What's the Journal Entry for a Hush Money Payment?

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

David Leary: [00:00:05] Rose financial solution sets a goal to automate 85% of the finance and accounting activities by 2030. And I saw this was a couple of weeks ago. I saw this article and I was like, I feel like we've been at 85, 90, 91, 92% for a very long time. Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:29] Hello and [00:00:30] welcome back to the show. I'm Blake Oliver.

David Leary: [00:00:32] I'm David Leary and Blake. The entire nation is talking about bookkeeping.

Blake Oliver: [00:00:36] Accounting.

David Leary: [00:00:37] Accounting and bookkeeping. Invoices, journal entries.

Blake Oliver: [00:00:41] General ledgers.

David Leary: [00:00:42] Checks. I'll share my screen here.

Blake Oliver: [00:00:45] It's all thanks to Donald Trump and the guilty verdict in New York State. David. It's funny, I was looking at the New York Times front page yesterday, and I was thinking, how are we going to talk about this on the show in a way [00:01:00] that isn't just a rehash of everything else that people are hearing about the Trump case and the New York Times just put it right in front of me. They had a breakdown of the 34 charges and the guilty verdicts for each. And as you're displaying on the screen right now, they are all related to invoices, general ledger details and checks.

David Leary: [00:01:23] And each one of these are accounts. So if I created an invoice that was fake that's account. And then it [00:01:30] recorded to the general ledger that's account. And then if I paid that invoice with a check that's account.

Blake Oliver: [00:01:34] So three felonies for every payment. Yeah.

David Leary: [00:01:38] So in summary you had a total of 3411 for invoices, 12 for ledger entries and 11 for checks. That's how you get your 34.

Blake Oliver: [00:01:46] Interesting how there's like a it's not exactly the same number. Right. You would think there's an invoice, there's a ledger entry and there's a check for every payment. I'm curious about that, but, uh, that's [00:02:00] not the big story. The big story, of course, is like the, like what exactly happened here? So, David, why don't you read one of these accounts? It's kind of. It's fascinating. I haven't dug into this case, really, until now, because I just always figured that Trump would get off like he always does. Right? Like he everything seems to slide off of him, but not this time. So pick one of these. Which ones? Which one should we read?

David Leary: [00:02:21] Uh, we will, uh, read this one. This is, uh, account number four. It's a check. It says the defendant in the county of New York were or elsewhere on or about [00:02:30] February 14th of 20, 2017, with the intent to defraud and the intent to commit another crime and aid and conceal the commission thereof. Baden caused a false entry to business records of an enterprise, to wit Donald J. Trump Revocable Trust account check and check stub dated February 14th, 2017, bearing check number 000138 and kept and maintained by the Trump Organization. So there are a lot of these charges. And when you look at these, it's the they're basically saying [00:03:00] this transaction was recorded. In the bookkeeping of the Trump Revocable Trust in the Trump Organization. Right? Right. Over and over again, every.

Blake Oliver: [00:03:10] One of the 34 charges is related to falsifying business records, which is normally a misdemeanor. It's a misdemeanor in New York State to falsify business records, but it becomes a felony when it's done in association with in [00:03:30] connection with another crime. And that's where this all gets very interesting. And this is why I thought that Alvin Bragg wasn't going to be able to get a guilty verdict, because not only does he have to prove the falsifying of business records, which is actually pretty easy to do, I think. All right. You just you look at them, right. That's not what it was for. Right? It was it was not a legal retainer to Michael Cohen. It was a hush money payment. And that's pretty obvious when you look [00:04:00] at the paper trail. But that's just a misdemeanor. So what made it a felony? According to this verdict. Is that, um. It was. In connection with campaign finance violations. So the jury had to agree with the prosecutor that the payment to Stormy Daniels was made to influence the election, and therefore it should have come [00:04:30] from campaign funds. Right. It's basically it was it was a donation by. Michael Cohen or Trump or whatever, to the campaign in excess of the amount you're allowed to, because there's a limit on how much you can contribute as an individual to a campaign. So that's that's how they got this verdict, because.

David Leary: [00:04:52] The argument or the point of view, and I saw this in the Washington Examiner, the title of the article was Who's the victim of Trump's Bookkeeping? And basically the argument is [00:05:00] that because you can look at these bookkeeping transactions, say, like, who's the victim? But the argument is the victims are the citizens of the United States, because this hush money payment may have affected the entire election. That was so close, right? By keeping that news about Trump out of the news cycle for the election. Yeah. And so how did they bridge that? I guess that's the part I still can't. So it's it's not that he actually took campaign funds. They're saying these should [00:05:30] have been allocated and recorded as campaign funds somewhere else because they actually affect the election.

Blake Oliver: [00:05:36] The key issue is that the payments are effectively unlawful contributions to Trump's campaign, because the payments were made to prevent voters from learning information that could have impacted the election outcome. And this is where I think Trump has. The possibility to win on appeal, which is that. It [00:06:00] was Cohen's testimony and the testimony of, uh, who was the guy at the tabloid who testified against Trump. I forget.

David Leary: [00:06:09] The Enquirer.

Blake Oliver: [00:06:10] The National Enquirer guy. Right. So they testified that this was Trump's intent, that Trump wanted to suppress the information to, uh, influence the election. And so then that should have been paid by the campaign. So that's what made it illegal, so that it was a campaign, unlawful contribution to the campaign, [00:06:30] because you don't.

David Leary: [00:06:31] Take the campaign out of it in the presidential race, and Trump just wants to cover up this information. If he would have done the same thing with his bookkeeping, it would just be misdemeanors, right?

