Do you really need to learn about ethical issues in accounting and how to make ethical choices? CPE ethics classes might not be your first choice for earning credits, but they’re worth taking seriously. Accountants regularly face situations where they could cave into temptation even if they’re well-intentioned, good people.
The accounting world is multi-faceted, and Gusto is here to help you cover every angle. To help you learn about fraud, we brought you another episode of On the Margins: LIVE, with hosts Caleb Newquist, Gusto’s Editor-at-Large, and Will Lopez, head of Gusto’s accountant community. The pair hosted Greg Kyte, founder of Comedy CPE, one of CPA Academy’s most experienced ethics presenters.
Do you really need to worry about being ethical?
So you’re not Bernie Madoff—the notorious criminal who executed one of the biggest fraud schemes in history. And perhaps you pride yourself in being a professional with high standards and codes of conduct. So you may be thinking, “Ethics? Why ethics? I’m the last person who needs to be taught right from wrong.”
Greg Kyte explained that even the strongest people can waver in the face of temptation, especially if it’s ongoing. Greg shared that when given a repeated opportunity to commit fraud—whether it’s pocketing tips or writing illegal checks—it’s often just a matter of time. When there are no ways to keep us accountable and we have the opportunity to steal on a daily basis, it can wear us down. Does that mean that every single person who can steal, will steal? No. But you should still arm yourself with information to help keep you accountable and recognize signs of fraudulent behavior in others.
Sometimes the most unlikely people commit fraud. One way that good people justify bad behavior is through the process of rationalization. Greg noted that humans are good at this:
“I think most people go, ‘I’m a good person. I’m going to do the right thing,’ but the problem is that as human beings, ethics is always contextual, and I’m not saying contextual in terms of the circumstances that you find it in. I’m saying contextual in terms of socially contextual. The biggest thing that people do to judge whether or not they’re being ethical is they look around at the other people who are in the same situation they are, … and they go, ‘Am I being at least as good as everybody else who’s in this little cohort?’”– Greg Kyte
An example of this at play might be when several colleagues are pocketing a portion of customer payments. If someone were to rationalize their own bad behavior, they’d probably tell themselves things like, “Everyone else is doing this much more than I am,” or, “Tim did that, and he’s such a good guy. If he’s a good guy and he can do that, then it’s no big deal if I do it.”
As an accountant, you don’t need to be in the ranks of Enron to give in to temptation. In one of the biggest accounting scandals ever discovered, the fraudsters at Enron and their accounting firm, Arthur Anderson, deceived regulators with false holdings and off-the-books accounting. Corruption on that level may not be commonplace, but low-level crime is more prevalent, especially when there are regular opportunities to be corrupt without anyone knowing about it.
The fact is, most CPAs have a high level of access to the opportunity to commit a financial crime, which is one of the risk factors for fraud. Even the most well-intentioned people can give into moments of temptation, whether it’s a single time or repeatedly. Additionally, it’s all too easy to rationalize bad behavior if you feel significant pressure.
What causes people to make unethical choices?
It’s helpful to look at the Fraud Triangle to break down how fraud occurs. The Fraud Triangle theory holds that all fraudsters have three things in common: they have the opportunity to commit fraud, they feel pressure to do so, and they rationalize their behavior.
For example, someone might face crippling debt, which creates pressure to steal. They may then work in a financial institution with little to no oversight to prevent fraud. Alternatively, maybe they join an organization that is in flux, and they’re given a multi-faceted role that doesn’t have proper checks and balances. Before, during, and after committing fraud, they rationalize their actions by reminding themselves of how financially desperate they are.
It’s easy to make excuses when emotions fuel you. Greg gave the example of a person who steals because they can’t feed their family. That seems like a good excuse, right? But what happens when they feed their family but then steal again just because they can?
He explained that this happens frequently—someone will initially commit fraud for a somewhat understandable reason, but then they’ll continue the behavior and even escalate it.
When do people commit the most fraud?
Having the opportunity to commit fraud is a big part of the equation. Fraud can’t happen without opportunity, and the more frequent that opportunity occurs, the higher the risk for theft.
