The Accounting Podcast

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:04] All right. Let's talk about other organizations that lack internal controls. Let's talk about the Maryland Health Department. According to an article in the Washington Post, an audit of the Maryland Department of Health revealed that the organization the department failed to properly track federal reimbursements during the pandemic, resulting in over $1 billion in unaccounted funds. $1.4 billion is unaccounted for.

David Leary: [00:00:34] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:41] Hello and welcome back to the show. I'm Blake Oliver.

David Leary: [00:00:44] I'm David Leary.

Blake Oliver: [00:00:46] David, let's talk about loan forgiveness. But this time we're not talking about student loans. We're talking about a loan to a very prominent individual. Clarence Thomas, Supreme Court justice. There was a story today. Not today. This past week in the Wall Street Journal about a loan that Clarence Thomas received. $267,230. That's how much money Clarence Thomas borrowed from a friend. And apparently, according to a Senate report, may have never repaid.

David Leary: [00:01:26] I'm having a hard time with the number here. They just got a $203,000 from a friend.

Blake Oliver: [00:01:32] Did you ever see the 60 minutes report on Clarence Thomas, where he's driving around the country in a luxury motorhome? Did you know this about him? I think this is actually this is actually one of the most endearing things about Clarence Thomas is that his favorite thing in life is driving around America in this big RV with his wife. And they go and they talk to normal Americans, right? They hang out in Walmart parking lots.

David Leary: [00:01:59] So yes, I think I remember something about like sleeping in the Walmart parking lots in the RV. Like, I feel like I've in my brain. Okay, gotcha.

Blake Oliver: [00:02:06] Now, it's not quite what an average American would experience, because this RV, when it was purchased in 1999, was worth today about half $1 million. So this is a luxury apartment on wheels. It's what I aspire to someday. David, this is my goal in life, is I want to make enough money where I can just buy one of these things.

David Leary: [00:02:24] Does he have a driver or does he drive it?

Blake Oliver: [00:02:26] He drives it. And on the 60 minute report, he's driving around. And you know, they talk to him about this experience. But anyway, the question is, you know, where did he get this RV on a Supreme Court salary? Because that's a lot of money for a Supreme Court justice. I don't have offhand what they make, but I don't think it's nearly half $1 million a year. And the Senate has been investigating Clarence Thomas ever since. These ProPublica reports came out about his cozy relationships with these very wealthy Republicans, billionaires, and now they're investigating him. And so this is something that I'm bringing up here because there's an accounting and tax question here. So the Senate is suggesting that Clarence Thomas never repaid this quarter million dollar loan he received from Anthony Walters, a friend and fellow figure in the black conservative movement. And it looks like he may have made one or more interest payments. And then at a certain point, the loan was forgiven. Anthony Walters just forgave the loan. And you might think, okay, well, whatever. Right. No big deal. Well, here's where it gets tricky and here's where Clarence Thomas could get in trouble. Loan forgiveness, according to the Internal Revenue Service, is income because all income is reportable unless it is specifically excluded. So loan forgiveness is income. And it's not just the tax code. It's also accounting principles that say that loan forgiveness is income. So David, you want to do a little debits and credits with me.

David Leary: [00:04:06] I mean before we do that like I kind of understand this because back in the day I don't know either. I settled a credit card balance, I settled the debt at one time and I got a 1099 for the difference. Right?

Blake Oliver: [00:04:18] Yeah. Yeah, yeah. So so when you receive a loan, you got a debit. Cash? That's the cash that you received which increases cash and you credit a liability account, note payable, loan payable, something like that. Now let's say you're going to write off that loan. You got to get it off the books. Right. Well you credited the liability account in order to increase it. That means to decrease it you have to debit the liability account. So you debit your loan payable and then you have to credit something. You have to balance this entry. And what are you going to credit income. It's an increase in income. And if Clarence Thomas did not report that as income on his taxes, I wonder if that's how they they get them. It's always the IRS that ends up getting people right.

David Leary: [00:05:08] Yeah. At the end of the day, yes.

Blake Oliver: [00:05:09] Right. And failure to report income is the biggest mistake you can make when it comes to dealing with the IRS. You can increase your deductions. You can take deductions that, you know, maybe you shouldn't have. And then they'll come back and say, no, you shouldn't have done that, but nobody's going to put you. Generally, you're not going to go to jail for taking improper deductions. You're just going to get fines and penalties and interest. Right?

David Leary: [00:05:33] Because and I could even see the argument in a court of law. I'm like, well, it's confusing the deductions. I messed up, but I think the law of income is pretty black and white, like income is income. You got to declare it right.

Blake Oliver: [00:05:43] So the worst thing you can do is not report income. And and you know, I don't know I don't know if this will end up being an issue in that regard. But it's also an issue because he apparently didn't report this income, this loan forgiveness on his forms he's required to file as a federal judge. So that's the other issue. So there's your tax connection in politics this week. I've got more, though. It's not just Clarence Thomas that's in the news. Of course. We've got the ongoing Trump trial in New York State. Letitia Jones prosecuting that civil case against Trump for artificially inflating his valuations of assets in order to improperly get business loans. And we had some testimony from Michael Cohen, who I haven't heard about for a while. Michael Cohen was on the stand and testified that Trump instructed him to inflate the assets of the Trump Organization. He and Trump Organization's then CFO, Allen Weisselberg, were tasked with, quote, reverse engineering asset valuations to match Trump's self-perception as a successful businessman. Now, there's this question in the trial, which I think is totally legitimate about valuation. If you give two people the task of valuing a building or really any asset, you're always going to get different answers. And so because of this leeway, the question is, well. Okay. Maybe Trump, you know, aired on the high side. But does that constitute fraud? Does that cause harm to the banks? Does that cause harm to the insurance companies? That sort of thing. So that's that's what Letitia James is going to, I think, struggle with proving it might be difficult. Now in some cases, it's really obvious where the square footage of the penthouse apartment was 10,000 or 11,000 and not 30,000 as. It was reported by the Trump Organization. That's just completely wrong. Right? But the question is, does this rise to that level where hundreds of millions of dollars over across many, many properties like that is something that she is going to have to prove in order to get big fines, I think, is this a victimless crime?