Blake Oliver: [00:06:41] And there's nothing illegal about hush money payments. That is not against the law. To suppress information by paying somebody to stay quiet is something that's done all the time. Very common. Right? Um, payments to employees when they leave, a severance payment that includes a non-disparagement clause or a nondisclosure agreement. [00:07:00] Those are all very, very, very common. So that's not illegal. And. You know, the argument I think that is the most persuasive on the Trump side is that look. Would he have made this payment even if he wasn't running for president? Right. Yes. He wouldn't want this coming out no matter what. So there's that to consider. Right. And then the other question I had is. What [00:07:30] what should have been. The journal entry in the Trump Organization accounts for this payment. Right? Like what was. What was fraudulent about the way it was recorded. So it was recorded, I believe, in the general ledger of the Trump Organization as legal expenses. And there was even testimony on the stand by the comptroller that said, look, you know, we just have one account for all of our legal expenses and it goes into legal expenses. [00:08:00] And the joke you made, David, is that they might have just been using the default QuickBooks chart of accounts. Yes, because there's only one account for legal expenses.

David Leary: [00:08:09] Yeah. I think the prosecution or the implied that the accounting system was so out of date because they only had one choice for legal expenses.

Blake Oliver: [00:08:16] Right, right, right. So, you know, I thought, well, why not go and like, use all this AI that we have now to our benefit and like ask ChatGPT what is the journal entry? Before you ask.

David Leary: [00:08:29] That though, I [00:08:30] want some questions that I was having along the same lines about the transactions. And I was thinking instead of creating an invoice and then writing the check, if you just would have wrote the checks, would he have like 11 less counts because you would just be you'd have a check in the general ledger and the check and you'd have a less count. Then I was thinking like, if you paid this from his personal bank account and not the the trust or the business, would this be an issue at all? And then I'm thinking if they would have just put it all to owner's drawer, [00:09:00] would that have been an issue? Or what if it was recorded as a political donation? So in my head I'm like, how should this have been recorded? So I'm glad you kind of are thinking the same way, right?

Blake Oliver: [00:09:10] That I want to know how could this have been done legally? Or how could this have not been fraud in the Trump Organization books? So let's let's just ask ChatGPT, what is the journal entry for a hush money payment? Journal entries for hush money payments are generally not explicitly discussed in standard accounting practices. Okay. That's good. See, I didn't know this. And and I didn't [00:09:30] learn it in school. But that's okay because normally it's not. Um, so here's a detailed scenario. If you're watching on YouTube, you can see the detailed analysis that ChatGPT is doing. And the scenario is that a company makes a hush money payment of $10,000. The potential journal entry, it suggests, is a debit to miscellaneous expenses and a credit to cash. So maybe if the Trump Organization had just debited miscellaneous expenses instead of legal expenses, [00:10:00] it wouldn't have been a problem. Consulting fees. I don't know. I'm not being serious about this, but I think there is a question as to like what exactly? Like, like this is the thing. I found a marketing expense.

David Leary: [00:10:14] He could have put it to.

Blake Oliver: [00:10:15] Marketing, but like, this is this is we've talked about this on the show before. This is what I find kind of strange about this whole thing. Is that part of the reason the Trump Organization ended up in trouble about this is because they sought to cover it up. But [00:10:30] as a private company, it's not like anybody's going in and expecting, you know, these these like, how would any of this have ever become public in the general ledger? So there wasn't really a need to cover this up. With the general ledger system. In the Trump Organization. Like you said, David, it would have been better if, just like Trump had made the payment directly to Stormy Daniels and the NDA, right? [00:11:00] The the hush money would have prevented her from ever speaking about the payment itself. And that's usually how it's done. Usually somebody just pays somebody to stay quiet. And it includes you. Don't say anything about the payment either. You can't talk about any of it.

David Leary: [00:11:15] And the interesting thing about this, this pattern we've seen with the Trump Organization and Trump bookkeepers, Trumps accountants, the CFO, remember the CFO when he was paying, like the private school or whatever. But he kept meticulous records of it, right, right. The same thing happened [00:11:30] here. They were writing on bank statements. They kind of kept meticulous records of something that they wanted to keep hidden.

Blake Oliver: [00:11:35] Yeah. The other crime here is they they were too detailed in their criminal record keeping. Right. If you're going to do crime, don't keep track of it in a in a meticulous way. Yeah. David here in the live stream says, uh, debit ask my accountant. Credit cash. Yes. See, that's a that's a good one. Yeah. So? If they had not kept the records [00:12:00] like they did, if they had just made the payments and not tried to cover up the payments in the Trump Organization, then I'm not sure there would have been a case here. That's the crazy thing about it.

David Leary: [00:12:11] So then the jump. If he paid this out of his personal, they would steal the way. Their argument is, if he would have paid this out of his personal bank account, their argument is this is a political contribution to the campaign. It should have been of the day.

Blake Oliver: [00:12:24] And and that's where I think this case is actually still on shaky ground and has [00:12:30] a chance to lose on appeal or get overturned on appeal, which is like, how do you prove that intent in this case? It was proven through the testimony of Cohen and the National Enquirer guy. But we don't have any hard evidence that says this was Trump's intent. And he's said publicly, of course, that like he he didn't want it to come. I think he said something about, you know, he didn't want his family to know about it. Right? Yeah. His personal.

David Leary: [00:12:56] Reputation.

Blake Oliver: [00:12:57] Right. Exactly. So there's plenty of motivations other than influencing [00:13:00] the election for this. And I don't know if it was really proven other than through the testimony of a liar. Cohen. Right. And a tabloid publisher, that this was Trump's intent. Now, the jury believed it. And that's what matters in the end, when it comes to a guilty verdict, is whether the jury believes it. The question, though, is going to be whether the Court of appeals, you know, thinks that's enough.

David Leary: [00:13:23] But I would I don't know, I'm not a lawyer and I do not I'm not a campaign funds expert. But [00:13:30] I imagine that, let's say they paid it from the campaign funds. I can't imagine that would be legal either.

Blake Oliver: [00:13:37] No, I think it is.

David Leary: [00:13:39] That's totally legal to do. Like, they could have just used the campaign funds and wrote a check.

Blake Oliver: [00:13:42] I don't know, like I said, I, I'm not like you said, we're not lawyers here, but I've never heard of anything illegal about a campaign organization making a hush money payment.

