Now That I Think About It…

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When we talk about fraud and how it tends to happen, the classic fraud triangle is most commonly used to help us understand how it all happens. The sides of this triangle represent opportunity, pressure and rationalization. In this triangle there is a person, just a regular old person, like you and me. Fraud can happen to anyone and fraudsters are often regular people who find themselves under pressure, faced with the opportunity to perpetrate a fraud and the ability to rationalize it all.

Sometimes this person may face pressures. Maybe she has a family member who gets sick and now they have to deal with massive bills. Maybe the person has a gambling problem. Maybe he wants to live the jet set life that he sees his friends living. Whatever the reason may be, these people feel under a lot of pressure to get their hands on more money than they are currently earning.

Pressure or not, maybe this person sees an opportunity to defraud. Perhaps he can sign checks, AND, he has custody of the checkbook AND he performs the company’s bank reconciliations. He has all this access and responsibility and no one checking his work. So, now he has access to the money and he can doctor the books to cover up his wrongdoing. However it works out, these people see a weakness that they can take advantage of.

The third leg of this triangle is rationalization. This is where a person tells himself that there is a justification for what he is doing. Maybe she tells herself that she really needs the money to deal with this one emergency and this will happen only once. Maybe she then tells herself that this will happen only once and, to boot, she has been a loyal employee for a while so the company really owes her a little leeway for all that she has done. Maybe she tells herself that once she is out of this spot of trouble, she will pay the company back and it will be like it never happened in the first place. Maybe he tells himself that he is underpaid and that what he is doing is merely taking the money that he is rightly owed for all the hard work and time that he puts into the business. The rationalizations that people use are practically endless.

Earlier this year, I listened to the podcast “Ponzi Supernova”, a podcast about Bernie Madoff’s Ponzi scheme and what has happened since. One thing that was fascinating about this series was the conversations that Steve Fishman, journalist and narrator of the series, had with Bernie Madoff, infamous perpetrator of a massive Ponzi scheme. Bernie talked about his childhood and how affected he was by his father’s financial failures. Bernie tells Steve that, after seeing his father lose a lot of money and what it did to the family, Bernie swore he would never let that happen to him (perhaps one could see this as a pressure looming over his life). In the early 1960’s, Bernie Madoff violated market regulations and his clients’ trust by losing their money on risky deals. Instead of letting them know that this had happened, he lied to his clients, borrowed money from his father-in-law and carried on as though he was a brilliant investor. Speaking with Fishman, Madoff made it sound as though, because he did not want to fail as his father had, he took these steps so that he could continue to, at least, appear to be successful and very talented.

Bernie Madoff spoke with Steve Fishman a couple of years after he was caught (though, in some versions of his story, he claims he quit). Bernie Madoff also spoke with Diana Henriques, who wrote the book The Wizard of Lies, which is now an HBO Film by the same title. Their interactions also occurred a couple of years after Madoff’s fraud was discovered. After he had plead guilty to his crime. Yet, over and over again, Madoff seemed to continue to make excuses for his behavior and try to minimize what he did. Even though, when pleading guilty, he claimed that he acted alone, he has since changed his tune and as co-conspirators have testified against him, he then seems to say, “well, except for that person, I acted alone”. So, it seems that even after being caught, he is only sharing as much of the truth as he needs to and, what I have found to be most interesting, is that he appears to continue to rationalize what he did.

In an ideal world, one would imagine that having a fraud exposed and pleading guilty would bring a fraudster to his senses. When we imagine a person committing fraud as a regular person who has fallen into irregular behavior, the hope is that putting an end to this irregular behavior will bring this person to her senses and get them to admit that what they did was without excuses; that, even though they rationalized their actions when they perpetuated the fraud, they now saw the error of their ways and realized that the rationalizations were all without merit. During the hearing when he plead guilty, Madoff read a prepared statement where he apologized to his victims. However, even that apology came with a “but” attached. “While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients’ expectations, at any cost.” Yet, listening to Ponzi Supernova, you learn that some clients would demand an adjustment to their statements when they did not receive the return they had been promised. Madoff has also placed blame on his victims, claiming that they knew, or should have known, what they were getting into, that he had warned them and that they did not lose as much as they claimed. And, I have found that it is not just Madoff who does this. The Association of Certified Fraud Examiners talks to people who were convicted of fraud and, in video after video, the perpetrators found ways to hold others responsible for what they did – and this is after they had been found guilty and served their sentences. For instance, one blamed her supervisor for being too trusting, “I don’t blame them but…” she started her sentence. Another stated, “I asked you for help and you said no”, while yet another said “I won’t get caught again”, not “I won’t do it again because I realize it was wrong.

It may be human to not want to admit full responsibility. Perhaps it is too hard for most of us to admit that we have done terrible things. Who really wants to be a monster, blamed for ruining lives, even when those lives are laid out in front for you? And if we are not harshly judging ourselves, even when caught, then can we really adjust our behaviors to do right and get back on the straight and narrow? I don’t know the answers to this but it is something I think about as I perform my work as a forensic accountant. If a person is not able to strip away rationalization and admit that they were just wrong when they perpetuated their fraud, then what are the chances that it won’t be so difficult to do it again?