David Leary: [00:07:55] Like if the banks loan them money and the banks got paid back? But is it a is there a I'm saying, is there not a crime? Obviously he defrauded the banks to get the loans, but I just you're right. Like I don't see how strong of a case this could be. Just the overvaluation stuff. Well, what you're.

Blake Oliver: [00:08:11] Bringing up is the question of harm. If there was no harm to these banks, then is there really a crime? And that is something that. I'm no lawyer, obviously, but that's something that in like a criminal case, you have to have somebody has to be a victim in order for there to be a case. I don't know if that's the same in a civil trial. Could the fraud just perpetrated broadly in across years and years constitute enough to be a crime that is worthy of a civil penalty? I don't know. We'll find out. We have a.

David Leary: [00:08:44] Question. Chat? No.

Blake Oliver: [00:08:45] Yeah. Let us know if you if you're an attorney in the chat, let us know. Welcome, everyone. Thanks for joining us. Trevor and Daniel in the chat. Daniel says when does the loan mature? Indefinite loan term. So that's a good question. This goes back to that Clarence Thomas loan. So the loan had a term of some years I don't remember exactly how many. And it was interest only. And then after that there was going to be some sort of balloon payment. And at the at some point during those interest only payments, the principal on the loan was forgiven completely. So Clarence Thomas, apparently, according to what we know from the Senate report, did not pay back. The principal on this loan, only made some interest payments. And we don't know how many of those he made.

David Leary: [00:09:36] Yeah. Everything's questionable.

Blake Oliver: [00:09:38] There was another wrinkle in the Trump trial this past week. Allen Weisselberg was on the stand and Forbes while he was on the stand. Forbes.com published a report saying that he had lied on the stand as he was testifying, which then caused the prosecution to not bring him back after lunch. And the reason Forbes got involved in this is because Forbes publishes that list of the richest people, which Trump has been on for years and years and years. And Forbes said that Weisselberg played a significant role in trying to convince Forbes that Trump's penthouse was worth more than its actual value, which contradicts his courtroom statements that he never focused on the property, considering it a minor asset in Trump's overall financial statement. So that's not something that you want as the prosecutor to happen while you're while your guy is on the stand testifying against the person you're trying to prosecute, you don't want him being accused of perjury. And this has to do with the penthouse square footage thing going on. Now, there was one more witness who took the stand in the Trump trial. Doug Larson. So Trump, the Trump Organization, said that the building valuations were determined through phone conversations with him. But then Larson got on the stand to say that those conversations never took place. He's a former executive at commercial real estate firm Cushman and Wakefield, and he said that the Trump Organization's claims of his involvement in the valuation process were, quote, inappropriate and inaccurate, unquote. He also mentioned that he was never informed that he would be cited as a source for these valuations, and he suggested that the valuation numbers were derived from a generic email that he sent to his clients. Larson insisted that official appraisals should have been conducted on the buildings. So that is your update on the trial. When it comes to these valuations and I don't know, we'll see what happens. We'll keep you posted.

David Leary: [00:11:41] So speaking of fraudulent claims, the IRS this last week they announced that they are now going to have a process so people can withdraw bogus claims. So maybe a mill filed your paperwork, but maybe it hasn't gotten through yet because obviously they they've stopped processing all the claims and they're coming out the process to do it. But the great news is we at earmark are going to do a webinar on this on November 1st. So anybody listening November 1st, 12:30 p.m. Pacific, we're doing a webinar on how to withdraw claims for your clients. So awesome. Attend that webinar. It's from the host of the federal tax update with our earmark webinars platform. But definitely come to that.

Blake Oliver: [00:12:22] So I want to want to highlight that, David. So if our listeners who don't know, we produce a podcast called Federal Tax Updates featuring Roger Harris and Andy Schwab of Paget. Excellent show. They talk all about federal tax every couple of weeks, and they are the ones hosting this webinar. So they are the experts. Roger has testified in front of Congress like really experienced. So we'll put that link in the show notes. And David has just dropped that link into our live stream.

Speaker3: [00:12:49] Yeah.

David Leary: [00:12:49] And Roger was in DC discussing all this with the IRS before they made the final announcement. So he's highly involved knowledge about this. So if anybody has the ability to do a webinar on this it's Roger. So hopefully if anybody needs to understand how which of their clients, you can withdraw the step by step instructions how to get more help on it. It'll all be in that webinar.

Blake Oliver: [00:13:11] So I don't want to steal their thunder David. But I did go on to the website where the IRS explains how to do this. Yeah. And. I just have to highlight how this process works, because it's very much how you would think the IRS would set this up. Okay, so you have to print out a copy of the adjusted return with the claim you wish to withdraw. So a copy of the 941 X, okay, the one that you filed. And then in the left margin of the first page, you have to write withdrawn in the left margin, like with a marker or a pen. And then in the right margin of the first page going like top to bottom, sideways on the paper, you have to write your name and title and sign and date it, and then you have to fax the signed copy of your return to a number. This is the process that the IRS has come up with.

