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Join us for an insightful episode of Count Me In as Adam Larson sits down with the authors of the 2023 Curt Verschoor Ethics Feature of the Year, Dana Hermanson and Douglas Boyle. Dana, the Dinos Eminent Scholar Chair of Private Enterprise and professor of accounting at Kennesaw State University, and Douglas, professor and department chair in accounting at the Kania School of Management at the University of Scranton, share from their award-winning article. In this episode, they introduce the Fraud Prevention Pyramid, a crucial framework with five stages to help professionals build resilience against fraud.
Dana offers practical advice on preparing for and defending against pressure in the accounting world, while Doug emphasizes the role of emotional intelligence in recognizing and mitigating fraud risks. Discover tips on navigating ethical dilemmas, avoiding common pitfalls, and the importance of skepticism in today's tech-driven landscape. Whether you're an accounting student or a seasoned professional, this episode is packed with valuable insights to enhance your fraud prevention acumen and ensure integrity in your financial reporting. Tune in for a conversation that's both enlightening and essential for anyone in the field of finance and accounting!
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What is Count Me In®?
IMA® (Institute of Management Accountants) brings you the latest perspectives and learnings on all things affecting the accounting and finance world, as told by the experts working in the field and the thought leaders shaping the profession. Listen in to gain valuable insight and be included in the future of accounting and finance!
Welcome back to Count Me In. I'm your host, Adam Larson. And today we have a special episode for you. We're joined by the authors of the 2023 Curve For Sure ethics feature of the year, Douglas Boyle and Dana Herminson. Douglas is a professor and department chair in accounting at the University of Scranton, and Dana is the Adeno's Eminent Scholar Chair of Private Enterprise and professor of accounting at Kennesaw State University.
Adam Larson:They are here to discuss their award winning article, The Fraud Prevention Pyramid. We'll explore how their insights, drawn from teaching both masters and undergraduate studies, can help you defend against fraud. We'll also touch on the pressures accounting professionals face, the role of professional organizations, and the need for early behavior focused training. Get ready for a conversation on the subtle progression of fraudulent behavior and strategies to stay ethical and vigilant in your professional life. Stay tuned.
Adam Larson:Dan and Doug, I'm so excited to have you guys on the podcast today as we're gonna be talking everything surrounding your award winning article. And I figured to start off, maybe we could talk a little bit about the fraud pyramid, the fraud prevention pyramid. It's a it's getting gaining more popularity as people are digging into fraud with all the different things that are happening. And maybe we could talk a little bit about the five stages of the pyramid and why you believe each the stages are really essential for financial professionals.
Dana Hermanson:Sure. Really, what this was was an effort to try to pull together a lot of work that that Doug and I have done and and many others have done. And I and I think there's this notion that as accountants will be subjected to pressure at some point in our careers. And what a lot of people worry about is, what do I do to prepare myself for that? How can I what do I need to know?
Dana Hermanson:What do I need to be prepared for? How do I react when, when pressure comes? And this article is really an effort to try to pull together a lot of different resources into a structure that people can work with. And it it starts with level 1, developing fraud awareness and acumen, is an effort to understand, you know, what's the nature of occupational fraud? What's the nature of fraudulent financial reporting?
Dana Hermanson:You know, those are 2 very different types of fraud. You move from there up to understanding fraud ingredients, where we start with the traditional fraud triangle, talk about the fraud diamond that, David Wolf and I proposed about 20 years ago, which focuses a lot more on the skills of the person as opposed to the the setting. You work from there up to avoiding common fraud pitfalls. And some of the work that Doug has done with his colleagues, looking at, you you know, avoiding the fraud mindset, you know, being prepared and, you know, defending yourself against, potential pressure. Then you move to mitigating dark triad traits and pressure.
Dana Hermanson:So there are certain personality types that we know are associated with a greater risk of fraud. So you gotta recognize those, you gotta defend yourself, and you're in the, you know, in the presence of those. And then finally, the the top level is mastering emotional intelligence. Again, leveraging on on Doug's work with his colleagues in this area. And really, this notion that if you have, you know, well developed emotional intelligence, you're much less susceptible to the kinds of pressures that may be thrown your way.
Dana Hermanson:I don't know, Doug, if you had other thoughts on kind of the overall model.