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Paying It Way Forward

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Bert N. Mitchell

Last night I attended the New York State Society of CPA’s (NYSSCPA) Moynihan Fund Gala. I was looking forward to a fun night with my colleagues, looking out on the water as the sun set and enjoying good food and drinks. What I did not expect was the incredible history lesson that I received from Lifetime Award Honoree, Bert N. Mitchell. In 1987, Mitchell became the first black president of the NYSSCPA and, during his tenure, the NYSSCPA launched the Career Opportunities in the Accounting Profession (COAP) program. I was already aware of these very impressive aspects of Bert Mitchell’s career, but, as he shared his life story, I found that these achievements were only scratching the surface.

Mitchell shared, last night, that he was the 100th black CPA in the United States. This statistic hit harder when he shared that he earned this qualification in 1965, a little more than ten years after Bernadine Coles Gines became the first black woman to become a CPA in New York and the 34th black person to become a CPA in America. Even though it was 11 years after Gines had encountered many obstacles on her journey to becoming a CPA, Mitchell did not find things to be much easier when he graduated, at the top of his accounting class, in 1963. Despite his top-notch qualifications, Mitchell spent two weeks seeking a position at one of the top accounting firms, preferably, one of the Big 8 (at the time). He travelled from lower Manhattan and worked his way to Midtown, stopping in at every major CPA firm and, over and over again, he was turned away, with the excuse that their clients’ attitudes regarding hiring a black person were why they wouldn’t give him a job. In 1968, the AICPA launched the Committee on Recruitment from Minority Groups and Mitchell was one of the five black members of the eleven member committee. A year later, in 1969, Mitchell published a study entitled “The Black Minority in the CPA Profession” and this study found that underrepresentation in the CPA profession was worse than in law, medicine and other professions. This study found that out of 100,000 CPAs in the United States, fewer than 150 were black and firms claimed, as they had to Mitchell when he was seeking employment, that the barrier to hiring African Americans was not their own bias but that of their clients.

In a follow-up to the 1969 study, Mitchell published a study in 1975 that showed that the number of black CPAs had tripled to 450. As encouraging as this information was, there was still much to and, as became apparent, Mitchell was nowhere near done. When Mitchell became president of the NYSSCPA in 1987, the stats were depressing. Black people made up almost 13% of the population, yet they made up less than one percent of CPAs. In comparison to other professions, only airline pilots had lower representation. Representation by other peoples of color was not much better – Latino representation also hovered around 1% and Asian representation was about 3%.

When I heard Bert Mitchell’s speech last night, I knew I needed to know more and when he mentioned that he was the 100th black CPA in America I, fortunately, knew exactly where to go. When I met and was moved and inspired by Bernadine Coles Gines, I went out and bought the book “A White-Collar Profession, African American Certified Public Accountants Since 1921” by Theresa A. Hammond. This book, published in 2002, tells the history of African Americans in the profession. I knew I would find him in there, not only because of the incredible work that he has done to expose people of color to the CPA profession, but also because I remembered that the book included a list of the first 100 black CPAs in the United States. I got home and there he was – “100. Bert N. Mitchell 1965 New York”.

At the Gala, as three alumni of the COAP program took to the stage and shared their stories of how the program and not only exposed them to the CPA profession but also made them believe that this was possible for them, I was deeply moved by the work and efforts of Bert N. Mitchell and others who, like him, have been dedicated to diversity and inclusion in our profession. Pick up the book, read it and learn more about Mitchell and the other first 100. This is not ancient history, it is actually amazing how recent this history is. It is hard to pass the CPA exam. It is a daily challenge to maintain the standards and knowledge that make us trusted professionals. It should never be a struggle to be hired because of your race, gender or sexual orientation. I am truly in awe, as Bert N. Mitchell, truly has dedicated his life to advocating for diversity and fairness in the profession.

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Makes You WannaCry

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A couple of years ago a lawyer friend told me about clients who were coming to her office, panicked because their computers had been locked by parties claiming to be the FBI. In order to get their machines unlocked, these fake FBI agents demanded to be paid a ransom. On Friday, over 200,000 machines were locked by people (I assume it was more than one person) who did not even pretend to be good. They encrypted the information on these machines and demanded $300 to $600 per machine or, they threatened, all the data on those machines would be destroyed. This type of attack is called a ransomware attack. A program is introduced into the machine, and it locks and encrypts all the data on the machine. A message pops up on the infected machine demanding that money be paid, almost always via bitcoin. Once the ransom has been paid, the message says, a method to unlock the machine will be sent. If the ransom is not paid within the time demanded, all the data on the machine will be erased. So much of our lives, both personal and business, is stored on computers; can you imagine what would happen if your computer was locked? The mere thought makes my heart speed up.

Earlier this year, a hacker crew called Shadow Brokers released several tools used by the National Security Agency (NSA). Among these tools was one called EternalBlue and this tool exploited a flaw in Microsoft Windows. Armed with the information that was leaked, Microsoft created a patch to fix this flaw and released this patch in March. Perhaps you have now read this far and you are wondering, if the patch was released in March, how did this massive attack happen in May? How many times has a message popped up on your machine while you are in the middle of something. The message tells you that an update is available for your machine. You see it, but you are in the middle of something important. You close the window and delay the update. This can happen over and over again. Some people, irritated by the notices, turn off the alerts altogether. Now, these automatic alerts are only available on versions of Windows that Microsoft is still actively supporting. So, if you have an older version of Windows, such as XP, Windows 8 or Windows Server 2003, you no longer receive alerts for updates. Either way, there are millions of machines that were vulnerable to attack on Friday. And on Friday, ransomware aptly called WannaCry, wreaked havoc all over the world.