David Leary: [00:14:18] We don't have time to make a new form. So here's what we do. We notice we have this white space in the margins, and we'll just pretend that's two fields. There's the field on one side and the field on the other. I mean.

Blake Oliver: [00:14:27] Could they not have set up some sort of form on a website that accomplishes this? I mean, maybe it's easier just to have all the information in one place, but like, seriously, a fax, like have a form and allow people to upload a copy of their original document and sign it.

David Leary: [00:14:44] And what happens if you put withdraw on the right, the right margin? Yeah.

Blake Oliver: [00:14:48] What if you write it in the top and not on the side? Like, are you going to lose your withdrawal request or something like that? So these are.

David Leary: [00:14:54] Questions you could ask at the webinar, like go to the webinar and you can ask these questions like.

Blake Oliver: [00:14:59] Who designs these processes? I would go nuts. If I was a tax pro. I would just like not be able to handle the insanity of this. I already get frustrated enough and I get to live in the world of cloud. All right, David, I'll let you pick the next one. We're done with current events.

David Leary: [00:15:16] All right. This is not even a current event. It's just it's staring me in the face, and it's driving me crazy. So. Because I want to ask you this question. Okay, so this is an article. It was in Apartments.com Pymnts.com, and it's based on a survey they did that's called how consumers want to live in the voice economy. And frankly it's just all crap. Who cares. But there's a stat in here which is just blowing my mind. Now, Blake, you are the most connected millennial I know. You got your series, you got your your Apple Watches, you got your Alexa, you got all this stuff, right? Your Google voice, you got all this stuff connected in. And this one of the survey results says that 30% of us millennials. Use a voice assistant to pay bills. And I'm thinking there is absolutely no way that I've ever paid a bill with your voice assistant.

Blake Oliver: [00:16:10] No.

David Leary: [00:16:11] All right, that's it. Done. We don't talk about it anymore. I just want to confirm that I was like, there's no way 30% are paying bills using a voice assistant.

Blake Oliver: [00:16:17] Yeah, that's that study doesn't doesn't pass the smell test to me because I don't even know what what app can do that reliably. To pay the bill.

David Leary: [00:16:30] Yeah, I don't buy it. I mean, you can. I'd be surprised if you could actually get. Alexa or Siri to be like, remind me on October 15th to pay the bill. And I don't know if that'll work. Never mind. Actually pay the bill.

Blake Oliver: [00:16:44] Well, it's going to get a lot better soon because Apple is of course working on their own AI, and Apple never is the first mover. They're always the second or third or fourth, but they do it really well. And I would not be surprised if Siri will integrate with banks and pay bills for us.

David Leary: [00:17:01] Well, they have their own bank. I mean, Apple's got oh yeah.

Blake Oliver: [00:17:03] Apple Card or.

David Leary: [00:17:03] Apple Card.

Blake Oliver: [00:17:04] Goldman Sachs, Apple Pay, all that good stuff. So know maybe very soon you'll be able to say just, you know, pay this bill and it'll do it. David, we got a review. We haven't been asking for reviews. Maybe we should. I want to read this review. I'm very honored by it.

David Leary: [00:17:23] Didn't see this one come in, so can't wait to see it.

Blake Oliver: [00:17:25] This says I'm too obsessed. Five stars so glad to have discovered this show. From the debunking the drama in the Barbie movie to covering fascinating Intuit developments, David and Blake are the resource for all things accounting. Tune in for valuable insights from excellent guests and easy to consume conversations on the latest news in the CPA space. You won't regret it. That's from Charlie via Apple Podcasts. Thank you Arlie.

David Leary: [00:17:54] Thank you for the review.

Blake Oliver: [00:17:55] And if you, dear listener, would like to leave us a review, we very much appreciate them. You can do that on Apple Podcasts. Just scroll down on our show page to the reviews section. Give us a star rating, write a review. We will read it on the air. Hey, if you think there's a way we can improve, go ahead and stick that in your five star review and.

David Leary: [00:18:14] Just keep the five stars in it. Though when you write that.

Blake Oliver: [00:18:17] I mean, I'm very pleased with our rating. I haven't checked it in a while, but it's, you know, it's it's up there. I think it's better than my Uber rating. So.

David Leary: [00:18:28] Does Apple let people change their rating? I don't know. Like an Amazon review. Like later on you could say like, okay, I've had this product now 90 days and I want to change the rating. Okay.

Blake Oliver: [00:18:37] The ratings are really helpful. They help surface our show to other accountants, and our listenership is way up over the last few months. So I think you like what we're talking about and the topics we're covering. We are today I think number 17 on the Apple Business News charts, right up there with shows by the Wall Street Journal and The Economist and NPR and our friends over at Bloomberg Tax and Accounting today. So thank you everyone for listening and for making this show something that David and I can do as a job, which is so much fun. I get to read accounting news for a living.

David Leary: [00:19:19] I don't want to talk about other things that are hot that are important to you. Do you want to shift to something else?

Blake Oliver: [00:19:25] What would be important to me?

David Leary: [00:19:26] You love remote work stories.

Blake Oliver: [00:19:29] I do. I didn't bring any this week, though.

David Leary: [00:19:31] Your child loves roadblocks, right?

Blake Oliver: [00:19:33] He is addicted to roadblocks. And my goal in life is to channel that addiction into him. Learning how to code Roblox games so I can get him off the family payroll.