Douglas Boyle:No. I I I think that's about right. And a lot of this came from our teaching in in the classroom for master's students and also undergraduate students because it is complicated and there's a lot of components to fraud. It's not just simple, an internal control topic. So we use this a lot in our in our teaching as well, and we found it to really be a good way to frame it for students.
Douglas Boyle:Yeah.
Dana Hermanson:But, one of the articles we had in, management accounting quarterly in 2022 on how to defend yourself from pressure was really directly motivated by comments from students in class. Mhmm. And I had a student say one day, you've successfully scared the heck out of me in this fraud course, but my question for you is what do I do about it? And and Doug and I soon talked, and we we gotta write a paper on this. We have at least I had in class probably focused too much on the fraud cases and what had happened and not enough on, oh, gosh, this is what we need to be telling the students, that Mhmm.
Dana Hermanson:Pressure is a reality. You talk to anybody in practice and they've been pressured. And what do students need to be thinking about today in order to to defend themselves?
Adam Larson:I mean, that's a huge that's a huge thing because you can talk about theories, you can talk about what people have done in the past, but until you're faced with that actual situation
Dana Hermanson:Yep.
Adam Larson:It's a whole different whole different ballgame. And Yes. It's really difficult when you get to that point.
Dana Hermanson:Yep. Yep. And I think part of what we're trying to do with these efforts is to not have somebody get 4 or 5 years into their career
Douglas Boyle:Mhmm.
Dana Hermanson:And face a pressure point and be stunned that it's happened. We want them to know that this is a reality. Yeah. K? In in accounting, people care a lot about the score in business, and and part of your job is in accounting is is scorekeeping and and keeping record of of what's happening, and and pressure will come.
Dana Hermanson:So don't be stunned when it happens. And what I tell my students is decide ahead of time how you're gonna respond Yeah. And and and have have ways to to fend it off as opposed to, oh my gosh. I can't believe this happened. I don't know what I'm gonna do.
Adam Larson:So it's interesting as you guys are talking, you talked a lot about, you know, emotional intelligence and really understanding people. And it's almost it's almost like so do do accountants need to get, like, a a a minor in, in psychology so they can understand how the human brain works before they get into the workplace.
Dana Hermanson:I I think there's definitely a strong human dimension Mhmm. To this. You know, I I I love the analytics that people are using now. I I love the potential of AI, but David Wolf is a, you know, coauthor and, forensic accountant, spoke to my graduate class probably 20 years ago. And he asked a question in that session that changed my teaching career and changed my research career.
Dana Hermanson:And the question was, what's the number one cause of fraud? And my students ran laps around the fraud triangle. They had greed and pressure and incentive and, you know, compensation plans and weak controls and all sorts of things. And David stood up at the front of the room and smiled through all those responses. He said, no.
Dana Hermanson:None of those are the number one cause of fraud. So the number one cause of fraud is people. And everybody groaned, me included. But it led to a series of conversations where it really changed my way of thinking that fundamentally, fraud is a setting where one person is lying to other people. And you have to appreciate the skill set that goes into that.
Dana Hermanson:You have to appreciate who you're dealing with. And as we head more into a remote work world, I think a challenge for everybody is still having that ability to read other people when you're not seeing them on a day to day basis. So so this this theme of it's a people issue kinda goes through everything, and and Doug, that certainly goes through the work you've done with your your colleagues at Scranton too.
Douglas Boyle:Correct. Yep. And it's not just about people. It's about yourself too. Mhmm.
Douglas Boyle:Because, a lot of the articles we write is these students could potentially make bad decisions in the future or professionals can too. Because most people who engage in fraudulent activity are first time offenders, and they're generally viewed as good corporate citizens. So it's not just to prevent others from catching us in a fraud or or or pressuring us in fraud. It's our own behavior too. Mhmm.
Douglas Boyle:Yeah. So, you know, we'll get into that a little bit more when we talk about personality types. But but, you know, most people who engage in this are first time offenders. They're good citizens. They're viewed as actually surprised that they end up being fraudsters.
Douglas Boyle:So it it's to develop that mindset for themselves as well. Yeah. So
Adam Larson:you guys think that somebody could potentially be doing something wrong that is fraud that they don't even realize that is wrong?
Douglas Boyle:Yeah. I I I mean, one one thing is one one big component if you wanna talk about, you know, psychology is rationalization. Mhmm. And rationalization is the ability to sue suit your conscience. And and everybody rationalizes to some degree.
