Fifty Shades of Fraud

One of the teaching methods I’ve used for several years is called “50 Shades of Fraud”.  For those who have seen the movie “50 Shades of Grey” (to be honest, I haven’t), I plagiarized the title for my purposes, but we’re talking accounting, so obviously, this isn’t nearly as exciting. 

On a certain level though, it is exciting.  I’ve grown to really enjoy the topic of fraud and ethics in my courses, and there’s a wealth of great material out there about people finding ways to steal and justifying it for whatever reason they come up with.  One of the foundations of fraud theory comes from Donald Cressey’s Fraud Triangle.  According to Cressey, fraud results from the convergence of three factors: pressure, opportunity and rationalization.  Basically, if for some reason, someone feels pressure to steal because they need money, if they have the opportunity where they work, and they can somehow rationalize it, they will do it.  Simple example would be I have medical bills mounting up that I can’t afford to pay, I’m in a position at work where I have access to the company’s bank accounts, and I feel like the company owes me because I’m a really good employee.  If you read the fraud cases, there are a number of situations that somehow fit this pattern.

It is estimated that 85% of the population would commit fraud given the right stimulus or tipping point, and 5% would do so regardless of the conditions.  This leaves only 10% who would not commit fraud under any circumstances.  Really, pretty sobering statistics, no idea how accurate, but this is based on fraud studies, so I would tend to believe they aren’t that far off.

Now many of us have heard about Enron, WorldCom, Tyco and Bernie Madoff, situations where people in power stole billions of dollars, but there are an incredible number of cases in places near and dear to us: churches, local government, non-profit entities.  These types of organizations are ripe for the taking, mainly because people are so trusting, and it’s usually perpetrated by someone who has been working there for years and has the trust of everyone.

For my classes, I present a scenario from my work career, one where I crossed an ethical line, and ask them, “On a scale of 0-50, how would you rate this on the Fraud Scale?”  Before anyone gets too excited, for the most part, the situations typically aren’t that exotic, and I would embellish the stories because I couldn’t come up with enough exciting material for this, but I do have a few moments of questionable ethical choices in my career that I can share with them and give them some learning moments and see what their reaction is.

What’s been great about each of these ethics segments is the interesting answers I get from some of the students.  One of the ones that has been the most enlightening to me has been when I talk about “Sandbagging a Budget” to corporate, a universal practice I’ve seen and used throughout my career.  I describe the process of submitting a budget to corporate and understating anticipated revenues and overstating anticipating expenses to make the budget more reasonable or achievable.  I’ve gotten some incredible reactions, and in many cases, I’ve been told that they would rank what I did as a 40 or even a 50.  I’ve defended myself by saying, “Everyone does it!  If I didn’t sandbag the budget, corporate would think I did, and make me push our numbers even higher!”  They don’t buy it.  And they shouldn’t.  The best analogy I can come up with is when athletes use performance enhancing drugs, and they justify it by saying “Everyone does it!  I have to take PED’s so that I can compete!”  Do we buy that?  No, we don’t and shouldn’t.

I had a few more that were less serious, and I really ran out of great examples of questionable ethics that I committed, and I eventually had to introduce another segment, “What Would You Do?”, where I would describe personnel situations I’ve dealt with and I get their feedback on how they would have handled the situation.  In some cases, I get a hardline response, “I would have fired them!”, and then sometimes, I get some great responses that make me think, “I wish I would have taken that approach.” 

This whole process has taught me a lot, I’ve grown to really value my students’ opinions, they make me re-evaluate each situation in a different light.  I keep trying to come up with more, different scenarios, and I’ve remembered a few more from my past, some are a bit weak, some I have to embellish a little more, but I still think it’s good learning material for students who will be entering the work world very soon.

But there is one “50 Shades of Fraud” that I use for every class.  It is by far the most egregious act I’ve ever committed, it happened over 20 years ago, and I still suffer from the memory of it. 

I was a General Manager, and we had a major customer/partner that we worked with.  They were incredibly arrogant, and they treated my personnel like shit, but we did a lot of business with them.  They tended to believe they were much smarter and better business people than we were.  The one time, somehow, someone made a mistake on their part, and they overpaid us on a project.  When my accounting group brought it to my attention, I said, “OK, if they’re so smart, let’s see if they figure it out.”

They didn’t.  And we kept the money.  Now, it wasn’t a huge amount of money, but it wasn’t our money.  Why did I do this?  Great question, and I wish I had a great answer.  Pride?  Ego?  Anger at how they treated us?  Could be many things, but it just doesn’t matter, what I did was wrong. 

I’ve shared this story with my therapist, and she vehemently tells me that I shouldn’t share this story with my students.  Every time I raise it each semester, I get the shit kicked out of me by my students and told what an awful person I am.  She obviously doesn’t feel this is a wise decision on my part. 

Here’s a sample from one of the students I respected the most from one of my MBA classes, she really nailed it:

“O.Em.G. My mouth dropped on this one when I got to the part of over payment "let's see how smart THEY really are" and did not give it back. Devil’s advocate here, totally get it. NOT your fault, that is on them. Wouldn't that be like someone dropping money on the ground who "just" so happened to be walking in front of you, YOU did not say anything after picking it up to pocket it for yourself. Wonder when they will find out they lost it, let's see.   50 shades of FRAUD 100/50. Lol”

It’s kind of funny, the part about someone dropping money in front of me really hit me.  Of course I’d give their money back!  Oh….

I still share this situation every class, every semester.  And do you know why I do it?  It’s not to get the shit kicked out of me, I’m already really good at that, it’s for them to see what it does to me.  I committed this act over 20 years ago, and it still haunts me.  At the end of the semester, I bring this situation up again, and I tell them, “This happened over 20 years ago, and see what it’s done to me.  If you ever get into a situation where you have to choose the right path, or violating your ethical principles, I want you to think about me.  I want you to think, do I want to suffer for a moment of bad judgment for the rest of my life?” 

I hope none of them ever face a situation where they have to make an ethical decision like this, but based on my experience, I’m sure they will.  I hope that if I’ve taught them nothing else in my classes, I’ve taught them the value of ethics and the value of doing the right thing.  And of course the consequences of not doing the right thing.