David Leary: [00:19:45] Well, Roblox last in May of 2022. They pretty much told all their employees they could primarily work remotely. But now recently, they've rolled that back and to the point where they've told employees they have to come to the office three days a week or take a severance package.

Blake Oliver: [00:20:04] A lot of companies have been doing this, like the bait and switch.

David Leary: [00:20:08] Yeah, and they're using this. They didn't specify how many, but they're basically reaching out to remote employees and trying to figure out how to get them to come into the headquarters in San Mateo, California. So. So is this a. Because it's just an extra lever like, hey, we're going to lay off people anyways, but let's use this as a way to hammer people to kill our remote work and hybrid models.

Blake Oliver: [00:20:30] Lots of companies are trying to do this. I don't think it's going to work. There's just too much leverage on the employee side right now with the talent shortage across every single profession. Especially when you're talking about developers, the most talented people, the All Stars will get to do whatever they want indefinitely, right? Like, and they even say this in some of these press releases, they say if certain exemptions will be made for certain employees, and obviously the people who are really critical will not have to go into the office. And the whole trend in the last few weeks, the thing I've been hearing about is this coffee badging thing. Have you heard about that, David? Coffee badging?

David Leary: [00:21:08] No.

Blake Oliver: [00:21:09] So your company mandates that you come into the office a few days a week, and usually the way they do that is by tracking your badge scan when you go in through security, because any company of a certain size now they use these RFID badges to get people access into the building, and you scan it and they have records of this. So how do you enforce a return to office policy when you can't actually watch everybody? You just check their badge scans. So I have to go in and scan once a week or two times a week or whatever. And so employees are gaming the system. They're going in after the rush hour midday. They're scanning in, they're hanging out for a few hours, having coffee, chatting with coworkers, and then heading home before traffic builds. They're just.

David Leary: [00:21:50] Doing all the great parts of working in an office.

Blake Oliver: [00:21:52] Right? Which actually is not so bad.

David Leary: [00:21:55] The community part, the community, the.

Blake Oliver: [00:21:56] Community part is what I think is important. I mean, I think there's like better ways to do that. Have monthly employee all day retreats to do team building or maybe do quarterly. That's what I see some of these virtual accounting firms doing is instead of spending money on an office, that people are only going to be in for a few hours, that isn't very fun. Use that money on paid for retreats and bring everyone to a central location every few months and do the team building that way, and then let people actually get their jobs done at home, where they're more productive and less distracted in general.

David Leary: [00:22:32] Yeah, just in office. Happy hours. And that's the only thing you have for the office.

Blake Oliver: [00:22:38] Hey, Tino. Welcome back to the live stream. Tino says my day job is working remotely for the National Cemetery Administration as of September 2023. I absolutely love it. Now, Tino, do you have to go in person to the cemetery or do you get to work from home? I'm guessing you get to work from home, but I'm curious to know, is it hybrid? Is it full time in the office? Let us know. Stephen says time theft is still theft. I'm not really sure what you mean by that, Stephen. Do you mean that if employees badge in and out and they don't really work, that they are stealing from their employers? But what if they get all their work done at home? Like, does it really matter? Is it really that important? Tino says work from home. My whole team is remote. That's fantastic. So you get the benefit of what sounds like a very nice, secure job. Steady thing. And you get to work remote forever. Like, to me, steady.

David Leary: [00:23:37] People are going to keep dying. Like.

Blake Oliver: [00:23:39] Even more people are going to be dying.

David Leary: [00:23:41] He's literally in death and taxes. He's. Yeah.

Blake Oliver: [00:23:44] Death and taxes. That's great.

David Leary: [00:23:48] I have an article that ties back to you then it's one of my top ones because you relocated from California. High taxes to Arizona, lower taxes. I think some of it was the pandemic, but it's so beautiful.

Blake Oliver: [00:23:57] David, every time I file my taxes, I am like grateful. I am like happy.

David Leary: [00:24:03] So so there was an article and you can pull it up if you want. That was in the Tax Foundation.

Blake Oliver: [00:24:09] Oh, is this the one about the tax gap? No, this is one people moving, people moving.

David Leary: [00:24:14] So there's a little bit of data now from the IRS suggesting that people do move because of taxes and some of the stats that they came out with this. So nine of the top ten states with the largest population gains from 2019 to 2020 have no or low individual income taxes. So the states growing the most have no taxes. Basically.

Blake Oliver: [00:24:38] I wonder I wonder if that's just correlation or causation.

David Leary: [00:24:42] So they reference that here. But there's just so much data pointing to this. Like and then they have some survey data that's not tied for the IRS. And even that kind of indicates this because people will use phrases like I want a lower house payment. Lower house payments is usually tied to.

Blake Oliver: [00:25:01] Lower property taxes. My property taxes are half what they were in Los Angeles here. Yeah.

David Leary: [00:25:06] Basically the other states that are growing have a top marginal rate that's below the national median. And 16 of the 22 states that are shrinking are above median top income tax rates.

Blake Oliver: [00:25:17] Get this David, Arizona for 2023 has a flat tax. It's like two point. I want to say 4%. It's wrong. That might be wrong, but it's. That's great. Compare that to California where it's like, don't know what ten, 11%? I think last time I checked, not the exact numbers, but you get the idea of the difference.