Douglas Boyle:And to some degree, it's not overly, you know, troublesome. But folks with with elevated dark triad personality types, like narcissists or somebody goes Machiavellian traits, they tend to rationalize more because they have inflated egos. So they get used to it. So they start inflow yeah. They start rationalizing smaller behaviors, larger behaviors, and a lot of folks ultimately, you know, could convince themselves that what I'm doing is a one time thing or I'll fix it later.
Douglas Boyle:And so many of them don't say, oh, I'm gonna do a a major fraud scheme and here's how I'm gonna do it upfront. It kinda works into it through a series of rationalization and pressure and then colluding with others. So that that's absolutely correct.
Dana Hermanson:There's been a lot of focus on, you know, WorldCom, Enron, other other big cases. And what you always see is this notion that we didn't sit down and decide collectively to commit a multibillion dollar fraud. Little things happened, and then bigger things happened, and then bigger things happened after that. I use a video in class from one of the the WorldCom perpetrators who talks about this notion of being a pleaser.
Adam Larson:You
Dana Hermanson:know, doing stuff that may not have been good accounting at the beginning, but but there was no switch that flipped. I'm, you know, I'm gonna jump into this. It was a gradual process, and people can get sucked in.
Adam Larson:They really can. So maybe we can take a step back. Are there common pitfalls, things that we can avoid, things that you can look out for to be aware of, like, hey, I might be going down the wrong direction.
Douglas Boyle:Yeah. That's a great point. One of our papers we wrote that was in management accounting quarterly focused on this. And and what my colleagues and I did is we really looked at a lot of fraud cases, and we used the fraud triangle to to to look at this and then later the the fraud diamond. And we focused on the human component.
Douglas Boyle:So we weren't interested in the opportunity or internal controls. Whereas we looked at it and said, what what pressures did they face, and what kind of rationalizations did they make? And and what we found is is that a lot of these fraudsters rationalized a lot. Mhmm. And they started off small, and they got bigger and bigger.
Douglas Boyle:And a lot of them did have dark triad personality types of, you know, excessive levels of narcissism, Machiavellian traits. So that inflated ego, so they didn't wanna admit they were wrong. So they they rationalize these more and more. And if you look at data, executives have higher levels of these traits to begin with. Mhmm.
Douglas Boyle:Because they they're people who wanna succeed. They wanna put themselves out there. They're, like, leading. So those traits aren't necessarily bad traits. They could be useful sometimes if they're if they're not used to a clinical level.
Douglas Boyle:But it yeah. Over time, you know, they overplay those traits, and those traits become clinical and toxic. So number 1, just realizing that that's out there, not just for yourself, but for the people around you. So if you do have these traits, mitigate them. Put some people around you who will challenge you and question you and be okay with that and thank them for doing that.
Douglas Boyle:Get advice from people outside the company who you trust, which is ties into one of the pitfalls of non shareable problems. Non shareable problems, what a lot of these people did is they they didn't talk to many people about this because a non charitable problem is a problem that might be embarrassing or is something you try to resolve privately. If these folks had were more open to people around them and shared the situations they were and what people cared about them, those people probably would've advised them to maybe take a different path. Mhmm. And that information would've been helpful.
Douglas Boyle:Research shows that when people resolve non shareable problems, you know, among just with themselves, they they tend to make mistakes. So sharing problems with people you care about, watching your ability to rationalize. The other thing that came up that was pretty big was how we portrayed fraudsters in the media. Mhmm. The media portrays fraudsters as these evil villains, black cloaked villains walking around the earth, and they were kinda born evil and and they're not part of society.
Douglas Boyle:And this enables people not to affiliate with those people. So they think like I'm doing this little thing, but I'm not I'm not Richard Scrushy or I'm not, you know, Bernie Madoff. But you could if you're in a position of power, right, and you make a couple missteps, you could be the next one. So most of these folks, like I said before, were before the frauds occurred, they were viewed as respectable, you know, first time offenders. So just that realization, if you're in a position of power and you make a series of bad decisions based off of pressure, you could end up in a real bad spot.
Douglas Boyle:Another one I would share, I won't go through all 8 of them, but but just being able to get out of a situation like that. Mhmm. Because a lot of times, if somebody's putting pressure on you, they're trying to control you. So they'll try to control you through compensation or control you through lifestyle or control you through through marketability. So, yeah, 2 of the pitfalls are around kind of an exit strategy.