David Leary: [00:13:52] Because they could just do it because that's.

Blake Oliver: [00:13:54] How payments are.

David Leary: [00:13:55] Money is all the laws, right? How they get the money is really where all the laws are, what they spend it on. There's not a lot of laws [00:14:00] or governance.

Blake Oliver: [00:14:01] I don't think so.

David Leary: [00:14:02] Yeah. Yeah.

Blake Oliver: [00:14:03] So it's it's. If they had just paid directly. And that's where like, I feel like people who support Trump have a legitimate point, which is like, okay, it's it's all about the this seems to all be about the form of it, not what actually happened. If it had just been done in a different manner, it wouldn't be a felony. So it seems like like that's that's the that's the argument [00:14:30] on the Trump side that I buy that I find compelling is this is all form. It's not substance. Yeah. Because hush money payments are not illegal.

David Leary: [00:14:39] Or just write one check. So there's just one count. Like like like you open yourself 34 A nightmare. Well that's another thing across 11 checks, right. That's stupid. Yeah.

Blake Oliver: [00:14:49] So like you said, David, I don't know if you said this while we were recording or before. It's like there's a lot of dumb people that work for Donald Trump. And, like, [00:15:00] this is my biggest problem with having him as our president is like, what? What are these people doing? You know, like, how stupid can you be? So I have another Trump story to tie into all of this. Okay. Uh, which has to do with the commercial real estate. Issues we have talked about on this show and some of those shorts about commercial real estate. They've done really well on TikTok and YouTube. People are really into this. Right? Because my theory, [00:15:30] our theory is that due to remote work, these leases that are coming due. Are not going to get renewed. And so we've.

David Leary: [00:15:39] Talked about some cities like Boston that are really going to have a problem with this. Yeah.

Blake Oliver: [00:15:43] Office occupancy is way down. And these high rents that are still being offered in downtown areas are not sustainable. And we know that the landlords there are keeping the rents high because a lot of their own financing [00:16:00] is dependent upon the rents they charge. That's the calculation that determines the value of their building. So they don't want to lower the rents because it'll lower the valuation of the building, which will then impact their own roll forward on their financing, because they have to get new financing every 6 or 7 years, whatever it is. And so it's artificially high. If you look at occupancy, it doesn't sustain, it doesn't make sense. And Trump's building in New York at 40 Wall Street [00:16:30] is sort of a case study in this. There was a story in the Wall Street Journal about how the building's vacancy rate has increased to 21%, from about 5% in 2015. So 5% vacancy is good, 21% vacancy is four times more. Yep than it was in 2015. And the loan on 40 Wall Street is set to the mortgage is maturing. It's 120.5 million, and [00:17:00] the refinancing is going to come at a much higher interest rate, nearly double the current interest rate of 3.7%. And Fitch Ratings has downgraded part of the commercial mortgage backed securities on that debt for that building. So the question is going to be, Will Trump lose that building? Will he be able to refinance, get a mortgage with a payment that can be paid by those rents in that building when the occupancy rate is now 20%? And [00:17:30] I think whether or not he's able to keep that building will be a canary in the coal mine or a or a, a symptom or an example of what's going to happen more broadly in the commercial real estate market when it comes to these office buildings.

David Leary: [00:17:46] Didn't his hotel in Chicago? I thought I saw something fly by on the news about. It's some tax claim he made about his property in Chicago, like he devalued the book value. I feel like something went by on that.

Blake Oliver: [00:17:59] Oh, [00:18:00] yeah. Yeah, yeah, that that sort of flew by. I saw that as well. Um, so Trump may owe $100 million from double dip tax breaks. Audit shows this was a New York Times article. And he's under scrutiny for potentially misusing tax deduction tax deductions on a Chicago tower. And I guess the the allegation is that he claimed a tax deduction in 2008, in 2008. [00:18:30] Which labeled the investment as worthless due to debt, overwhelming debt, so he was able to report a loss of 651 million. And then in 2010, he restructured the ownership of the tower into a new partnership, which he controlled, and he used the reorg to claim an additional 168 million in losses. But the IRS reviewed that and is challenging the claims, saying that you can't take this twice.

David Leary: [00:18:56] And I'm sure it's really well documented by the Trump org. It's a really good about these [00:19:00] things.

Blake Oliver: [00:19:00] Yeah. So it's like I mean, can you imagine if we have a president who has like multiple, um, you know, investments like major investments like this that are at risk, like the motivation to abuse your position of power when you're in financial trouble. Like, this is just enormous.

David Leary: [00:19:20] Well, it's the fraud triangle, right?

Blake Oliver: [00:19:22] Yeah.

David Leary: [00:19:23] If you have this financial burden, you're highly likely to commit a fraud. Yeah.

Blake Oliver: [00:19:26] It's one of the corners of the triangle, which is the, uh, motivation. [00:19:30] Yeah. Gator NYC says if you want to hide it for personal reasons, he would have paid in 2006. Oh, this is related to the hush money payment. The fact that he paid it months prior to the election makes it campaign related. See? But Gator, I see your point of view. But that's also circumstantial. There is no direct evidence. That proves Donald Trump's intent and to convict somebody of a of a felony that is related to intent, right? That it was designed [00:20:00] to influence the election. And there's no direct testimony from this. Like like there's no direct evidence. It's all testimony of other people. It's hearsay. I find that to be a troubling.

David Leary: [00:20:11] That's the one thing that wasn't documented. They never wrote down. Hey, make sure this gets done before the election. I mean, I think it's like.

Blake Oliver: [00:20:16] I think it's very likely.

David Leary: [00:20:18] Yes, yes. Right.

Blake Oliver: [00:20:19] I think it's it's it makes a lot of sense that you would do this because you're worried you might lose the election, but can we prove it? Is it enough to convict somebody? Uh, maybe a judge [00:20:30] feels differently. Yeah.