It is believed that the attackers gained access to computers and systems using infected zip files attached to emails. People opened emails and clicked on attachments. These emails did not come from friends and the people clicked on attachments, not knowing what they were opening. Taking advantage of the fact that many organizations store their computer information on servers, making all users interconnected. The WannaCry ransomware, once released by one user, made its way through the interconnected systems and attacked other machines, even those belonging to people who did not click on the infected attachments.

This attack has made many things apparent:

  • Keeping secrets can sometimes go very wrong. The NSA knew that there was a vulnerability in Microsoft Windows. If it was not for the Shadow Brokers leak, Microsoft may not have discovered this vulnerability and they would not have developed a patch to fix it. One can also argue that, if Shadow Brokers had not leaked this information, the hackers may not have known to create WannaCry and none of this would have happened in the first place. I have found, though, that generally speaking, secrets are not kept that way forever.
  • When I wrote about the fake FBI attacks, I stated the importance of keeping your computers up to date. I cannot stress this enough. When the reminders pop up on your machine to update your software, update your software. Install the security fixes. If you don’t want to be disturbed, set up a timetable so that your machine will automatically check for and install updates on a regular basis. Remember, also, to restart your machine on a regular basis. Many installations are not complete without a restart and some updates are triggered by a restart.
  • We live in a time where everyone receives more email than they want to deal with. We run the risk of making careless mistakes, opening up emails and clicking on attachments when we have no idea who sent the email and what is in the attachment. Nowadays, you are almost lucky if the only thing that the attachment does is send out a lot of spam to your friends. More often, click on that attachment can lead to hackers stealing information from you or holding your machine hostage. Sometimes, even when I receive an email, with an attachment, that appears to be from a friend, I will double-check with the friend to make sure that they have sent the email and their account has not been hacked. The extra step may seem tedious but, enough times I have found out that my friend was hacked, so I keep asking when I am suspicious.
  • If your operating system is no longer supported, you should consider getting new software that is. I say this with mixed feelings. Like most people, I hate being forced to buy something when what I already have has been working well for me and when I don’t like the new version. I feel scammed being made to spend that extra money and if the world only contained righteous people I would tell you to keep your software and change it when you are ready. But, we live in a world where people are ready to take advantage of an opportunity to get money out of you. Microsoft stopped providing support for Windows XP in 2014. This ransomware is specifically taking advantage of this fact. It’s a shame, but it is the way it is.
  • Back up, Back up and back up some more. If you are regularly backing up your machine and keeping the backup either in the cloud or on an external drive, you know what you can do when your machine is held for ransom? You can ignore the ransom demand because you have your data saved some place safe. The clock can tick down, the files on your machine can all be delete and, even though it will suck to restore everything, you can do so.

On Monday morning, people are going to go to work and turn on their machines and many machines running Windows XP or that have not been updated in months will be open to attack. Many of those that are attacked will want to pay the ransom because their data has not been backed. Just weeks ago, articles were written about how British hospitals spent nothing on cyber-defense.  On Friday, they could barely function. Maybe they had started having meetings and started discussing taking steps to protect their systems. But, like we all do when that warning popped up, they put it off. I am sure right now they are wishing they had done something to protect themselves because they had to scramble to fix a disaster.

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2017! Three Words! Let’s Go!

img_1043-2Yesterday, I took a moment to look back at 2016 and I am glad that I did. After that exercise in honoring history, I actually changed one of my words for 2017. My words for 2017? That may be what you are wondering. Let me explain. In 2013, Tom Hood introduced me to the concept of Three Words (and that concept came from Chris Brogan). I use these three words to give the year ahead a theme, almost like a rhythm that I can dance to as I go through the year; and isn’t everything better with dance? The process of thinking about my three words and then coming back to them throughout the year, help consolidate, direct and give confidence to what I do and how I do it. As I read over yesterday’s post, I saw my 2016 Three Words dancing over my year, in ways that I had not thought about as I was writing the post – Learn. Fear. Community.

For several days, I thought about what my words for 2017 would be – and how those words would serve to seal my intentions for the days ahead. I think I have it now.

Embrace: In previous years I have written about changing things in my life. Transform was one of my words in 2014. Then, in 2015, Receptive was a word of mine. Last year we moved to a new neighborhood. When I was a kid, due to politics and other adventures in their lives, we moved around a lot. Between first and third grade, I went to four different schools in three different countries, in four different cities. During my first two years in New York City, I lost count of how many places I lived in. I even spent a couple of months camping out on a (very amazing) friend’s couch on weekends, while I worked in Florida during the week. Last year, I talked transformation and I was receptive to talk of moving but, now that I am here, I realize that it is not going to work until I embrace it. This is where I am now with my move, with my work, with my life. I can talk about how great innovations in my line of work are; I can marvel at how awesome some of the tools that are available to us are; I can wax lyrical about the incredible people who cross my path and make me better at what I do, but all of that is not worth much unless I dive in there, snuggle in and just embrace it all.

Persevere: When I started training to run long distance, I learnt about the power of a mantra. The mantra was invaluable to me, when doing hill repeats. I would chug up a hill and repeat, over and over again, “I love hills.” I will say this, I reached the top of that hill and many others AND I hate hills less and appreciate their value. I actually surprised myself when I told a cousin that I wished there were a few more hills around my new home. In 2015, I embarked on a new journey of sorts. I started my own business and decided that I wanted to do work that made me look forward to getting out of bed every day. I loved that my husband’s work, as a photographer, was something he also did for fun. I admired how excited he got about his projects and I wanted some of that. At times I would talk to some people about what I wanted to do and how I wanted to do it and they would tell me, “that will never work.” Fortunately, my incredible community (2016 word, hello!) took over and repeated the mantra I had not yet learnt to say myself. However, as the year came to an end, I started to believe. So this year, I shall remember to say to myself, “You got this. You can do this,” not just when I am running, or doing pull-ups. I shall tell myself this as I am serving my clients, community and the public.

