Do you know how to improve your ethics and the ethical behaviors of other accountants in your firm?
Professional ethics are critical for optimizing your accounting firm, and a single unethical act can negatively impact others’ behaviors. You can increase your firm’s ethics by developing a greater understanding of how ethical and unethical decisions affect other people as well as your subsequent choices.
Gusto, along with our partners at CPA Academy, gave an informative webinar all about improving accounting ethics. We released our webinar, “Ethics: How D&D, Venmo, and Hourly Billing Rates Shape Your Professional Ethics,” and you can watch the full presentation here.
This article shares critical observations about ethics from Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Editor-at-Large at Gusto. They discussed how ethical and unethical behaviors impact others, the problem with billing by the hour, and how to stay on track with professional ethics.
Ethical decisions and unethical actions are infectious
Greg and Caleb shared details from a fascinating experiment conducted by behavioral economist and MIT professor Dan Ariely. His experiment exemplifies how unethical behavior is infectious. A single ethical or unethical choice can impact other decisions in your life, and these decisions affect others’ ethics as well.
Dan Ariely conducted his experiment by having three groups of people take a written test. The experiment participants had the opportunity to cheat on the test. Before each group took the test, they received a pair of brand-name sunglasses. He gave the sunglasses to each group and told them to write a short review about them. He told the first group that the sunglasses were authentic designer sunglasses. The second group functioned as a control group, so Dan handed out the sunglasses but didn’t say anything about them. He told the third group that the designer sunglasses were fake:
“He gave them authentic designer sunglasses, but he told the third group that they were knockoffs. He lied to people in order to test how ethical they were. … He tells them, ‘Hey, these are knockoffs. I need you to look through these knockoffs, fill out a quick review about them, and then take this test.”
– Greg Kyte
The sunglasses’ different backstories directly impacted the percentage of people who cheated on the test. Those who were told that the sunglasses were knockoffs were far more likely to cheat on the test:
“[For] people who had the authentic backstory that they were for real designer sunglasses, 30% of them cheated. … For that control group who had no backstory, 42% of them cheated. … People who got the knockoff backstory? 72% of those people cheated. The authentic backstory to the knockoff backstory more than doubled the cheating.”
– Greg Kyte
Interestingly, the experiment’s participants who received the knockoff sunglasses didn’t personally steal or deceive anyone. They only came in contact with the fake designer sunglasses, which impacted their ethical behavior while taking the test.
“Being in contact with something that’s unethical primed them for unethical behavior to the point where it doubled the [number of] people who [cheated].”
– Greg Kyte
In addition to Dan Ariely’s test, Greg and Caleb discussed an experiment that indicates that ethical behavior also spreads. Some participants in the experiment were given a dollar and told to walk to a different area where the rest of their experiment would occur while others didn’t receive a dollar.
“On the street, they planted someone who was panhandling for money, and the people who were given a dollar right before they walked down the street were much more likely to be generous with the person who was panhandling than the people who weren’t [given money]. Now, I think it was a little bit more involved than [that] just because they happened to have a dollar of cash and weren’t without cash, [but] it seems like they controlled for that as well.”
– Greg Kyte
The two experiments indicate that ethical decisions impact other areas of your life and impact others around you.
How the billable hour negatively impacts professional ethics
Time tracking is an incredibly common billing method for accounting firms, but it can negatively impact accountants’ ethical behaviors. Working with billable hours usually leads to accountants overestimating or underestimating the time it takes to perform a task. Accountants also manipulate their time tracking in order to avoid conflict with clients:
“A lot of times, the pressure is on you to make sure that your billable hours are high, and so you go, ‘Oh, which one of these clients is least likely to complain about their bill? … I’m going to put more time into that engagement as opposed to these other engagements where people are a little more sensitive to what they’re being billed for.’ … When you pad time to a particular client, you are obviously lying.”