David Leary: [00:20:32] So I guess to wrap that up. So it does not disqualify him from continuing to run for the presidency. No. And then I think it's mid-July, July 11th or something is when the sentencing is due, I think.

Blake Oliver: [00:20:44] Yeah, it's four days before the Republican National Convention. So Trump is going to get sentenced, which may include jail time, up to four years in jail. Although I find that very doubtful the judge would do that, given he's had [00:21:00] no prior convictions and does not present a threat, you know, to anyone physically or whatever. Yeah, it's going to happen. And then the and then the Republicans are going to nominate him. We live in.

David Leary: [00:21:13] Times strange times we.

Blake Oliver: [00:21:14] Live in. Yeah exciting times. Speaking of exciting times, artificial intelligence. Shall we talk about that, David? Uh, there's so.

David Leary: [00:21:23] Much to talk about on AI. I have so much AI stuff. Um, I, I have one that we can kind of ease us into the AI discussion [00:21:30] a little bit. Go for it. I'll screen share.

Blake Oliver: [00:21:32] I've got, like, 20 stories, so I don't even know where to start. You pick.

David Leary: [00:21:35] So we'll start with this like simple diagram and blog post that's on the puzzle blog. So puzzle is arguably an accounting firm with engineers a little bit more heavy on engineers in theory, less accounting or less accountants, but they basically copied the model from autonomous driving cars. So remember when we took that, uh, Venmo, [00:22:00] Waymo car, Venmo car? We we might have paid for it with Venmo, but we got the Waymo and we took a.

Blake Oliver: [00:22:07] Self-driving Waymo car in Scottsdale, Arizona, and they're all over here. It's crazy. If you come visit, you'll see them just driving around.

David Leary: [00:22:14] And there's a scale for self-driving cars. Level zero is no automation at all. Um, level one is driver's assistance. So maybe that would be like cruise control. Yeah. Right. Uh, level two is partial driving automation. So this is where it's maybe cruise control that's adjusting to the car in front of you. [00:22:30] Yes.

Blake Oliver: [00:22:30] Um, which is now a must have. I can't drive a car that doesn't have automatic cruise control. Control? Like I won't do it anymore.

David Leary: [00:22:36] And then level three is like conditional driving automation where certain parts of the highway, you could probably do hands free, but you have to keep your face, you have to keep facing the road. And you know, that would.

Blake Oliver: [00:22:44] Include too is that would include the blind spot assist, which my car has. It senses the cars around me.

David Leary: [00:22:52] Yep.

Blake Oliver: [00:22:53] And which has saved me.

David Leary: [00:22:54] Yeah. And then you have level four, which is what we probably experienced, which is high driving automation. And [00:23:00] then level five is full driving, which means it'll handle all roads, all weather, all types of condition. Because my suspicion is in Phoenix, those Waymo cars work pretty good because the roads are nice and straight and there's no it doesn't rain weather. How does that fare in London? Right. I would love to see how that.

Blake Oliver: [00:23:14] Or like, you know, tornadoes, uh, like gale winds, hurricane force winds. Yeah. Yeah.

David Leary: [00:23:21] So so so take that model and I'm showing it on the screen. They basically applied that to accounting automation. Right. Um, from no automation. [00:23:30] Level one task automation. Level two function automation. Level three problem detection automation. Level five problem solving automation or level four problem solving and automation. And level five problem resolution automation. And they give examples of this, um, as they kind of discuss and break this down. So one of the things is they talk about level zero is basically no automation. It's the history of accounting. Right. It's even pre spreadsheets. Right. Um, so then they talk about task automation. They specify that qbo [00:24:00] and zero bank feeds and user created rules. That's task automation. Then they get into function automation. And they talk about how you know for QuickBooks and Xero, maybe how you know, when you get paid through QuickBooks payments, it automatically records a transaction in the accounting system or payroll posts to the accounting system automatically. That's functional automation. And then they talk about how ramp is using it, how digits is using it. And as I mentioned, digits is because I think we're going to wind up talking about digits as well today for for I high radius. And they're basically doing they're [00:24:30] basically categorizing and improving transactions and posting it to the close. Then they have level three which is problem detection.

David Leary: [00:24:37] And this is where puzzle claims they are at. Puzzle is the first core accounting system to achieve level three automation with a system that generates financial statements with minimal human intervention, while proactively monitoring the outputs for accuracy. So they're claiming they're there, right. Um, and then you get into level four. So level four, the argument of the [00:25:00] way they're defining level four is it'll generate entire financial statements while proposing solutions, let's say adjusting journal entries, um, it'll detect anomalies and accounting policy violations. Missing transactions reconcile the differences. They claim they haven't seen any core accounting solutions with full level capabilities like this. But I do think I think like Expensify Dext, I think there's apps that have done this type of stuff where they're detecting these anomalies right in the data. I think keeper does [00:25:30] it some their add ons right to the accounting systems. And they might be very clear like it's not the core accounting system. Okay. You could argue that. And then the last one is problem resolution automation. Basically there's no humans needed at all to generate a full accounting package. And nobody's doing this like it's very hard a significant challenge to get to that level. So that's kind of your basis of these levels of an accounting platform. Right. And automation.

Blake Oliver: [00:25:56] So that's interesting. Um, sorry. It sounds like you were going [00:26:00] to keep going. No, I.

David Leary: [00:26:01] Was going to pause. But then I saw other articles where it starts getting into percentages. Right. Um, I saw there's a bookkeeping firm called Rose financial. It looks like they might have an app called Easybuy or ease by ESB and. They're adding AI to that. And they had a press release and they're lying on their press release, said Rose. Financial solution sets goal to automate 85% of a finance and accounting activities [00:26:30] by 2030. And I saw that this was a couple of weeks ago. I saw this article and I was like, I feel like we've been at 85, 90, 91, 92% for a very long time.