Monchu: My last word is a word that I have borrowed from Chris Brogan. Chris tells us Monchu is an Okinawan word that means “one family”. It essentially means that we treat people who are not our blood as though they are family. I have benefited from this concept forever. As someone who lives very far away from most of my blood, I just don’t know where I would be with my one family. For instance, I just wrote about how I was able to crash on a friend’s couch when I first moved to New York. I didn’t mention that I had only known her for months and she offered her home to me, and her husband and adorable daughter didn’t seem to mind either. That is just one of a million of my stories. I know that I could do a way better job of keeping in touch with people to let them know that they are part of my one family. I know that this philosophy will guide me to be better at what I do and how I do it. I hope to also inspire others around me to embrace this philosophy.

As I share my words for 2017, I want to acknowledge my words from previous years:

2013 – Change, Discover & Motivate
2014 – Transform, Pursue & Collaborate
2015 – Receptive, Synergy & Service
2016 – Learn, Fear & Community

And now for 2017 – Embrace, Persevere & Monchu. I am excited for the year ahead and I know that the view from my new home will help me do so. You see it up above, I can see forever now. I got this.

Tell me, what are your words?

I hope 2017 is your best year ever!

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Over My Shoulder

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I was in high school before I realized how much I love history. Even though I read many historical adventures and would get so caught up in stories that I would find myself being moved in ways movies and television could, I never attached that excitement to any history I ever learnt in school. There was a separation of story and history until I ended up with a history teacher who was so gifted at bringing history to life that I didn’t even really feel as though I was in class.

What has taken a while to sink in is that history is not just about other people’s stories and what they might mean, but it is also about my own stories (along with people around me) and how what I have done, thought and felt in the past is something that I should not only want to record, remember and recognize but also find importance in. In 2013, I started a new approach to beginning my year. Since then, I have given my year a theme, encapsulated in three words. In order to better think on what I would like to make as my theme for next year, looking back at where I have been is invaluable. So, I am taking a moment to take a look at how 2016 went – to learn, to appreciate and to give myself a pat on the back where needed.

Throughout my year, I continued to be amazed by and grateful for the people I crossed paths with – friends, strangers and those in between. It may have been someone telling me not to give up at moments when the thought was threatening to become action. It may have been someone sharing words of wisdom that kept me and my fear, anger or ego acting out irrationally.

In 2016:

  • I moved to a new neighborhood. This was a big deal as I had lived in the same neighborhood for 16 years (my husband had been there for 20), we had many friends that lived conveniently close and more amenities than we knew what to do with. I miss it all AND I am excited about our new path forward.
  • A college friend invited me to take cello lessons with her and another friends and I said yes. We love it – we dream big and take small steps every week toward living those dreams. I know those around us, who get to hear us practicing, hope that we live those dreams sooner rather than later.
  • I was accepted into New York Community Trust Leadership Fellows, a program in non program that has both expanded my mind and exposed me to some truly inspiring, passionate and motivating people and organizations.
  • I had great conversations with high school students, college students and fellow professionals about forensic accounting, careers in accounting and working to do what we love, even when we have doubts about it.
  • I was part of a very exciting launch of the New York State Society of  CPAs Women’s Initiative and, at the end of the year, I became the Chair of the NYSSCPA Diversity and Inclusion Committee. Through the efforts and enthusiasm of my colleagues and the NYSSCPA, I am fortunate to be involved with such important initiatives and committees.
  • I have seen friends stand up for what they believe is right; I have experienced my communities come together in ways that renew my belief in humanity; I have applauded the sheer awesomeness of my people!

The night of 31 December 2016 turned out to be an incredibly windy one. My husband and I had planned on walking around the neighborhood, discovering the various New Year’s Eve celebrations in our new space. However, gale force winds led to a change of plan (isn’t that how life works?) We made dinner and spent the evening talking, laughing and watching various celebrations on television. I made sure to dance before and after midnight

Growing up, my father gave me a diary for Christmas, every year. I was always excited to get mine and, even as I moved away for college and started living away from home, I still got my diary. In yet another chapter of – Parents are Sneaky and Wise – I have discovered the power and importance of being able to look back and how much that helps in looking forward. So, farewell 2016! I am now turning my head to look ahead to 2017. Hello!

 

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Who Is The Accountant?

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I have been excited about watching “The Accountant” for over a year, when I first heard about this movie – a film about a forensic accountant! I lived in fear of the project being canceled by film bigwigs, who would decide that no one wanted to see a movie about an accountant. Accountants are almost never depicted, on screen, as anyone worth one’s time. You can’t love or hate them, they are too boring to think about. But here was a movie and the filmmaker was so confident about it that he called it “The Accountant.”  I would tell people how excited I was about the film and they would almost always express surprise that anyone would want to make a film about a CPA, let alone watch one. I don’t blame them because just about every time I have seen a CPA being portrayed on film or television, I don’t want to be him (and it is almost always a him). He is a guy with zero social skills that people put up with because he is some kind of numbers-whisperer; a guy who can find secrets in the numbers that the true heroes are too busy being interesting to find. So, on Sunday, I dragged my husband, who is a true saint, to the movie theaters to watch “The Accountant.”

