A few times over the last couple of months I have written about the benefits of keeping all your financials on the up-and-up, whether this is how you handle the books of your business or when you file your taxes. And now, a recent study from Columbia Business School has looked at if it is beneficial to engage in financial reporting misconduct, even when you get caught.
The eye-catching headline from this report is that a quarter of the people who get caught still end up experiencing a net benefit (follow these links if you want to see how the news was treated by CPA Practice Advisor and Accounting Today). To me, however, it means that three-quarters of those who were caught did not experience a benefit, which means that the chances of coming out on the positive side are not good, even if they are a little better than your Powerball and Mega Millions chances. Also noted in this report, though, is that there’s also only about a 25% chance of getting caught in the first place. I suppose that number would be about what I expected, and it speaks to why people could be willing to get away with such practices in the first place. Combining these numbers means that more than half of perpetrators stand to benefit when you count those who are never caught. Just what these benefits and costs are, though, determine how one should really feel about this. For the purposes of this study, the benefits include salary bonuses and stock gains and the costs are things such as fines and forgone earnings. Essentially, its calculus is solely financial. I am not saying this to demean the study in any way, but this view fails to give the whole picture, for shouldn’t there be a morality aspect in this? The study is still an interesting look at an interesting question, but there is more to the situation than finances. The fact that morality does play a part means there are other costs involved. First, there is the emotion and worry one has to feel when wondering if they will get away with it or not. Second, those who are caught have more to deal with beyond the financial costs. The emotion and worry are then amplified many times. And once it is known, it will take a toll on work relationships, and is bound to bleed into one’s home and family life, too. So yes, I’m not speaking from an academic viewpoint here, but I don’t think anyone involved in fraudulent practices is really “getting away” with anything. Instead, I believe there is value in sleeping soundly at night and working with people that you know are helping you be successful in the right ways. That is why I love the people I work alongside and the clients I work with. Warmly, Nicole Odeh Connect to Us ~ Facebook ~ Twitter To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
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