Blake Oliver: [00:26:41] Well, just the bookkeeping stuff we've gotten to 8,090% of bookkeeping can be automated now, but there's a there's a lot of confusion around what is beyond that. Right? What are all the adjusting entries that have to happen? The accruals, the deferrals, all that stuff is done most of the time manually right [00:27:00] now. So that's what puzzle is going to try to solve. That's what it sounds like. Is that right?

David Leary: [00:27:05] Yeah. I mean I mean they're all I would argue puzzle digits. Yeah. Bookkeeper the other ten startups, they're all trying to bridge that extra 10%. Yeah.

Blake Oliver: [00:27:16] Making those journal entries is hard. Uh, but these, like, AIS can do it pretty well. I took a I may have described this on the show. I took a payroll register and I dropped it into ChatGPT. And I [00:27:30] said, help me make the payroll journal entry. And it it made a mistake with the debits and credits, but it was obvious that they were not balanced. And I just pointed out the obvious error and it fixed it. And the journal entry was correct. And so just a little bit more tweaking to these AIS and also using multiple AI agents like one to create the entry, one to review the entry to ensure accuracy will get the accuracy level way above humans. You know, human staff accountant [00:28:00] probably makes a lot of entries that are wrong too. Yes. So it's it's like with the self-driving cars. I'm glad you started with that analogy, David, because it's not about perfection. These AIS don't have to be perfect. They just have to be better on average than a human. And they don't even have to be better on average than a human if they're a lot cheaper than a human. And so, as we've been doing with our company, if we can use AI to generate the first draft of everything and then just use humans to [00:28:30] review it, I mean, we are seeing incredible efficiency gains.

Blake Oliver: [00:28:34] We have taken the time it takes to generate a CPE course from four hours down to close to down to under two hours. We've we've seen a 50% decrease in the time. And we are headed to one hour or less. And that includes the review. So actually the original time control. Yeah. It was it was 2 to 3 hours to make the thing. And then it was an hour to review it. So we're talking 4 to 5 hours. Total [00:29:00] and we are getting that down now to it's about an hour and a half right now. So that kind of efficiency gain is going to come everywhere in the economy eventually, which is just spectacular. I mean, this is going to be the productivity bump that we have been looking for since the 1990s. Where we have all this technology now, but we're still shuffling information around mostly manually with people. We're just not doing it on paper. We're doing digitally, but it's still really slow. And now it's it's [00:29:30] going to happen automatically with the AI. So what are you going to review it?

David Leary: [00:29:35] So, uh, digits, uh, one of the co-founders of digits, he, uh, had a tweet that went out kind of a brag tweet about what they've done. But one of the things he talked about in their tweet was in the series of tweets that he put out is that they're they're basically at and I'll quote from the blog post, specifically digits, I correctly categorize 91% of transactions with a 0% hallucination rate. And I'm like, are we ever going to [00:30:00] get past this 91 mark? Right? Like, do you do you believe Blake, we're going to be able to like we're going to get to 100%. Is that ever possible?

Blake Oliver: [00:30:08] Well, the problem is that the I, just like the human bookkeepers, often doesn't have access to the information to correctly categorize the transaction. There's there's information that's not in the bank feed. Like, you have to go ask the client, you have to get the receipt. And then if you even have the receipt, you have to ask, what was the business purpose of [00:30:30] this expenditure? You know, like if an AI if an AI was categorizing the payments to Michael Cohen, it would have also just categorized them as legal expenses.

David Leary: [00:30:40] Highly likely.

Blake Oliver: [00:30:40] I agree. Right.

David Leary: [00:30:42] And it's funny that you say that that like there's a lot of context that's always missing. And Dexter, who historically has been doing AI accounting for a decade here, it used to be called Receipt Bank. They had a blog post on Accounting Web that was talking about in the title of it was bookkeeping. Automation doesn't replace bookkeepers. Here's why. And the argument is [00:31:00] you have to have this human oversight because you don't have all the details of a transaction. Right. And that's that's the argument.

Blake Oliver: [00:31:06] Now, if you can give the AI more information, like if you can give it access to your entire email for your company, and you can give it access to your project management system, and you can give it access to all these different databases and then give it agency to go and look for the information. That's what humans do a lot of the time. Is the human bookkeeper or accountant just emails people constantly asking for, what is this? [00:31:30] What is this? What is this? An AI could do that. And with the right information, I mean, they may not even have to go ask somebody. They could just go look like, let's say it's a construction company, right? Maybe the construction company has project management software. And so it could go and figure out that this payment to this person was for this property. Right. And book it properly. I don't know, it's just.

David Leary: [00:31:56] Off the top of my head. Apps might be better at it. The posting. Right, because [00:32:00] they have.

Blake Oliver: [00:32:00] The operational data. And that's why companies like digits struggle because they don't have access to the operational data. They're just pulling in from the QuickBooks file. So their categorization, yes, it may not hallucinate, but it's not accurate. It can't be. It's not more accurate than what I can do with bank feeds and rules. And that's why it's not a ten x improvement.

David Leary: [00:32:22] Yeah. And I think that's why I found this a Twitter thread. And then the, the accompanying blog post from digits. [00:32:30] A little bit of a strange brag, if this makes any sense. Um, and actually, I do think even reading the puzzle thing, I think this could be the summer of I brags by app companies and accounting companies. Um, so in this blog post, they talk about how they, uh, have. Red or processed 700 billion worth of financial activity. And that's a big number. Don't get me wrong, 700 billion. And that's 135 million transactions and approximately just somewhere over 5000 [00:33:00] businesses, right? But like, put that in perspective. Basically they have 5000 QuickBooks customers, right? Intuit has about 5 million QuickBooks customers. And zero is has about 4.3 million. So let's just take that. 5 million QuickBooks customers divide by 5000. That's 1000. So Intuit is doing a thousand times that transaction volume. And zero is probably doing, you know, 800 times that transaction volume. So this is where I'm like, what is this really a [00:33:30] brag? It's kind of I'm trying to reconcile that in my head. Right. Um, but and then they have their blog post and they go and they compare basically what ChatGPT for zero does ChatGPT Turbo and Meta's Llama does for accounting type things, talking about how we're so much better than these other generic chat things. And I'm like, I almost like, don't care. What I want to see is I want to see let's let's put bot keeper versus digits versus puzzle versus the ten other AI accounting startups [00:34:00] on, you know, here's a set of accounting transactions and see who does better. Right. Like test these numbers. Because I think comparing yourself to the out of the box ChatGPT off the shelf products, I'm not impressed. I guess everybody's going to beat that, right I agree.