Douglas Boyle:So if you're an executive and you live within your means and you have a year's savings in the bank and you've been networking a lot and you know you could find another job if you need to in a real relatively short period of time, the pressure to succumb to, you know, asks that aren't appropriate is much easier. You could say, hey. Look. Thank you. This is my role.
Douglas Boyle:I I'm gonna fulfill my role. I hope you would support that. But if you don't, you know, I'm I'm fine. I could I could go somewhere else. So those are those are, like, 4 of the of the 8, but they're they're really practical ways to manage your own behavior plus those those around you.
Douglas Boyle:And, we found that when we talked to about students and even when we did the the research and we sent it out to academics and practitioners, their response was, these are really great things to consider, and we don't see a lot this being discussed in our professional development and our CPE. So it's really, really helpful, and and they enjoy it. People enjoy discussions on human behavior. Mhmm.
Dana Hermanson:The other thing I would add in terms of, you know, Doug talked about the fraud triangle and and the fraud diamond. What the fraud diamond adds is this capability element, which was David Wolf's notion that there's a certain skill set and a certain set of personality types that that to some extent overlap with this the dark triad
Douglas Boyle:Mhmm.
Dana Hermanson:That you really have to be alert for. And and it's important to appreciate that capability is not a bad thing. We want very capable executives. We want very capable employees, but it's a double edged sword. And that if you have people with tremendous capability, you know, they're smart, they've got got formal authority, they can, you know, they're very confident, they can rally others.
Dana Hermanson:You know, the lying, it's kinda hard to, to put a happy face on that, but, but can deal with stress well? That's a very positive set of characteristics overall that can add tremendous value to an organization, but what you have to also ask yourself is what are the additional risks created when you have somebody who's that good?
Adam Larson:Mhmm.
Dana Hermanson:Are the controls that we have set up for, you know, normal people that this person can get around, either through their own ability or through rallying a team to get around. So it's a lot of the the monitoring, the the human landscape, as well as the pressure landscape in the organization. You know, being able to predict, you know, is is this a period where management is is striving for bonus targets? Is this a period where they're past the target and we need to look for things going the other way? Is there a transaction coming up?
Dana Hermanson:Are there economic indicators that are, you know, creating certain pressures? So it's understanding the setting and the people and and preparing for the kinds of things that may be headed your way.
Adam Larson:Yeah. Because I was gonna say as you guys are mentioning some of the traits, you know, some of the good parts of narcissism, Machiavelli, like, some of the good parts of those things Yep.
Dana Hermanson:Are some
Adam Larson:of the things you just mentioned are some of the top performers.
Dana Hermanson:Absolutely.
Adam Larson:I think what it comes back to is that emotional intelligence, which is why it's probably at the top the highest stage of your pyramid because you have to have that good emotional intelligence. So maybe we can talk a little bit more about what it means to have that good emotional intelligence and how you can, you know, see that. Because a lot of it takes getting through your own ego to recognize that you have those traits and you need to do something about it. Yeah.
Douglas Boyle:Yeah. So, I mean, it's a great model because going back to Dana's earlier comment as as to what you do about it, this is kind of very proactive. And you could use this for yourself, and you could also look at others around you. Do you know they behaving that way? Mhmm.
Douglas Boyle:So the the the four elements of emotional intelligence, the first one is self awareness. Mhmm. So that goes back to inflated egos and rationalization and emotional reactions. Are you socially, are you self aware of how you're making decisions? Is it based off of an ego motive or, or based off of, know, a toxic personality traits?
Douglas Boyle:Or are you keeping your emotions in check? And are you gathering facts? Yeah. Are you gathering feedback around those facts? Are you getting other opinions?
Douglas Boyle:And then are you, you making decisions based off of that? Or are you just kind of reacting in, in, in of, you know, of your own ego and emotions? So that's the first pillar of emotional intelligence. And that's very difficult because, you know, people who are in charge and people who are very smart, they tend to wanna make quick decisions and they react and they run and they they know they have the right answer. Well well, sometimes, even if you think you have the right answer, it it's helpful to go through a a process like that Mhmm.
Douglas Boyle:Which kinda ties in the second pillar, which is self management. Mhmm. That you know, not just being self aware, but but how are you managing things? Well, one of the big areas of self management is trust trustworthiness, which is another whole construct. But but if you really wanna build trust with people, you're gonna let them know your intentions.