David Leary: [00:25:40] In the in the 25 best ranking states on the 2020 state business and climate index. So this is going to be more of like, where should I have my business be? Which states 20 of those 25 states have grown, and the 25 worst ranking states 17 lost lost taxpayers. And this has big ripple effects. For example, in 2021, California and New York lost 29,000,000,025 billion in AGI, respectively, while Florida gained 39 billion.

Speaker3: [00:26:06] Wow.

David Leary: [00:26:07] So governments are really feeling this effect of of this difference in money and the income gaps that are in income. But I guess you're the budget income gaps.

Blake Oliver: [00:26:16] This is what's so great about our federal federalist system of government, which is really unique in the world, the fact that states can set different tax rates and attract Americans. We have competition among state governments to get us to come and work there and build businesses there. And if we didn't have this system of states and the federal government having different rights like this wouldn't exist, this doesn't happen other places. So and this.

David Leary: [00:26:47] Goes back to you go back to episode number 200. If anybody wants to go listen to this. This is right after Trump lost the election. It goes back to my theory that this massive migration, because that the Tax Cut and Jobs Act caused all these people in California to move to marginal states and tip them blue. And this is why I still insist Trump lost the election is his Tax Cut and Jobs Act. So people listen to episode 200.

Blake Oliver: [00:27:14] Stacy in the live stream says shout out to Washington State to Steven says flat tax is not fair tax. Oh yeah Steven, I'm not saying it's fair. I'm just saying it's pretty great for me. All right, moving on. Just for fun, let's talk about Better Call Saul. Do you ever watch that show, David?

David Leary: [00:27:34] Yes, but I have not finished it. Okay.

Blake Oliver: [00:27:38] I watched the first season or two, and then somehow I got derailed by it. So I need to go back and, you know, get back into it. But it's an amazing show. The prequel to Breaking Bad. Well, Better Call Saul was in a lawsuit. Liberty tax sued the show Better Call Saul, and basically because they got parodied in an episode, which I think is like generally something you don't want to do. If a TV show makes fun of your company, you know, suing them for trademark infringement is generally not like the best thing to do, because it's going to make people more aware of the show and the episode, and they'll go watch it. Right. So. This lawsuit has been successfully defended. It was filed by Liberty Tax Service, who claimed the show depicted a dubious tax firm that resembled their own. Liberty Tax failed to provide compelling evidence that viewers would confuse the fictional Sweet Liberty Tax services with their own company. The episode in question, Carrot and Stick, featured Sweet Liberty operating from a trailer in the New Mexico desert using patriotic imagery and run by former clients of the show's main character, Saul Goodman. Sweet Liberty tax services. Uh. All right, what's next? David?

David Leary: [00:29:01] What else do we have? We have just a quick note that everybody should note. If you have clients that are at Chase Bank. Chases requiring their changing their security for account verification. So in theory. All bank feeds are going to break across all your QuickBooks clients in prior zero clients and anywhere else they're connected to Chase. And this is for the merchant services, Chase payroll, all those bank accounts that you might have connected through. You're going to have to reconnect between now and end of November. And this is an article that was in insightful accountant from Bill Murphy. So just be aware that your clients might start having disconnects another headache.

Speaker3: [00:29:38] Yes.

Blake Oliver: [00:29:40] We're going to QuickBooks connect next month. It's actually coming up real soon in a couple of weeks. Right, David.

David Leary: [00:29:46] It's sooner than we think.

Blake Oliver: [00:29:47] Yes, that's going to be in Las Vegas at the Aria. And so this story caught my attention. Crazy embezzlement case at Aria Las Vegas hotel manager refunds $770,000 to his debit card. It's a pretty simple embezzlement case where this hotel manager, instead of refunding customers to their credit cards, simply put in their own debit card number and got up to $770,000 on their own debit card before anyone noticed.

David Leary: [00:30:26] And how many how much time did this take place?

Blake Oliver: [00:30:29] Let's see. The individual drew suspicion from a coworker after living it up a little too large. So it must have been for quite a while, right? If that's. And it's funny, that is how people get caught. If you're going to do fraud, don't go out and buy the expensive car and take the trips. And like that, you show the money and you get caught. This is like. Anyone who's watched The Wire knows you don't show the money.

Speaker3: [00:30:59] Right.

Blake Oliver: [00:31:00] And of course, this is the sort of thing where there's going to be a trail. Right. Like who? People who do this don't really think ahead, do they? Most fraudsters don't really think ahead. So let's see the details here. The defendant was an operations manager at the hotel. Had the authority to issue refunds for reservations and customer satisfaction. Apparently, you know, we're talking some lacking internal controls here. The amount of refunds he processed is 209, with a combined total of $773,000. So it was about $3,700 per refund. And the refunds were placed into his personal checking account, always using the same debit card. And the defendant lived a very flashy lifestyle that drew attention, so I'm guessing that it went on for a while because the people who are receiving these large refunds, maybe they were wealthier and so they didn't notice if they never got the refund. Like, how do you how do you deal with that? Right? If I didn't get my refund as a customer, I'd be calling in and wondering, and you'd think that would have caused him to get caught.

David Leary: [00:32:02] Well, sometimes, I mean, there's probably some due diligence people that are on top of these things, but sometimes you assume the guy like, oh, I issued your refund. Oh, thanks. And then I move on with my life. And I never checked if the refund came. Right. Yeah. I find articles like that always kind of funny. I've always felt like this is true with banks too. They always will cover in the news when like an armed robber robs $2,000 from a bank. But if there's some hack and like millions are stolen, they're never going to put that on the news. They don't want people to cause a panic. And I think it's funny. That is part of MGM Grand. This article comes out about this guy stealing $700,000 whoopty do when they've been losing millions and millions and millions. And who knows if they even paid for the ransomware to get UN hacked, they were completely ransomware it up. Like, you know, in the grand scheme, like this guy barely did anything to that hotel.