– Greg Kyte
Overestimating the time it took you to perform a task is a form of fraud. Additionally, underestimating the amount of time you worked is also deceiving:
“Another thing that happens all the time is [that] people eat [their] time. If you’re on an audit engagement and you know that your team is going to get wrung out if you go over your budgeted number of hours for the audit engagement, … there’s pressure on you to make sure that you stay within your budget of time. … It’s weird because it feels altruistic, but it’s still lying.”
– Greg Kyte
Being dishonest about your number of billable hours is unethical. Numerous accountants engage in this behavior because keeping track of every detail of the time you work can be tedious and inconvenient. Caleb noted that staying on top of timesheets is especially challenging during busier periods:
“I was a senior associate … [and] inundated with work. It was just constant, and the administrative tasks are just kind of like [an] insult to injury. I would go through these very brief spats of diligence [and would] fill out my timesheet on a daily basis, but it always broke down after a while. … It would never hold.”
– Caleb Newquist
Manipulating billable hours is incredibly common and may not seem significant, but it increases your likelihood of engaging in other unethical behaviors:
“When people are exposed to unethical behavior or are engaged in unethical behavior in one arena, they end up being unethical in other areas that are more important. … Even eating your time [is] lying, and, according to the research, it’s going to prime you to make worse ethical decisions in other places. It’s not going to force your hand, but it’s going to prime you for that.”
– Greg Kyte
Underestimating or overestimating your billable time may seem trivial, but it is unethical, and it can negatively impact other areas of your work.
Staying on track with your professional ethics
Three primary components contribute to someone committing fraud. These components are known as the fraud triangle, and they include opportunity, pressure, and rationalization. Lying about timesheets exemplifies the different components of the fraud triangle:
“There is opportunity. No one is ever going to come to you and say, ‘Hey, your timesheets look a little out of whack.’”
– Greg Kyte
Accountants typically have ample opportunity to commit fraud on their billable hours. They can also easily rationalize the unethical behavior:
“There’s tons of rationalization where you go, … ‘Well big picture, it probably averages out over time that I’m giving people the right amount of hours to the right jobs that I’m on.’”
– Greg Kyte
There’s also pressure to artificially construct your timesheets because it can be challenging to maintain accurate billable hours while you have a lot of work.
Although being inaccurate with your billable hours may increase your likelihood of being unethical in other areas of your life, you can avoid unethical behavior by being more aware of your potential for committing wrongful acts.
“If you’re aware that something you’re doing is priming you for less ethical behavior, that’s one way to combat it.”
– Greg Kyte
You can reduce fraud in your firm by restructuring the way you bill clients:
“Maybe you’re at a position in your firm where you can move toward fixed prices and value pricing and things like that where you don’t need timesheets for things. If you can get away from timesheets, personally or at your firm, that’s going to actually help you increase your ethical behavior.”
– Greg Kyte
When accountants lie about their billable hours, it increases the chances that they’ll commit unethical actions elsewhere in their work. Changing your billing structure to do away with timesheets can increase the ethical behavior in your accounting firm.
Learn more about professional ethics
Using billable hours increases your likelihood of committing fraud because unethical behavior is infectious. Dan Ariely’s behavioral experiment indicates that committing a wrongful act primes you to engage in other unethical actions, and it also increases the chances that someone around you will also engage in poor conduct. You can improve your accounting firm’s ethical behavior by restructuring your billing so that you no longer utilize timesheets to charge clients. If you cannot offer fixed or value pricing, you can improve your behavior by remaining acutely aware of your potential for unethical actions.
If you want to learn more about accounting ethics, be sure to check out Part One and Part Two of this webinar article series.
If you’re looking for ways to improve your accounting firm, consider partnering with Gusto. When you become a Gusto partner, you get exclusive access to tools and resources to support your clients into the future. Streamline payroll and benefits, and start advising your clients in valuable new ways. Join Gusto’s Partner Program today.
