oh, this is networking and your intention was to talk about work. You just happen to start talking about personal stuff. This is a work lunch." The other 50% say, "It's totally personal because it was a friend of yours, you already knew the person, and this was strategic." Now, I'll add a layer to this. You've gone to lunch with this person for 10 times this year. Is this a work lunch or not? Still people say, "Yep, it's still work. It's still networking." So it's interesting how we rationalize what we do. Something else I do in my class. At the very beginning, I'll say, "Raise your hand if you're ethical." Of course the whole room raises their hand 'cause everybody's ethical. Everybody's ethical. You're not as ethical as you think. I mean, that's just one thing we have to admit. We're not as ethical as we think. And so you might be as ethical as an intentional perpetrator, you might be as ethical as an accident perpetrator, and you might be as ethical as a righteous perpetrator, but we are not as ethical as we think. And so I think that when we're honest about that, when we're honest about that, that will prevent us from making future mistakes. I think the path forward is to recognize that no one is ethical. And we all need internal controls around us to protect us because that's the only way we're going to really own up to our opportunistic selves. And I really believe that because... I'll give you an example. So years ago this guy came to my class, and he had engaged in insider trading. And he was young, very close in age to my students. And he went through his story, and he and another gentleman had determined how... He was a lawyer at a big law firm and the lawyer had information about some big mergers and acquisitions and told that information to his friend. And the friend came to speak to my students. And so he was speaking and opened the floor up to questions. And the first question that a student asked was, "Okay, how can I do what you did but not get caught?" That was the first question. And so when I say that we need to own the unethical aspects of our decision, because if we can own it and be honest about what we would get away with, then I think that can protect us. A lot of us do things that we don't think are unethical. For example, a lot of us plan parties during work hours. A lot of us take work supplies home. A lot of us use our work computers for personal. A lot of us go on a conference trip and take our whole family and they stay in the room. We do all kinds of things that we say is okay, but if we really are honest with ourselves and ask ourselves, does this pass the test? If I had to report this or someone asked me about it, would it be a problem? If we thought about that, I think we could be more honest and we could work on ourselves, but we are so ethical that we never do anything wrong until we're caught, and so I think that's part of the problem.