From the previews, you will see that Ben Affleck, the Accountant, seriously lacks social skills and does not appear to have any friends. He is, as a forensic accountant, a super numbers-whisperer who gobbles up financial statements for breakfast, lunch and dinner.  However, he is also the hero and is an incredibly interesting guy who can do all the running, jumping and full mystery solving that heroes can! They also threw in the story of Crazy Eddie and his “Panama pump”. I may have been the only person in the movie theater who exclaimed in excitement when that came up, but the story of Crazy Eddie is one of many years of various fraud schemes, ranging from money laundering and tax evasion, to financial statement fraud.  I had a great time watching this movie and, I even forgave the woman who yelled out a spoiler reveal before it happened.

It seems that many had been convinced to try out a film about a forensic accountant. “The Accountant” won the box office this weekend, by a massive margin that you don’t have to be an accountant to understand. This gives me hope for the future of CPAs on the screen (big or small). I can see it now – characters who are at least as interesting as lawyers and doctors. We may even be portrayed as people who can tell funny jokes, who can be engaging and who can even have friends: I am excited about films that break long-standing stereotypes. Maybe I am getting ahead of myself, but I will say something that is a first, with respect to how I feel about a CPA of any kind on TV or on film. I watched this movie and I came out wanting to be a forensic accountant!

 

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Massive Betrayal of Trust

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Photo by Mamnaimie Piotr

On September 8, the Consumer Financial Protection Bureau (CFPB) put out a press release that it was fining Wells Fargo Bank $100 million for secretly opening deposit and credit card accounts, without customer approval. In addition to the CFPB fine, Wells Fargo was fined $35 million by the Office of the Comptroller of the Currency, $50 million by the City and Country of Los Angeles and will have to pay approximately $5 million in restitution to customers. This fraudulent behavior occurred on a massive scale and, based on the CFPB’s investigation, resulted in:

  • Employees opening 1,534,280 unauthorized deposit accounts;
  • Employees submitting applications for 565,443 credit-card accounts, without the knowledge or consent of the people in whose names the applications were made;
  • Employees creating fake email addresses in order to enroll consumers in online-banking services;
  • Employees requesting debit cards for customers, without the customers’ knowledge or consent, and creating PINs to activate these cards.

All of the above has happened only since January 1, 2011. That is about five years in which these shenanigans were going on. During this time, Wells Fargo fired about 5,300 employees but it does not appear that the bank did a lot more than that to change the culture and systems in order to keep these practices from recurring, or that it took any steps to do right by the customers who were affected. To boot, the executive who oversaw the unit where this all happened left without having to pay back any of the almost $125 million that she earned with the bank. To understand why employees engaged in these dishonest practices, it is important to understand how they benefitted.

Wells Fargo is valued at over $250 billion, making it the most valuable bank in United States, by this yardstick. Wells Fargo was also considered to be the king of cross-selling. Cross-selling is a practice where banks sell more than one service to a customer. For instance, say you open a checking account with Wells Fargo. If the person that you open your account with convinces you to then open a savings account, a credit card account and a mortgage, all of that is cross-selling. At Wells Fargo, employees were paid and received bonuses based on the number of different services they were able to sell to customers. At times, employees would have to work unpaid overtime hours in order to reach these goals and would be threatened with losing their jobs if they did not do enough cross-selling. These employees were told to do “whatever it takes” in order to meet sales goals and this turned out to include engaging in the fraudulent behaviors I noted above.

With the pressure to perform in order to increase earnings, through bonuses, or merely keep a job, the retail employees, at least 5,300 of them, found many opportunities to game the system. Controls at Wells Fargo, when it came to ensuring accounts were valid and authorized by customers, appears to have been very lax. For instance:

  • Employees were able to sign up customers for banking services and would use fake email addresses that used wellsfargo.com as the domain name, such as 1234@wellsfargo.com or none@wellsfargo.com. Doesn’t that seem rather brazen? It also seems like a security shortfall on the part of the bank, that the application process wouldn’t flag an email that doesn’t exist in your own system.
  • When employees opened fake deposit accounts, they would fund these accounts by transferring a customers money from an authorized account to the fake account. Sometimes, as a result of the transfer, the authorized account would incur insufficient balance and overdraft fees. Also, the fake accounts would also incur fees and Wells Fargo would withdraw money from the authorized accounts in order to pay these fees.
  • In a similar manner, credit card accounts opened, without the approval or knowledge of customers, would incur annual and other fees. At times, these customers would find that they were in collections and their credit scores had been affected by accounts that they did not even know they had.
  • Some customers actually received credit cards for accounts that they had not authorized. When these customers contacted Wells Fargo to complain about these cards, they were told to simply destroy the cards. Destroying a credit card does not close the credit card account, nor does the shredding of a card do anything as far as the shredding that your credit profile may have taken.
  • In order to meet quarterly goals, employees would hold back applications for account openings. The manual applications, that included sensitive personal information, would be stockpiled in an unsecured manner and the accounts would only be opened in the next sales goal period, in a practice referred to as sandbagging.
  • Wells Fargo also misled customers by telling them that they could not get one service without getting a bundle of other included services. That would be like opening a checking account and being told that you cannot do so unless you open a savings account and get a credit card with the bank.