“If you’re in a situation where you could be unethical for long enough, the psychological research says that eventually you’re probably going to get worn down and you’re going to make a bad decision at some point, and then it’s hard to get out of that bad decision.”– Greg Kyte
Greg demonstrated his point by sharing a situation from his own life which could have led him to commit fraud.
“I’m the in-house CPA for a group of medical office buildings. … I’m also [their] self-storage facility manager. I’m a one-man band for that—I do the whole thing by myself. I find customers, I set prices, [and] I collect money. There’s zero separation of duties. There’s no oversight. I guess I can’t technically write checks out of the checking account for that, but one of the big loopholes I saw was [that] I’ve got customers who pay in cash. I could easily … pocket that money and the owners would be none the wiser, and that [would] just be tip money for Greg every day.”– Greg Kyte
Even Greg—who teaches about ethics—foresaw that he could be tempted to steal. So what did he do? He used one of his own proven techniques to help mitigate the chances of fraud. He talked to the owners and explained to them that the way things were set up would be really easy for him to steal cash payments from them. While he admits that it was an awkward conversation, he was relieved because he had made the possibility of fraud public, which was a powerful way to keep him accountable.
“The silver bullet for ethics is complete transparency.”– Greg Kyte
Greg went even further. He convinced the owners to stop taking cash payments, thereby eliminating the opportunity altogether.
“I go, … ‘You know what? Cash payments are a big pain in the butt anyway. I can deposit checks remotely. I can’t deposit cash remotely. I’d rather not take a half-hour out of my day to run to the bank every time I get a cash payment,’ so [we] just stopped [taking] cash payments. The other thing about making any ethical problems that might exist public is that then you go, ‘Oh, there are ways to fix that, and here’s the easiest way to do it.’”– Greg Kyte
You can gain this type of practical, actionable advice by taking good quality CPE ethics coursework.
What to look for in a CPE ethics course
Not all CPE ethics courses are alike. Greg shared an example from a CPA conference. A presenter gave an ethics lecture about the problem of self-driving cars. The dilemma she presented revolved around whether it’s ethical or not to allow for potentially dangerous automated automobiles. While Greg pointed out that that is a dilemma, it has nothing to do with the day-to-day life of an accountant. On the other hand, situations that involve embezzlement or theft—which could occur for an accountant—are more relatable.
“Everybody talks about how horrible ethics CPE is, but … we don’t recognize the ethical choices that we’re making at a very, very, micro-level every day throughout our day, and that’s what I like to look at.”– Greg Kyte
When selecting CPE ethics coursework, seek out teachers who have a history of teaching relatable material in an entertaining way. Don’t just take a class to earn CPE credits.
“What I dive into with my ethics courses and what really fascinates me is looking at the things that nudge ethical behavior. There are behavioral psychologists and behavioral economists [who] have done tons of studies where they go, ‘Okay, well, here’s a place where people’s ethics can be tested. What sort of circumstances can we put in there to nudge them toward greater ethical behavior?”– Greg Kyte
Greg is a regular lecturer at CPA Academy, where he dives into case studies and principles of ethics in accounting. He’s covered fascinating topics in his coursework including:
- Case studies of famous fraudsters detailing how they committed fraud
- Red flags for fraudsters and fraudulent behavior
- Pressures that might lead to someone committing fraud
- Fraudsters’ common rationalizations
- Patterns in fraudulent activity, such as an escalation in amounts or frequency
- Research regarding temptation and ethical behavior
- Strategies to reduce the risk of fraudulent activity
Learn more about CPE ethics
CPE ethics courses are more applicable to your career than you might think. CPAs have access to sensitive financial data, and they may have the chance to commit fraud on a regular basis. Not everyone who engages in fraudulent activity is a con artist who actively seeks out these opportunities. Many are people under pressure and are given repeated exposure to conditions in which it’s easy to commit fraud. Humans are good at rationalizing, and it’s these rationalizations that can make it easier for good people to engage in illegal activity.
Gusto is here to raise awareness about all aspects of accounting. If you haven’t already, check out our other article based on the same episode: “To Timesheet or Not to Timesheet: Are They Really Worth It?”
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