Douglas Boyle:You're gonna listen to them. You're gonna gain feedback. You're gonna, build, you're gonna do what you say you're gonna do, and then you're gonna be capable. You're gonna be a capable person. So, you know, we would argue that, you know, the higher level of trustworthiness a leader has with many people in their organization, the the better they're they're making decisions that are self managed.
Douglas Boyle:Because through reflection and and dealing with other people, you build that trustworthiness. And self control is a part of the self management too. It is again, are are we leveraging our power over people just to get what we want? Are we using our power as a way to to make a a well informed decision? So that that's the second pillar.
Douglas Boyle:The third one is self awareness, which has has empathy. So do I consider others when I make my decisions? So when empathy sometimes sounds like a word that's, you know, it's kind of a soft word, it's really not a soft word. It's a word that if you're gonna make decisions that impact people, you should understand how they feel about those decisions, and you should take those into consideration. So that, again, that would mitigate those dark triad personality types.
Douglas Boyle:The other part of social awareness is organizational awareness. And and and doctor Hermanson mentioned this earlier that that who are the players in the organization? Who am I superstars that maybe have some of these traits that are gonna push things too far? And we gotta pull them back a little bit. And knowing that awareness is really important.
Douglas Boyle:And then the last one is relationship management. So it's it's a longer term view that the people around me, including my employees and my peers, I'm gonna have relationship with these people. That's gonna be a long term relationship. It's not gonna be based on just transactional type of things that please me or or feed my EO in the short term. So if folks and there's a lot in this model, but we can all work on pieces of this and and and and do better and nobody's ever perfect.
Douglas Boyle:But but it it just slows you down and makes you consider more, things that are outside of you and your universe and your ego. And it would really, you know, lend somebody to to avoid that rationalization part and also the pressure and and the incentive part of the of the triangle and also capability of the diamond. So so it's a really good way to to think about it, but a lot of leaders don't do this because it takes time and effort and and and and work and and but in the end, you you'll get better outcomes.
Dana Hermanson:And I and I think I kinda put all this in the broader context that I always emphasize to my students that you you think about the big issues we face in accounting. 1 of the, if not the biggest issue, is that management develops the financials, and the financials are also used to evaluate management. And it's the self graded exam problem. And it takes emotional intelligence to appreciate from management's perspective, k, I have an incentive to make the information more positive, and other people know I have that incentive. We we need to recognize that.
Dana Hermanson:We need to have controls in place. We need yeah. That's why we have external auditors and internal auditors and regulators, etcetera. But so much of the the issue with, you know, potential fraud in accounting is this this information asymmetry. We have management tell us how well the company is doing because management knows more than anybody else, but the problem we have to mitigate is the incentive to lie.
Dana Hermanson:And, you know, not everybody's gonna do it, but we gotta put controls in place to address that. And I think the the emotional intelligence notion really, you know, kinda drives home from a management perspective too that, you know, okay. I understand the landscape here. I understand the power I have, and and we need to have some self control.
Adam Larson:And a lot of that seems to come from the top. You have to set the tone at the top because Yeah. You can't help thinking about fraud without thinking about, like, things like the movie, Wolf of Wall Street. And you see the atmosphere there.
Dana Hermanson:Yeah.
Adam Larson:I'm sure it was difficult to be emotionally intelligent in that room. Yes. I'm sure it was difficult to do all the things that Doug just described, you know, the different elements to make yourself more emotionally intelligent into because the pressure and and obviously, that's a movie movie version of something that that probably was similar to what actually happened. Mhmm. But I can imagine if you're in a high stakes environment, what's the difference for you in a high stakes environment to try to fly these things?
Adam Larson:Because when the pressure higher, it's harder to let me take a moment and think about this when
Douglas Boyle:Yeah.
Adam Larson:I need that I need that report 5 minutes ago, and I I needed to say this.
Dana Hermanson:Yes. I don't
Adam Larson:care what the numbers are. I needed to say this. Like, how do you respond to that?
Dana Hermanson:I think it's important to appreciate probably 2 things. 1 is the kind of rationalizations that will be thrown at you. Yeah. Help the company, save the company, protect the workers, help us get through this difficult period, work with us, you know, be a team member. There's a lot of nice language that can be thrown out as opposed to, you know, we're going to manipulate or do something like that.
Dana Hermanson:It it can be very, very nice language. I think it's also important for people to have the courage to say, you know what? I need a minute. Mhmm. I'm not gonna give you an answer right now.