Blake Oliver: [00:32:52] All right. Let's talk about other organizations that lack internal controls. Let's talk about the Maryland Health Department. According to an article in the Washington Post, an audit of the Maryland Department of Health revealed that the organization the department failed to properly track federal reimbursements during the pandemic, resulting in over $1 billion in unaccounted funds. $1.4 billion is unaccounted for. Now, that doesn't mean that Marilyn didn't receive the funds from the federal government, or that the funds have gone missing. Necessarily that they were embezzled. It just means that the internal controls were so loose that they can't account for it. They can't tell the auditors where it went. Can you imagine?

David Leary: [00:33:46] I kind of can imagine. I could even paint a picture, a little bit of the City of Baltimore's finance problems, which happens to be in Maryland. Okay, I'll let you finish first.

Blake Oliver: [00:33:57] No, no, that's really all I got. I mean, other than saying that the governor, Wes Moore, expressed significant concerns about the financial documentation handling at the Department of Health during the previous administration. So it was during the previous administration. So the current administration saying it's not our fault.

David Leary: [00:34:12] Yeah. So obviously we talked about workday a couple of weeks back. And then because of this, you know, you once you start like bucketing or liking articles or looking at articles, they surface more and more, right? So, well.

Blake Oliver: [00:34:25] For those who didn't hear that story about workday, the summary is that was it. Iowa, the state of Iowa.

David Leary: [00:34:32] State of Iowa could not produce their financials because of workday, because the universities rolled out workday. And they it's been a botched rollout. Ohio State as well. They pulled back on their rollout different you know so people are a lot of schools are having problems with this. But what's interesting I'm finding with this research, what's great about these ERP rolls out rollouts for schools and cities and governments. You get to see it all like it's all public. Like you don't know about rollouts, ERP rollouts that fail with companies, private companies or corporations. Right. But all these it's all made public. Right. The problems. So anyways, we'll get back to the city of Baltimore. So they it's funny there was an article from early October so October 11th about how they owe a lot of people money. So this is on the AP side. We owe people money. But you know we're getting it paid. And and they're claiming that their transition to workday is helping them get through this backlog of money that they owe people. And the city peaked in 2020 with more than 4000 late invoices defined as over 30 days late. But now they've decreased that to half of that. And another part of this article mentioned that it was the city's spending board approved the switch to the new system with more than $13.5 million contract that would run from 2019 to 2024. So so they had to shell out, you know, $13.5 million for this. Well, yesterday or day before yesterday, two days ago, there's different news articles coming out now about how they have a growing collections problem. And they wrote off $45 million in bad debts. And they blamed workday.

Speaker3: [00:36:10] For this.

David Leary: [00:36:10] Their botched rollout of workday. Oh, man. So on the on the AP side, it seems to be going okay, but on the R side it's going bad and it kind of paint a in. The inspector general released a report after this investigation. But here's a great example of this. And some of it is ERP rollout some of it's incompetence. But for example the gas company needs to run a gas line underneath the row road. So they have to cut the road. Right. You need a permit to do that. Well, these permits, they didn't have a way to get these permits into the system to properly track and bill the permitting software didn't talk to the other software. And then on top of that, Baltimore Gas and Electric. They had a policy that you have to email us invoices. And the accounting department Baps, which is the Baltimore accounting and payroll system. They were manually mailing them invoices, so of course they weren't getting paid. And so this added up after so many years and the statute of limitations, they're just having to write off all this debt over and over again all over the place. And a lot of it is these systems aren't working together and they flat out called out. Some of it is the new system of workday. Some of it's they didn't. Sometimes they send it to the wrong contractors. They weren't even on the permit. And then some of it's just they're blaming short staffing. But these have real effects. So one of the things that happened is a vendor that supplies calcium oxide, also known as quicklime. Do you know what that's used for?

Blake Oliver: [00:37:35] Isn't that used for like getting rid of bodies?

David Leary: [00:37:38] Well that's not that's on Breaking Bad okay. No, but they need it because it pulls out lead and other contaminants from drinking water and bills weren't getting paid, and the supplier was not going to provide the city of Baltimore this very needed chemical. Wow. And so, so these effects of the bad accounting, bad bookkeeping, it all just really like rolls into real, real issues. And one of the other things that they had because they're calling out like stacked, these articles start to call out other things. Apparently, a few weeks ago, the IG reported that the Baltimore City Schools failed to collect the retirement contributions from 500 people's paychecks, leaving a 5 million gap in the general that had to be recouped from general school funds to make up for that retirement thing. So it's just a lot of botched roll outs are bad. And and actually, we're at Sweet World and I talked to somebody about workday and a top ten firm rolled out workday. And they had some issues with time tracking made it hard to bill clients for their time. Well, so.

Blake Oliver: [00:38:39] Workday is never going to be a sponsor. I think that's what we've established in this episode, man. Yeah.

David Leary: [00:38:46] It's it's just it's interesting how they're calling out their workday migrations as a reason for their problems. And you're seeing this a lot more than I think we should, I guess, I don't know.