With how widespread these practices were, it seems that employees were sharing knowledge about how to best bulk up their cross-selling numbers, without actually cross-selling. Also, when customers complained about fees, it is unclear how much of a follow-up there was to discover if what had happened was a mistake or not. Then, when Wells Fargo discovered this behavior and fired an employee, the bank did not take any steps to let the impacted customers know that their information had been used to open accounts in their name and, if applicable, charge them fees. The bank did not go back and refund customers the fees they had been charged, unless the customer raised a stink about them. When I was discussing this case with my husband and explaining how customers were negatively affected, he had a tale of his own. He has a credit card (not Wells Fargo) and the company changed his credit card information, without letting him know. When he sent payment on his account, they accepted the payment, without telling him that the account was closed, and then charged him interest and fees on the balance that had been moved to a new account. He, not the credit card company, had to figure out what had happened and he, not the credit card company had to calculate the monies that needed to be refunded to him and make sure that the company was not just holding money on a nonexistent account but actually crediting it to his account.

As a result of this case, in addition to the fines that Wells Fargo has been ordered to pay, there are steps the bank has been ordered to take in order to improve the culture and strengthen the system so that this kind of behavior can be prevented, detected and corrected in the future. This includes:

  • Employee training to prevent “Improper Sales Practices” and improve integrity at the bank;
  • Creating monitoring processes and policies to effectively deal with customer complaints;
  • Creating systems to ensure that customer approval is received before accounts are opened on their behalf;
  • Revising the basis for how employees are paid and reviewing sales goals to ensure that they are not unrealistic and do not impose unreasonable pressure on employees.

Wells Fargo will continue to be monitored for five years, to make sure that they comply with the CFPB’s consent order.

On your part, with all your accounts, you can check to make sure that they accounts that you have are ones that you have authorized and that transactions made in your name are valid. Some steps that you can take are:

  • Review your credit report on a regular basis to make sure that all accounts listed are ones that you know about. Several financial institutions offer free credit reports to customers. If this is not an option for you, you can visit the Annual Credit Report website. On this website, you are entitled to credit report per year, from each of the three major credit reporting companies. A strategy to employ is to check a report with one agency every four months;
  • Check your bank statements regularly (at least monthly) for any transactions that are incorrect. Even if it is a small amount, look into a transaction. That small amount could be an indication of something bigger;
  • If you receive a card in the mail that you did not apply for it, follow-up on it and make sure that it is cancelled. Then check your credit report again.

On the Wells Fargo website, the Chairman and CEO states that “Everything we do is built on trust.” It seems that many employees have been playing lip service to that value and we know that, even with trust, it is important to verify. Take the time to check in on your finances. There may be mistakes that need fixing and there may also be pressured employees who are trying to get ahead or merely hold onto their jobs by engaging in dishonest practices.

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Two Hours… And Counting

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Oh man! I may need treatment to recover from working out my health care expenses. For several years now, my shoulder has hurt. I have had it looked at by a doctor and I went through physical therapy until I had used up all that I was allowed to use, and treatment didn’t really work. My shoulder still hurt a lot. I then got sidetracked by all kinds of other things going on in my life and so I pretty much lived with the pain (eased a bit by massage, ibuprofen and Salonpas). Finally, I decided that enough was enough and that life should not be lived in pain, so I went to see the doctor who helped me out when I fractured my knee. I love his guy. He is absolutely awesome. And it is a great and special thing when you establish and relationship where you are treated like an adult with a brain and all your questions are answered and things are good. You feel great, until you start to talk money. Then you feel all kinds of unwell again.

I am a person with health insurance and I believe it is pretty good insurance because it is pretty widely accepted and my co-payments are decent. I understand that choosing an out of network doctor is bound to be very pricey. However, several years ago, I had some pretty terrible experiences when I went with in-network doctors that were recommended to me by my insurance website and not by a fellow medical profession. Now, when I find someone who treats me with respect and seems to have a vested interest in my being healthy and fully recovered, I tend to stick with that person. I understand that this can come with a premium; I just wanted to know what this premium might be. So, there I was, discussing a treatment plan and then payment plans. The treatment plan ended up being the easier part of things to understand. Let me tell my tale…

Looking at a schedule of my health insurance benefits is like solving a complex math problem, where suddenly I need my calculator and a whole lot of patience. I have to factor in a deductible and then calculate the split between what insurance will then cover and what I have as an out-of-pocket expense. I sat down with the office manager at my doctor’s office and he went through the various costs of my treatment and then he pulled up the Fair Health Consumer website. The office manager then explained to me that, because my doctor was out of network, we should go over what the treatment could, potentially, cost me. He explained to me that even though my insurance would cover a percentage of my “eligible expenses”, what that meant could make a huge difference to my wallet. I found out, this week, that things can get very complicated and expensive.