Dana Hermanson:I need a minute. This is a big deal, and I think decisions that get made under pressure and that get made quickly can lead to a lot of, you know, regret.
Douglas Boyle:Mhmm.
Dana Hermanson:And and I think that's where people one thing we we tell our students is is beware of the little asks. Yeah. The little stupid thing that you go along with early on could lead to 5 steps down the line, somebody saying, I I'm sorry. You you're in this. K?
Dana Hermanson:You're you're not getting you've you've done these three things. You're in it. So, you know, the asks will get bigger and bigger. So you gotta be very careful on the front end not to fall for the, know, save the company rationalization, and also not to be pressured to decide, you know, immediately. I need this in 5 minutes.
Dana Hermanson:You know, that that those are the kind of tactics that, you know, cyber criminals use to get you to to do stupid things, you know, click this button. The sense of urgency can be a powerful thing that gets people to do, things they wouldn't normally do.
Douglas Boyle:And I'd add to that too. Like another article we published together was was the ways to defend yourself from pressure and management kind of quarterly. And half half of the the elements are before you're asked. Mhmm. Because you're right, Adam.
Douglas Boyle:Like, if you wait until you're asked, you it might be too late. Yeah. So if you're in a position of power, you probably should plan ahead and say, what would I do if I'm asked to do something that's unethical? Yeah. And think through that, how would you respond and practicing personal response, financial responsibility?
Douglas Boyle:Sometimes you have to walk away. Yeah. So if you're living beyond your means, you're not marketable. You you kinda you kinda stuck yourself. Yep.
Douglas Boyle:Understanding the people in the landscape, getting people in the organization as your allies that, hey. Look. We're gonna be ethical as a group, and we're gonna do the right thing. That'll help a lot too, getting advice from others. So there's a whole series of things you do in preparation for that.
Douglas Boyle:So when it happens, you're like, okay. Unfortunately, I'm here now, but I've I've been through this a few times in my head. So I I have a plan that I could exit. And then all the techniques after you're asked, you know, there's a whole series there. But but, I see a lot of young executives getting stock options, cashing them in, spending all the money and and and living the life and stuff, and that that that's putting pressure on them.
Douglas Boyle:Mhmm. You know, we we we should be ready for for those ask and be able to walk away from situations. Yeah.
Dana Hermanson:But I think reminding people of your role is important. You know, you hired me to you know, if you're in a financial reporting role, you you hired me to help us create reliable financial reports. We're not in trouble with our auditor. We're not in trouble with the SEC. We're not in trouble with other regulators.
Dana Hermanson:And and I assume you want me to stick to that role that you hired me to do. Or if it's a project, you know, analysis, you you hired me to develop good analyses for projects. So so let's make it clear that that's still the role you want me to fulfill. The other thing we talk about in that article is restating what the ask is.
Douglas Boyle:Mhmm.
Dana Hermanson:Which can be uncomfortable, but so what you're really telling me you want me to do is to change this estimate or this assumption because you didn't like the final answer. Mhmm. Oh. Oh, no. That's not that's not what I'm saying.
Dana Hermanson:So I think if there are times when you just have to be blunt about what the ask is and Mhmm. I I had a professor years ago who who said anytime you start revisiting things because you didn't like the final number, you have gone past the line. Mhmm. And that's something that has stuck with me over the years and that's something that I think people can be reminded of. If there are assumptions that don't make sense given, you know, say interest rates have gone up this year, great.
Dana Hermanson:We can address that. But if the motivation is we need to revisit assumptions because we don't like the final answer, that's a whole different ballgame. And and you gotta call that out.
Adam Larson:Yeah. A lot of times when you reframe the question, I've done that where I've reframed somebody's question. They're like, that's not what I said. I'm like, well, that's that's what it came across as. So maybe we should discuss this a little bit more.
Dana Hermanson:Yes.
Adam Larson:Maybe the person didn't realize that. Maybe they did and they were trying to hide it. Because a lot of times people try to hide things in flowery language. Like you said Yeah. A lot of the cyber criminals are doing that.
Dana Hermanson:Yeah.
Adam Larson:And it's it's a tactic that has been done for it's it's a stud well studied tactic is you hide it in other language, you change the wording around. Yeah. You make yourself not necessarily liable by how you asked it.
Dana Hermanson:Yes.
Adam Larson:And it's it it you go down a deep rabbit hole if you can if you don't recognize it. Because you maybe you don't recognize the first ask. Yep. Maybe you only see it at the 3rd ask. Right.