Blake Oliver: [00:34:17] We have a question from a live listener. If you want to ask us a question, join us on YouTube. You can subscribe. Joseph says hello Blake and David. Question. I'm a community college sophomore in accounting and I'm serious about bookkeeping [00:34:30] and everything. Tax. Is it worth going after bachelors and CPA if I'm going this route? Great question Joseph.

David Leary: [00:34:39] And 100% on the I not kidding. What's that? Not if we hit 100% on the I.

Blake Oliver: [00:34:45] Well okay. So um, if you want to do tax. Then go get the enrolled agent. It's all tax. It's three exams. It's rigorous. I took part one. It's hard. You learn a lot and you [00:35:00] don't need to be a CPA to do tax. And I think was it. You know, eyes are always getting upset because people get them confused with spies. That's the only problem is, like the CPA brand is really well known. And that's great. But you don't need it to do tax. You can be an enrolled agent, and with good marketing and good branding, you'll be just fine. And the CPA, unfortunately is really expensive to obtain. It takes a lot of time, a lot of money. You got to do that fifth year, 150 hours of education, and this is why people [00:35:30] are not going for the CPA as much anymore. And the beauty of the enrolled agent is you just pass the exams. It's competency based, right? If you can pass those exams, you prove your knowledge, you go for it. Um. And I think, honestly, if you want to do bookkeeping and tax for small businesses, it's such a good business to be in to do both and you can build a really profitable firm. It can be nice and small and give you a lifestyle that you want. There's so [00:36:00] much demand for that kind of thing because traditional firms, CPA firms often are way too expensive for most small business owners. And so if you operate remotely, use cloud based technology, hire people in cheaper areas to be your employees, maybe even offshore. Some stuff like the margins are incredible.

David Leary: [00:36:19] So you're providing value, right? Yeah. It's a valuable service you're providing between the tax and the bookkeeping versus just auditing something like that's really questionable. The value of that to this day. [00:36:30] Right.

Blake Oliver: [00:36:30] And you can go 20 to you can grow 20 to 50% per year. And so you can get to like a really profitable business. You know, let's say you want to get to $1 million in revenue and have, you know, a gross margin of or a net profit of 20%, which doesn't include what you pay yourself if you're working in the business, by the way. You know, I mean, you can get there making hundreds of thousands of dollars a year pretty quickly. It's it's like a really reliable thing to do now. You're going to work really hard those first few years to get your first clients and to set everything [00:37:00] up. But, I mean, I don't know, I did it and I didn't know anything, I, I can't I was still in school when I started my practice, and I was able to build a business, and we were approaching $1 million a year in revenue. And I sold it, and I bought a house like, that's kind of the American dream, isn't it? Yeah.

David Leary: [00:37:18] And then you have the argument of, like going to university, getting your bachelor's degree in accounting. Does that even make sense? I saw an article come through and held on to your chair because I know you're going to get I mean, I would get.

Blake Oliver: [00:37:29] The I would get the bachelor's [00:37:30] get the accounting degree. You need that knowledge, right? Yeah. Definitely do that.

David Leary: [00:37:34] Yeah. But the University of Scranton accounting department. So this is in like the Scranton edu articles. They were bragging and the headline was Accounting Department Research among the most productive in the world. And basically they were awarded the number 11th for the world of accounting education, research, public or published the most in six years. Like, they're they're bragging, not how many accounting students they've educated. It's about how [00:38:00] much research they published. Right. This university. So it's like, yeah. I don't know.

Blake Oliver: [00:38:07] So we got to talk about. The president of the AICPA, Barry Melanson, retiring. This announcement shook the accounting world, at least those who care about what goes on at the AICPA. Barry Melton.

David Leary: [00:38:24] The word shook. Shook because I feel like. We've known about this for 2 or 3 years. This [00:38:30] has been a slow burn. It's been coming, right? Yeah. And it wasn't like a surprise announcement.

Blake Oliver: [00:38:35] We continue. Well, it's been rumored, rumored, rumored. Yeah. And I mean, it makes sense, right? Like, Barry Melanson has been the president of the AICPA since he was 37. It's over 30 years now. Guy has had one job for the last 30 years. And, you know, I just got to point out, it's never nice to kick somebody when they're heading out the door, but this isn't us doing it. This is Reddit doing it. [00:39:00] Um, there was a thread on Reddit started nine days ago. Barry Melanson to retire. Can someone name one meaningful thing this guy has done to improve our profession in his entire career? Serious question.

David Leary: [00:39:10] Started a thread like that.

Blake Oliver: [00:39:11] Yeah, um, and it's pretty brutal, honestly, uh, I couldn't find a single comment that expressed any, um, enthusiasm about his achievements. Uh, although they did say that he avoided any major scandals. Right? No, no hush money payments from Barry Melanson. Uh, [00:39:30] criticisms included his involvement in in initiatives like Feed the Pig campaign. Uh, the Cgma. Yes. The which is just we played that on the show. I don't want to do it again. But like if you want if you want to see the weirdest thing ever done to promote the CPA, just search for Feed the Pig CPA on YouTube and you will find the most bizarre ads, the Cgma credential, which I personally think is crap BS like [00:40:00] because it was given away, you could just if you were a CPA when they created this management accounting credential, you could just buy it, you could pay a fee, and now you're a cgma, which is like how most of the CPAs got it, which is like it's a great way to build value. I mean, I would never go take an exam when all these people just paid money to have it. And then lobbying against mandatory overtime pay for accountants. There was general sentiment that his tenure was marked by actions that benefited large firms and corporate interests, rather than individual accountants, [00:40:30] and some users suggested that his retirement may not lead to significant improvements, as they anticipate his successor may continue similar policies. And I think I don't really expect a lot of change from the ACPa. Unfortunately, even though I was really excited about the National Pipeline Advisory Group report, which recommended getting rid of the 150 hour rule and moving to modernize licensure so that it's competency based. Um, the problem is the [00:41:00] people running the CPA don't want to acknowledge the real problems that are keeping people from becoming CPAs, which is the firms are working employees too much.