Blake Oliver: [00:39:01] Well, let's talk about some other embarrassing news. Here's a headline that caught my attention. Given the talent crisis and the issue of low starting salaries in accounting. The headline is accounting firm apologizes for paying trainee below minimum wage. Now this is in the U.K., not in America. Thankfully, this is a graduate's experience at KPMG from the University of Manchester. He joined KPMG as an audit associate four years ago and worked there for just over a year, auditing investment banks. The audit associate left the firm. It was. This is interesting. It says KPMG, but then it says Grant Thornton. So I'm actually not sure which firm. Okay, this is Grant Thornton. Okay. So he was working at Grant Thornton. I don't know why KPMG's in there. That might be a mistake. Left Grant Thornton.

David Leary: [00:40:00] Man because he.

Blake Oliver: [00:40:00] Was burnt out. A letter he received from the firm 12 months after he left explains why, after looking back through its timesheet data and considering his flexible benefit choices, Grant Thornton said it had realized that he'd earned less than the minimum wage for the time he'd spent there. It sent him a 100 pounds for the inconvenience and promised to make up the difference. The UK minimum wage is currently 10.42 pounds an hour. So that's like $12.64.

David Leary: [00:40:35] So like, hey, we're sorry we did this. Here's an extra 100 bucks, 100 pounds, and then we're going to figure out the difference and then eventually get that to you. The fact that they acknowledged it. So he moved on a year later. Did he even know?

Blake Oliver: [00:40:46] No. I guess they were doing an audit or something internally. It's I'm just guessing here. And they realized that they had violated the minimum wage law, which you don't want to do as an employer in the UK, I imagine. I bet there are some steep penalties for that. And so they rectified it.

David Leary: [00:41:01] But so, so so he's an accountant though.

Speaker3: [00:41:04] Yeah. He is.

Blake Oliver: [00:41:04] An audit associate.

David Leary: [00:41:06] Audit associate, which in theory is an accountant.

Blake Oliver: [00:41:09] It should be.

Speaker3: [00:41:10] You would hope on this.

David Leary: [00:41:11] Yes. So so so I'm just trying to like wrap my head around this. So you're an accountant and you didn't notice that you weren't being paid the proper amount?

Blake Oliver: [00:41:23] Well, you know, David isn't. Our leaders keep telling us we don't do it for the money, right?

Speaker3: [00:41:28] You know.

David Leary: [00:41:31] Well played, well played.

Blake Oliver: [00:41:33] So I brought this up because this is something we're seeing here in the United States, not necessarily paying less than minimum wage, although it's possible that when you actually calculate how many hours you work and how much you get paid, it might not be that much more for many entry level staff working at firms that are overworking them. According to a survey that the AICPA does every couple of years, the Map survey, it's the National Management of Accounting Practice survey, management of an accounting practice map map. So the 2023 survey is out and public and CPA trendlines got the data and did analysis of it. And this is something that CPA trendlines does a good job of. They look at these reports and really dig into them. And don't just publish the press releases that you get, which tend to paint a rosier picture than maybe in the data. And this is the problem here, is that, to quote CPA trendlines, although the average base salary for new entrants to the profession increased by 5000 to $50,000 in the fiscal year 2022, this still lags behind comparable pay in fields such as engineering. So $50,000 a year is the average base salary for new entrants to the profession, and this has not changed much in decades. And people were getting paid this much ten years ago or more. And then you look at the cost of inflation. And I just have a hard time understanding. How we attract people into the profession when the starting salaries are that low? Yeah. You know, and the thing is that revenue is up 9.1% from 2022 to 2021. Average compensation for different categories of positions within the profession increased between 5 and 14% compared to fiscal year 2020. The use of value pricing, such as subscription based services, continued to rise. Hourly billing as a share of revenue has dropped from 70% to 65%, so that is encouraging. Two thirds of firms are using hourly billing, but a third are not.

David Leary: [00:43:58] That's amazing. Well, that that's that's that's starting to hit a decent one thirds decent amount of people.

Blake Oliver: [00:44:05] And I should correct what I said. It's not one third of firms. It's one third of billings in firms are for are on a value priced or subscription priced or non hourly basis. So in a in a typical firm. Two thirds are hourly and one third is not. So there's room to improve. Their median hourly billing rates rose to $159 from 137, a 16% increase. And like I said, there was a median growth rate of 9.1% in net revenue over the previous year, which eclipses the 4.2% growth rate from two years ago. But what I don't like about the way they report these numbers is they don't adjust for inflation. And I think you really should adjust for inflation because in a high inflation environment, obviously revenue is going to go up because inflation, right. Yeah. It's not necessarily actual like real growth. So I would love to see these numbers if they were adjusted that way. And we really should be doing that. I don't know why they do that. Net partner compensation profit on a per partner basis climbed 9% from 207,000 to 225 226,000 in 2022. So partner comp is going up 9%, but then starting salaries 50, you know, $50,000 on average. And the question is how do we attract people into the profession if those are the starting salaries.

David Leary: [00:45:33] You promise them like look at the salaries partners get. This is why you should join now. Get it.

Speaker3: [00:45:38] Now.

Blake Oliver: [00:45:39] But you have to wait on average 10 to 15 years to become a partner. And that's the other problem is people don't want to stick around and wait that long when they have a lot of options. I couldn't I couldn't do it. Well, here's something hopeful about the accounting talent crisis. Purdue University has seen a spike in accounting enrollment. Now, David, you reported a couple of weeks ago about some of the efforts they're making. They're doing they.

David Leary: [00:46:07] Go tailgating at football games. And I was like, this is a good way to get more accounting students. And they they encouraged them to, you know, it's it's 40 existing or 100 existing accountants and 100 accounting students. And they do a big 200 person tailgate. Tell them to bring their resumes, meet people in the industry.