First of all, the health insurance company will determine the reasonable and customary cost of a procedure. This is the average fee charged in a particular geographic area. Then, for out of network providers, regardless of what the provider charges, the health insurance company will cover costs based on the reasonable and customary cost. However, a health insurance plan may determine what they will cover, based on a published rate allowed by Medicare. This rate has nothing to do with the average cost of a procedure in the part of the country where your treatment occurs. This rate can be wildly different from the reasonable and customary rate and this can result in a big difference in how your wallet looks at the end of the day. For example, you could have a procedure that has a reasonable and customary cost of $10,000. If your health insurance covers 60% of this rate, your out-of-pocket expense will be $4,000 or 40% (I am, for the sake of simplicity, assuming that there is no deductible). Now, if your health insurance uses the Medicare based rate, they could reimburse you only about $300 (this is a comparison that I actually did on the Fair Health Consumer website, and not something that I made up, as extreme as the difference is). That means here, your out-of-pocket expense will be $9,700. That is a significant difference. So it is very important to have an idea of what you are going to pay beforehand, Otherwise the doctor’s bill may give you a heart attack, in addition to all your other issues. The health insurance companies say that they have switched to the Medicare rate in order to push out of network doctors to become in network doctors in order to get better reimbursement rates from them, but what I have read of how this rate came about does not appear to support that claim. However, it seems to me that the patients are the ones who are suffering, being that they are the ones who then get the gigantic bills from the provider that they have chosen to use. And this could be because they have looked at their explanation of benefits and calculated their out-of-pocket based a reasonable cost. Imagine that.

With this in mind, the office manager gave me a list of information, including the codes for the treatment and suggested that, beyond visiting my insurer’s website and reading their explanation of benefits, I actually call and have conversations about what exactly the explanations mean. So began my adventures in telephone conversations regarding my health insurance benefits. I made my first call, thinking I would be on the phone for a few minutes but I didn’t hang up until over an hour later and I was still clueless. The man I spoke to was very friendly and polite and he took my information but then as we got into what I should expect my out-of-pocket expense to be, things became very murky and confusing. It appeared that he could not access out of network information for what my cost would be and, he was not clear on what rate my out-of-pocket expenses would be based. After an hour of us hanging out on the phone, trying to figure things out, he found a form that I could submit in order to get a quote from the health insurer but he seemed to not know how to get it to me. So he said he would call me back or email me before the end of the day. He did neither.

The next morning I called again and, even though this particular insurance company representative seemed to have access to a little more information, she too was very vague and kept telling me that she could not tell me how much things might cost me or what would be reimbursed. That is a bit scary since I was calling to make sure that I would have as few surprises as possible. About an hour into a very frustrating and circular conversation, I mentioned that the day before, the representative had mentioned a form and a client advocate. She claimed she had never heard of such a thing but she put me on hold as she went to investigate. She came back on the line and said she had found this form but she could only either fax it to me or send it via snail mail (I could go into a whole rant about why, in 2016, people can’t email you something and, instead, you have to figure out how to get your hands on a fax machine).

So, now I am at a point where I have sent information in to the insurance company and I am now waiting (for 2-3 business days, per the form) for a response on the eligible expense for my treatment – the first step in calculating out-of-pocket expenses. I am hoping that my future does not hold more protracted conversations where things end up even more confusing than they were going in. I would feel dumb, but the health insurance representatives seemed to know about as much as I did about what my insurance policy does and does not cover. I hope that I can get to a point where I can make an informed decision about what to do next. And my lesson, almost, learnt that I am sharing here – don’t take the website blurb at face value; don’t take the information booklet at face value; don’t assume you know what is going on. Keep asking questions, even if you get so frustrated that you want to throw your phone across the room. If what you are being told about your insurance doesn’t make sense, ask to speak to someone else. I could tell you what I think about all of this, but I am going to stick with telling you to ask the questions until you get clarity (even if it is very expensive clarity). Insurance is a very murky space and those dark spots could turn out to be a lot of money coming out of your pocket.

 

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A Matter of Trust

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I fell in love with economics, in part, because it made so much sense. Just about everything could be boiled down into a supply and demand chart that even I, with my limited artistic skills, could draw, freehand. In a free market (the basis of all things good in this world) and in our economics 101 diagrams, the goal was to get everything, neatly, to equilibrium. It was glorious! In every situation, supply and demand, in a free market, would come to a price where both parties were happy and all goods and services to be sold were bought. In equilibrium, there were no shortages, there were no overages and the price was right. For instance, say guy made Twix bars and was selling them for five cents. He would likely find that a lot of people, including those who might ordinarily prefer Snickers, would be clamoring to stock up on Twix bars. Chances are that this guy would sell out of Twix bars in no time. People seeking these cheap, and now sold out, Twix bars might start placing ads on Craigslist, perhaps even offering ten cents for a Twix bar. Others might go to the Twix maker and offer him ten cents a bar to be put on a pre-sale list. Some people might see how well the Twix bar maker is doing and decide to start making Twix bars too. In the world of the perfect graphs, this cycle would go on, with the Twix makers raising their prices a little more and making more Twix bars, in response to the great demand for the chocolate bars. However, as the price goes up and gets closer to the price of a Snickers bar, some of the people who are not so crazy about the Twix will find that the higher price is not enough of a bargain for them, so they will no longer want to buy the Twix bar at this high price. The Twix makers might get too excited about the demand for the chocolate bars and decide to raise the price to two dollars. Even though a few Twix or nothing people might be willing to sacrifice all for a Twix, most people would tell the Twix makers that they are crazy and go looking for an alternative. The Twix makers would then find that the Twix bars are going old and stale in their storage facilities and they are not selling enough chocolate to even cover their costs. To resolve this, they will lower their prices and reduce production, until they get to the point where the price is such that sellers have enough unexpired Twix bars to sell to everyone who comes in looking for them, no extras, no shortages. That, according to the graphs, is how a free market works.