Blake Oliver: [00:41:12] It's the hours and the pay is low for the hours and. We actually got like a really honest view of this, the new chair of the ACPa. So this is not the new president. This is the new chair. She was interviewed by the Journal of Accountancy. [00:41:30] The story is new AICPA chair. We need to promote the cool work we do. This is Carla McCall, who's a managing partner at a firm. And. So she says, you know, we need to talk about the cool work that we do. Right. But she also says, I'm just going to read this section of the article. Attracting the next generation of accountants starts with a paradigm shift within the profession, McCall said. We need to promote the cool work we do. We [00:42:00] need to stop talking about hours, stop using the term busy season and stop talking about how stressed we are. Instead, accountants should point to positive examples, such as guiding clients through complex financial transactions like IPOs and mergers, and providing essential support during crises like the Covid 19 pandemic to emphasize the dynamic and varied nature of the profession, she said. And. I just. Couldn't disagree more. And the thing [00:42:30] is, the AICPA is not talking about the hours. They are not talking about the busy season problem, and they are not talking about how stressed out accountants are. It's the accountants who are working at these firms who are talking about it on social media. So what is McCaul telling people? Is she saying that these staff need to shut up? I mean, the only.

David Leary: [00:42:54] We.

Blake Oliver: [00:42:54] Have seen evidence the Illinois CPA society released a study that said we talked [00:43:00] about it last episode. The number one reason people aren't becoming CPAs is because of workload, time commitments and personal time commitments. They're too busy at work to make time for the CPA because why? They're being asked to work overtime. All year long. 50, 60, 70 hours a week. How do you study for the CPA exam, which takes 15 to 20 hours a week to study for when you're being asked to work that much? And she's saying, we need to stop talking about these problems. If you ask [00:43:30] me, these are the exact problems we need to talk about because the firms need to figure out how to solve it, or we're not going to have CPAs.

David Leary: [00:43:38] Maybe. Maybe she's campaigning to be the next president. And this is the the company line.

Blake Oliver: [00:43:43] The company line is like to just ignore the number one issue that is impacting the profession. I mean, it's just sad to see this.

David Leary: [00:43:51] I mean, now, are you going to apply the way you applied for the president of Nasba? And the reason why is like Nasba, after all that was said and done, pretty much dropped in the person [00:44:00] that was there for 12 years. And it's a new boss, same as the old boss. Are we going to see the same situation here as CPA? It's just going to be.

Blake Oliver: [00:44:07] Business as usual. Yeah. Well, and that's the issue. Uh, AICPA if you actually look at like how the ACA is governed, I may have mentioned this, um, fewer than 20%. Let me back up. The ACPa is governed by a council which has hundreds of members on it. [00:44:30] And this council is, you know, they vote for the board members. They they they set the agenda. They're like the Congress of the ACPa. Fewer than 20% of those members are elected by the members. The rest are appointed by the board, you know, by state. They're reserved for people at state society, so they're appointed by state societies. So the AICPA, the people that work there are not accountable to the members of the AICPA, [00:45:00] like the actual members. They're accountable to very like to who? Imagine if Congress was only elected by less than 20%. Like only less than 20% of Congress was elected by the people, and the rest was appointed by like, uh, state legislatures. And by the president and by Congress itself and reserved for, you know, people at universities and whatnot. I mean, that's how the ACA [00:45:30] is governed. And you wonder why it's very slow to respond to what the membership wants. There's no accountability.

David Leary: [00:45:38] That's interesting. If I reflect on what you're saying, and I think about two weeks ago when we went through the pipeline report, the National Pipeline Advisory Group, right. The huge report they came out with, there was never a section in there that talked about leadership at the EPA changing or recommendations on how. The professional organization should be right? Yeah.

Blake Oliver: [00:45:59] Um, before [00:46:00] we close out this topic, I just want to, you know, bring up my favorite headline on going concern. Professional leader humbly requests that you Stfu about long hours, busy season, and stress. Thank you for that. Adrian Gonzalez at going concern. All right, David, you're up next.

David Leary: [00:46:22] Um, I have an app news I can do quickly here. Um, and it caught my attention. Um, because [00:46:30] of the way they have their website set up. So there's a company called Rose, and they raised 8.7 million to expand AI powered spreadsheet app. I'm like, oh, let's check this out. And what was cool about it, if you could add me to the stage here to screen.

Blake Oliver: [00:46:45] I got it.

David Leary: [00:46:46] So when you go to rose.com, normally when you go to an app website, like what do you get? You get like a sales page, right? And a marketing page, you literally get dropped into a spreadsheet as soon as you get there. Like this is the landing page, [00:47:00] a blank spreadsheet. And I was like, oh, this is cool. So you could just instantly start using the app. So let's just put in like sales $1,100, maybe put another row in here, expenses, maybe $900. Whoops. 900 and let's put in profit. And let's just leave it blank because in theory with AI, I'm hoping so. If I have a for those who are listening, I did three rows sales expenses profit, right? And I did not fill in the profit amount or put in a formula [00:47:30] in theory, right? This is AI, an AI powered spreadsheet. My expectation is it would put this formula in. For me, it would just figure it out. Would this be a correct assumption? I'm going to hit the AI, and it's analyzing the data here that I have in the spreadsheet. And it doesn't actually do anything. So. So at one hand I was like, wow, Rose, this is very impressive. You just drop people in your app. This is like a cool way to market an app, right? And then I try to use it and I got a little disappointed. But I [00:48:00] think that's.