Blake Oliver: [00:46:22] Now, I was skeptical about that because I'm thinking, you know, accountants are smart. You're not going to get them to become accountants just by doing tailgating. That's like the that's like slightly a it's like a little bit that's like a pizza party with alcohol. Right. So but there was a follow up here in accounting today or I don't know if they did in a story on that originally. They did a story on this increasing enrollment as reported by Purdue. So here are the numbers. They're. Enrollment in intermediate accounting, one grew from 101in 2019 to 297in 2023. That's huge. It's like they tripled it. In four years, and in intermediate accounting too. They went from 102 to 227. So they've like doubled that. So they're still losing people obviously from intermediate 1 to 2. But like the overall like that's good right. Like doubling the number of people that have taken intermediate two or that are taking it as great in their master's program. Enrollments have grown, have like doubled. These are small numbers, obviously like their master's went from 18 to 45. But this is being hailed as a model. And something they've done strikes me as actually really, really smart. They have created a new class and the class is called Careers in Accounting and Finance.

Blake Oliver: [00:47:47] It's required for accounting majors. The course features guest speakers, often Purdue accounting alumni, who discuss the diverse career opportunities that an accounting degree can offer. So it's not just go to Big Four and do audit and do tax. It's, hey, you can go work for a company. You can go work for a small firm. You can do all these cool things. And I really do believe that absent any change to the 150 rule or anything like that, like this is the way you get people to want to be accountants is you show them the non Big Four path. Let's be honest, the big four are the ones that are killing accounting right now. Because those roles are underpaid, overworked, and really awful work. Most of the time it's not great. And the big four. Can't change. They can't figure out how to do it. And so if we funnel people into that meat grinder that is the big four, what do we expect? They're going to quit and they're not going to want to be accountants anymore if that's all they think accounting is. So we got to figure out how to get people to know about all the cool roles in the small firms.

Blake Oliver: [00:48:56] That you and I talked to all the time. The people that are at QuickBooks connect. Can't wait to see that. So this is great. I think this is something every accounting program should do. Create a class like Careers in Accounting and Finance and show students all the other options. And of course they're doing these networking events, you know, Purdue football games. Interestingly, Purdue has also reduced their tuition in recent years to make the extra credit hours for CPA license more affordable. But it's funny, there's actually a quote about 150 in here from one of the professors who says there's not a quote, but it just says. The other professors don't believe the problem with attracting students to accounting is because of the 150 hour rule for earning a CPA license, pointing out that the rule has been around for about 30 years, depending on the state. But then they also say that reducing the cost helped to increase enrollment. So like you can't have it both ways, right? Like 150 is about cost and time. So if reducing the cost helps to increase enrollment it says something about 150.

David Leary: [00:49:59] So you said they now have 45 people in their math program.

Speaker3: [00:50:02] Yeah. From 18.

David Leary: [00:50:04] So an article that caught my eye. Seton Hall has now launched a master's program in professional accounting and analytics. And they go on to how convenient. It comprises of 30 credits, you know, to help them hit the 150 hour rule. It actually, you know, it has that in here educational requirement. And but if you're saying 45 how is a program even viable for university? Like, how do you how do you hire the staff? Pay the professors in only for 45 students. Like, how is this a viable business model for a university even?

Blake Oliver: [00:50:35] I mean, I don't know. I don't know how they are declining.

David Leary: [00:50:38] How could you even justify rolling out a new Mac program at a at a college? I don't.

Blake Oliver: [00:50:43] You can't. I think the a bunch of them will close.

David Leary: [00:50:47] Sure. And Lazar said that right.

Blake Oliver: [00:50:48] Yeah.

David Leary: [00:50:49] Like the. Yeah.

Blake Oliver: [00:50:50] The ones that don't create value beyond just getting you your 30 hours. Accountants are going to figure out how to do this. And we're seeing these sites pop up online sites where you can get your 30 hours the easiest, cheapest way. What was it like? Cpa credits is one of them. So yeah, I think people are wising up to this and and they're going to water it down anyway, right. Like with the CPA working with um, is it they're working with a university to create this experience, learn and earn program where they're creating online classes that you're going to take while you're working. I mean, once people have that, why would they go do an in-person Mac, right. Like a low quality, in-person master of accountancy. So all the like basically the low quality programs, the low quality, in-person, full time programs will go away and you'll just have the, you know, the good ones that provide value beyond the 30 hours. And then you'll have these online programs which are watered down that probably I don't think will create a ton of value, which will be cheaper, which is not the ideal solution. The best thing would just be to get rid of it and let people not do that crap. Because when people are trying to take online classes while they're doing their first year and they're getting underpaid as staff like the.

Speaker3: [00:52:01] It's.

Blake Oliver: [00:52:01] Not a good mix.

David Leary: [00:52:03] The, the one of the things with the Seton Hall, it says looks like they're going to let people, students choose to attend evening classes in person or join remotely. So they're getting a little bit of flexibility in there.

Blake Oliver: [00:52:15] Well David, that's all the time we've got for this week. If our listeners want to write a review. Please help us out. Go do that on Apple Podcasts. You can also send us an email. We are the accounting podcast at earmarked me and you can follow me on Twitter. I'm @BlakeTOliver. How about you David?

David Leary: [00:52:34] I'm just on all the socials, just @DavidLeary.

Blake Oliver: [00:52:38] Thanks everyone for joining us this week. Hope you liked it and we'll see you around here next week.

David Leary: [00:52:43] Thanks everyone.