Adam Larson:And then you're like, oh, no. Am I in trouble? Because I did ask 12. Yep. You know, so it's it how it's it's trying to get yourself out of that situation, I think, is the exit strategy is very important, as I can hear you guys saying.
Dana Hermanson:Yep.
Adam Larson:So what roles do you guys see organizations, like professional organizations, for you as as professors and accountants, what role do you see professional organizations, you know, like IMA in helping provoke promoting fraud prevention? You know, how important is this for accounts to be connected to those organizations?
Douglas Boyle:Yeah. I I I think it's critically important. We're we're very involved with the IMA here on our campus and then also with our alums. But as you know, your your conceptual your competency framework has professional ethics and values at the center. Yeah.
Douglas Boyle:So that that's really important. One thing I think I would encourage is that for, like, CPE training around ethics and values, I think in the profession, it tends to be very focused on, like, rules Mhmm. And what you can do and what you can't do. You can't have, you know, a client buy you lunch. And those are all really important things.
Douglas Boyle:But I think more training as to the topics we talked about, Because number 1, that's that's gonna be more sustainable approach. And number 2, I think people would find it more enjoyable.
Adam Larson:Yeah.
Douglas Boyle:Because when we do present these things to people, they think and they they work. So I think through the places like the IMA and their, you know, CPE training, courses that are more behavioral focused, The AMA has been great with publishing our articles, which which is which is fantastic because the behavioral side is getting out there. Conferences, we could have discussions at conferences, right? Get a whole bunch of professionals together and have a session on on, behavioral aspects of of fraud. Mhmm.
Douglas Boyle:And then also the student chapters, because I know the anime does a really good job with student chapters. But I think a lot of these techniques gotta be developed over the course of years, so it's not one 4 hour session. So as much as we can get in front of younger professionals either still in college or as they get out and let them know that, you know, don't step into these areas, live within your means, understand that that fall for small asks. You know, don't hide problems, share problems with people you trust. Those things I think early on are are very important.
Douglas Boyle:I think the profession is is is critical in in having that happen.
Dana Hermanson:I think there's kind of a almost a 2 track educational development that takes place in accounting. 1 is the technical side. Now you need to know how to to calculate depreciation, you need to know how to account for investments, and there's a lot of technical material that, that needs to be captured very, very well. There's also the piece that you have a number of parties who are intensely interested in the outcome of those calculations and those determinations. And and those parties put pressure, and and that's really what I do in my senior level fraud and forensic class.
Dana Hermanson:Say, you know, we're we're really here transitioning from, you've learned a lot of technical material. In this course, what we're gonna talk about is the pressures that you're going to face, potentially, to tweak, alter, manipulate, whatever word you wanna use, the analyses that you're doing. Mhmm. And just to make you aware of that. And I tell them, you know, when I have presented to professional groups in the past and I ask a question, you know, how many of you have been pressured to do something inappropriate in your career?
Dana Hermanson:Virtually every hand in the room goes up. It is just a reality. And it's getting them to appreciate that there's the technical competence side, but there's also the shield that you need to build Mhmm. As you get into your career that you know this stuff is coming. K?
Dana Hermanson:Somebody's gonna be interested in the numbers. Somebody's going to put pressure on you.
Douglas Boyle:Mhmm.
Dana Hermanson:And as Doug said before, appreciate that that's going to be coming so that you're not stunned when it happens. Engage in thing. You'll build your personal board of directors, your personal group you can talk to, so that when it happens, you've got things you can do quickly to address it. So it's it's not just technical. It's technical plus potential pressure that you're gonna face.
Douglas Boyle:Mhmm. To to further that point, in our PhD program here at the University of Scranton in accounting, we we only admit experienced professionals. Mhmm. And almost everyone is doing their dissertation on these topics because they find it very interesting and they find it not only helps them in in their business life, but it also helps them in their personal life Mhmm. Because they're reflecting more and they're slowing down and they're getting feedback.
Douglas Boyle:So so, you know, I think that within the profession, there would be a a very interested pool of folks who who'd wanna take and learn more about these topics because, you know, we're very control focused and that that's important. But but people are interested in this. You said it earlier, Adam, that you gotta be a little bit of, you know, psychologist or whatever. It it's interesting to people. They they wanna know, why do I make the decisions I do?