Blake Oliver: [00:48:00] Your that's your that's how we're wrapping this, David. With an app that sucks.

David Leary: [00:48:04] I don't know if don't.

Blake Oliver: [00:48:05] Use this app. Hey guys I got a great recommendation for an app you shouldn't use. What rose.com.

David Leary: [00:48:10] It goes back to the the AI right. Like we can't it's not filling in a cell. But this is this whole like are we going to get past this 90% with AI if simple expectations like this aren't not met. Mhm.

Blake Oliver: [00:48:24] Well David, um you know we forgot again to discuss the issues [00:48:30] or the we forgot to get in to promote. The stuff we were supposed to promote at the beginning of this episode that our editor keeps telling us that we need to talk about. We screwed up again. God. Well, all right, I had to.

David Leary: [00:48:43] Cover the indictment.

Blake Oliver: [00:48:44] I know, I just I always get so excited. Um, okay, so we have a review of TurboTax. We did our taxes on TurboTax business, like. The TurboTax created a self-service business product. You can actually do your LLC, return your [00:49:00] S Corp return on TurboTax by yourself if you want. We did a video. It's on YouTube. Subscribe to our YouTube channel to see it. And do we have the link, David, to put into the chat of that video?

David Leary: [00:49:14] Get the link as you continue to chat okay?

Blake Oliver: [00:49:16] Please find the link. Um, and then we also have a new show for you that we are producing best metrics. It's an incredible show. Great. Uh, Glen Dunlap from peer review data. Did I say that right, David? Yes. Um, [00:49:30] is interviewing experts in accounting. About the metrics that accountants should be tracking if they want to be advisors. So you should listen to that. David's going to put the link to that in the chat as well. Hustle, David. Get those links for our listeners. And then also. I don't know if our podcast listeners will hear this by the time I'm there, but our live stream viewers will hear this right now. I'm going to be at AICPA engage next week, so [00:50:00] come find me in Las Vegas. Uh, tweet at me. Message me on LinkedIn. Connect with me. If you connect with me. Say you're going to be at ICP. Engage in the in the comment. Don't just blind connect with me because I get too many of those and I will miss it. So yeah, let's connect. And I'm also going to be at the Leah Global North American Regional Conference speaking. And then I will also be at the Institute of Management Accountants conference the following week for their AI day. I'm going to emcee the AI day. [00:50:30] So if you are going to be at Leah, IMA or AICPA, look me up. I'd love to connect with you. And that's all the announcements that I have.

David Leary: [00:50:39] I think we caught them all. All the links are in there.

Blake Oliver: [00:50:41] Um, Big Four transparency says so much FOMO about engage. Yeah, it's a it's you know, I'm going to confess I'm not actually planning on going to the conference itself. I'm just going to Las Vegas during the conference.

David Leary: [00:50:55] It's very expensive to get in to the show floor. Yeah, well.

Blake Oliver: [00:50:58] And I don't know if Carla McCall [00:51:00] is going to be too happy about what I just said on this program. The ACPa generally is not a fan of this show, it seems. Um, but we'll keep speaking truth to power and telling them what they need to know. And hopefully at some point things will change. We know that there are people at the ACPa who listen who agree with us. They just unfortunately do not have a voice. And we hope that you get there someday. Uh, a lot of people, a lot of different points of view. And, you know, it just takes time, I guess. I do not have the patience [00:51:30] for that, unfortunately, which is why I won't be applying for the leadership position that has opened up. Uh, and you can find best metrics at best metrics dot transistor, dot FM. Give that a listen. Uh, what are the first two episodes, David?

David Leary: [00:51:46] Um, one is the best metrics for professional services. Second episode is best metrics for manufacturing companies. The third one is best metrics, best metrics for transportation and logistics. So you think about every industry [00:52:00] or every company breweries, bicycle shops, dentists. Each episode will deep dive in. Those the the metrics you need to support those clients.

Blake Oliver: [00:52:08] That's great. I honestly I mean, I don't think we've ever made anything more educational as part of earmark. And you can earn CPE for listening to those episodes as well as our own. Get CPE Nasba approved continuing professional education credits for listening to this show and many others. Go to Earmarked app, create your free account, listen [00:52:30] to an episode and take a quick five question quiz and you'll get a CPE certificate. I'm not kidding. You can get one for free every week. Why would you pay for CPE? Well, you can subscribe and help support us. If you do that, it unlocks your ability to earn more than one CPE per week. We are also going to be launching.

David Leary: [00:52:50] Question should be why would you pay anybody else?

Blake Oliver: [00:52:52] Why would you pay anybody else? Yeah. Yes. Um, we're also going to be starting a community for earmark this summer. I'm pleased to announce that we [00:53:00] are going to launch that in the next few months. So stay tuned. This will give you the opportunity to connect directly with me and David and our other show hosts, uh, and a place for everybody who wants to learn about becoming an accountant to grow a firm, uh, industry as well. We're going to have a space for everyone. So I'm really excited. I think with over 10,000 people signing up for earmark now, we've got enough folks who [00:53:30] would want to participate in that. So, uh.

David Leary: [00:53:33] And I hope by next week we're finally done with Trump accounting stories. Like really from the, the, uh, bf borgers to well, actually even before that the old stories right where accounting related with the uh, the expense tracking with the CFO like it's all accounting related. So hopefully nothing comes out this week and we can talk about other things besides Trump and his accounting and bookkeeping problems.

Blake Oliver: [00:53:57] David, see you here next week. Bye, everyone. [00:54:00]

Creators and Guests

David Leary
David Leary
President and Founder, Sombrero Apps Company
What's the Journal Entry for a Hush Money Payment?
Broadcast by