When a monopoly exists, it messes with the free market. In the case of a monopoly, there are no other options and people have no choice but to buy a product or service from one source. This would like living in a place where you can only buy electricity from one provider. For most people in that society, they will be forced to pay whatever the electricity provider charges for electricity. Try as they might, they will not have an alternative to electricity in order to charge their mobile phones and laptops. Twix bars won’t cut it. What economists have found is that, left to their own devices, monopolies will charge more for their products and services than people would be willing to pay in a free market where they could choose their supplier. Monopolies have pros and cons. Some pros of monopolies are:

  • Stable Prices that come about because there is no one coming in and out of the market to create bidding wars, where suppliers fight, with prices, to get customers. With only one supplier, there tends to be just one price that tends to remain the same for a while.
  • Economies of Scale. This basically means that, because the monopolist is making all the product for the entire market, he is making a lot of product at one time. As a result, the large scale will lead to lower costs per unit. If the monopolist chooses to pass the savings on to the customer the customers will be able to get goods and services at a lower price than they might have in an open market with many supplies making goods on a smaller scale.
  • Research and Development may benefit from monopolies. Since the monopolies are making all the money in the market, from sales, they can take these larger profits and have more money to put towards innovations and improvements of their goods and services.

On the flip side, the cons of monopolies are:

  • Higher Prices may be a result of monopolies. Because people have no other options, the monopolies can get away with charging whatever they feel like charging.
  • Price Discrimination can happen with monopolies as well. Because they can charge whatever they want, they can decide to charge some people one price and others another price and, because customers have no options, they are forced to accept the price quoted to them.
  • Inferior Goods and Services are a possibility with monopolies. Monopolies may look at the market and decide to cut corners and produce inferior quality goods and services because they know that customers can’t go anywhere else.

Generally, monopolies are not considered to be in the spirit of the free market. Competition, that would correct inefficiencies and unfairness in the markets, does not exist with monopolies and so there is a risk that consumers can be taken advantage of. As a result, regulators tend to take steps to review mergers of large companies in order to reduce the risk of monopolies (or something close to a monopoly). The action by the regulators is related to their enforcement of antitrust laws.

Currently, several health insurance companies are fighting with the US Department of Justice. Humana and Aetna are seeking to merge into one company as are Athena and Cigna. Currently there are five national health insurance providers; the merger will leave us with three providers. The health insurance companies are touting the pros of monopolies, claiming that the mergers will lead to lower prices to consumers and increased research and development. The justice department, on the other hand, argues that, with fewer national insurance companies, there will be less innovation and there will be the risk that customers will be charged higher rates.

As we enter the complications of humans, trust, regulations and court battles, we can keep in mind the memory of the neat graphs of the perfect markets. It may help us better understand the news articles, full-page ads and other coverage of this and other antitrust actions related to other mergers and acquisition deals in the news. If not, we can take comfort in our still affordable Twix bars.

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Cheating Mysteries

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When I first started running long distance, my goal was to run the New York Marathon. After I completed the Chicago Marathon, things changed a little. Of course I still held my breath every year, hoping to make it into the New York Marathon. But I also had another distant dream – qualifying for the Boston Marathon. It was a distant dream because I would need to run a qualifying time in order to get into Boston and my pace at that time was nowhere near one that would get me into Boston. Over the last few years, my pace has improved and qualifying for Boston has become a more attainable dream. Over the years, I have also come to know more runners and have found that many of us aspire to qualify. I know I am always in awe of a person who has qualified for Boston – it is no mean feat.

With the line of work that I am in, I should not have been surprised, but I was, when I read a recent Runner’s World piece about people who cheat to get into the Boston Marathon. I wanted to run the New York Marathon because I was inspired by the runners who ran past my block, the runners who would touch all five boroughs that make up the city that I call home. I enjoy running races in cities and towns that I have never been to, as I find it a great way to visit and discover new places. When I think about Boston, I don’t necessarily think about running the race itself. The power of Boston, for me and for many that I speak with is in what it takes to qualify. That is the challenge. So, when I read about people who cheated by getting someone else to run a qualifying time in their place, or by cutting a course, I was baffled. Where is the joy in telling someone that you achieved something that you didn’t or that you had someone achieve on your behalf? When I speak with fellow runners, I tend to speak with like-minded people who are just as baffled as I am.

This article reminded me that just because one cannot understand the motivations of a cheater, it does not mean that the cheating will not happen. The fact that many of us cannot understand this motivation is exactly what those that cheat bank on. If no one can imagine how or why someone would fake qualifying for the Boston Marathon, the chances are high that a person will get away with faking in order to qualify for the Boston Marathon. This is something that we all should be mindful of, beyond the realms of the Boston Marathon. Way too often, a business owner or manager will forgo instituting checks and balances in their company, because that business owner can’t imagine that anyone that works for them could be the kind of person that would defraud them.

It is important to take steps to keep from being blindsided by your world view. Precisely because you can’t imagine how a person could behave in a fraudulent manner is why you should seek out the services of a forensic accountant, whose job it is to both imagine how a person could defraud you and how to prevent and detect such actions. We all hope that people will be honest, but it is a sad truth that for various reasons, people will cheat. In the context of the Boston Marathon, perhaps some people feel that they are so close to a qualifying time that a little cheat is not such a bad thing. Maybe some people hunger for praise, even if they have not earned it. Maybe some people just don’t think it is a big deal to cheat in order to get into Boston and see it as a victimless crime. In the context of a business, some people may face personal pressures that they feel push them to fraud. Some people may feel that they are not sufficiently appreciated by their employer and may, therefore, feel justified in taking from that employer. No one is immune from the pressures or motivations that lead to fraud, but what we can do is take steps to make it as difficult as possible to be defrauded.

 

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