Douglas Boyle:And and am I still optimizing or or or getting myself in trouble? So I think if if we could really take this to the next step along with the technical stuff, it would be a profession that would attract a lot of people.
Dana Hermanson:Mhmm. Yep. Now we've had similar similar kinds of projects in our doctoral program as well, which is a program similar to Scranton's, and it's it's fascinating to see the the insights that students come into that program with. Mhmm. It could cause they've been in the trenches.
Dana Hermanson:They've they've seen it.
Adam Larson:Yeah. Sometimes, you you get more insight from somebody who's been in the trenches really doing the work than somebody who's been theorizing about it and talking about it. But if somebody's actually doing it, you can you can learn so much from
Dana Hermanson:those people. Exactly. I've told virtually all the students I work with, I had I had 4 years of professional experience. Every student I've worked with has had more than that, and I they learn research and theory from me, and I learn more about the profession from them. It works out beautifully.
Adam Larson:It's amazing. Yeah. This has been an amazing conversation. And as we kinda wrap up, I think about, you know, the landscape of fraud is gonna continue to evolve as the large language models like the the the generative AI and all those things begin to develop and, you know, people get smarter and get more creative with how to do things. Yep.
Adam Larson:You know, how do you envision this pyramid adapting or expanding in the future to address the new challenges that we may not even know yet?
Dana Hermanson:Yeah. The fraud area is interesting. It it's almost like a nuclear arms race between the perpetrators and the fraud
Adam Larson:Yeah.
Dana Hermanson:Prevention folks. Certainly, AI opens up a whole new dimension. And, you know, you're starting to hear of, you know, basically, you know, people impersonating someone's voice on a phone call or a video. There's just a whole host of things that are out there that, you know, people could, fall prey to. I think skepticism, you know, has always got to be top of mind.
Dana Hermanson:Does this make sense? Mhmm. We talked about before instances where there's a sense of urgency that's been created are really dangerous.
Adam Larson:Mhmm.
Dana Hermanson:And I think you gotta be aware of that. I think the other reality is that behind the AI, behind the analytics, behind the controls, behind all of that is still people. Mhmm. And, I've had some discussions with colleagues recently just about the whole notion of AI, and we don't really know what's happening in the models, but we know that people have developed them. Mhmm.
Dana Hermanson:So ultimately, in my mind, it all goes back to appreciating incentives, appreciating personality types, appreciating people's capability, and they may be operating through these new mechanisms, but, a healthy dose of skepticism Mhmm. And the willingness to say, you know what? I'm not gonna give you an answer right now. Yeah. I gotta think about it.
Dana Hermanson:I gotta step back and potentially talk to some other people. I think it's a healthy way to approach some of this. So don't don't people should not allow themselves to get, bullied into instant decisions on big issues or even small issues that may become big issues. Yeah.
Douglas Boyle:Yeah. I think that ties into with the changing environment and the, you know, first ring, that first level of the pyramid developing fraud awareness and acumen because there's new fraud techniques all the time. Yeah. So having peace so you might have to go outside the profession and involve more tech people or or folks from different areas to understand this? Because that's another thing the accounting profession is going through is we're trying to figure out, you know, how do we get up to speed with all of our rules and what we're doing plus the technology.
Douglas Boyle:So pervasive. So that's all part of that that baseline, you know, pyramid. So so being a an accountant is is gonna get, you know, while there's more opportunity, there's gonna be more challenge because the tools are changing and the way we do things are changing, but but it all falls in that that bottom level impairment.
Dana Hermanson:Yeah. And I think if you have this notion that the number one cause of fraud is people, any system where you have people is going to have issues. You know, we've seen, you know, recently articles on on ESG fraud Mhmm. And articles on AI washing and what may be the biggest, you know, US fraud ever in COVID relief. Mhmm.
Dana Hermanson:New settings, but they all had people in them.
Adam Larson:Yep.
Dana Hermanson:And, you know, one of the things I I talk about in my classes, I asked the students, you know, tell me the kinds of organizations that have fraud. Every organization. Religious Mhmm. Educational, private, public, governmental. It's everywhere Yep.
Dana Hermanson:Because people are the driver. And, you know, if you got a group of people, somebody is gonna try to do something crazy. Mhmm.
Adam Larson:Well, I think that's a great way to end it. Dana, Doug, thank you so much for being on the podcast. It was really great chatting with you today.
Douglas Boyle:Yep. Likewise. Enjoyed it. Thank you, Adam. Thank you.
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