Accountants, researchers find ethics lessons in former CPA’s fraud experience

Written on Dec 07, 2017

By Molly Ryan, content & community manager

Toby Groves never expected to be speaking about ethics, especially not in 2008 when he faced 30 years in prison and a $1 million fine for fraud charges.


But he said what he did then drives what he does now.

“I had always said it would have a lot of educational value if we could talk about our mistakes in this industry, but I didn’t really mean talking about my mistakes as much as other people’s,” said Groves. “It was humbling to reflect on that. When my son called me out on the hypocrisy, I reluctantly accepted a speaking invitation from a prominent government agency and I was absolutely terrified. But the feedback surprised me. People wrote personal messages that convinced me that not only was I doing the right thing by continuing the research, but that I could make a difference by speaking out.”

Indeed, when Groves spoke about Beyond the Code: Ethics in the Real World recently at the Columbus Accounting Show, the audience was captivated. Feedback included: “WOW! An excellent presentation combining hanging-on-the-edge-of-your-seat story-telling and real-life experience” and “Incredibly fascinating example of what can happen when you lose your way. Thanks Toby for sharing your story.”

While clearly popular now, Groves was considered a trustworthy, well-liked mortgage banker before his massive fraud was discovered. And, as detailed in this early NPR report, the Cincinnati man prompted a larger discussion about how and why good people do bad things. The story has even spurred discussion and analysis among leading business schools and prominent researchers around the world.

Groves himself was a CPA in Ohio when the verdict came, and he tells auditors and CPAs there are many lessons to be learned from his experience and subsequent research.

In particular, he says auditors and accountants should be wary of “their checklists and tools.”

“The tools are helpful when everything is going normally,” he said. “They help us categorize evidence and give us coherence and certainty. That certainty could be an illusion, however. Under unusual circumstances, a checklist can contribute to rigid thinking that causes us to miss important cues. The auditors, analysts and examiners involved in my case followed the checklists; they did everything they were supposed to do, but missed a massive fraud.”

That’s scary for a lot of auditors, because rules and the checklists are there for a reason. And though the rules are not inherently bad, that doesn’t mean they shouldn’t be questioned. Groves reminds people to speak up if something doesn’t feel right, even if you’re not sure why you feel that way or you don’t have evidence.

The part of the brain responsible for judging what you believe has no capacity for language, Groves said, which explains why we often get “a bad feeling” without being able to explain why or what’s causing it.

“Curiosity keeps your brain interested in a variety of things, not just what’s on the checklist, so don’t lose that,” said Groves. “Following the checklist and criteria makes us feel safe because if something goes wrong, we can point back and say ‘Hey, I did what I was supposed to do,’ but that’s why it takes courage, when you get that feeling, to stand up and say something isn’t right.”

Groves said that’s a core problem the industry needs to address and he reminds people how easy it is to be manipulated because of what we hope to see, a kind of self-fulfilling prophecy. During his sessions, he frequently finds a clear majority of attendees who make the same predicable errors during a series of questions and anecdotal experiments. (See an example here.)

“If you notice something, be unapologetic about calling it out,” he said.

Groves maintains that accountants and auditors, and those in similar professions are, by nature, rigid thinkers. They are comforted by numbers, categories and spreadsheets.

“Research shows that people in need of certainty, which includes accountants, auditors and engineers, see illusory patterns in data because they fill in missing information with what they expect to see, so the world makes sense to them,” said Groves. “So we’re left with this problem that the very people naturally drawn to these industries are the people most likely to make these types of errors.”

He urges accountants and auditors to start thinking more critically and read more research about critical thinking. Groves will launch his own content platform at the end of the year, which can be viewed on his website. He also recommends Malcolm Gladwell’s Blink: The Power of Thinking Without Thinking and Atul Gawande’s The Checklist Manifesto for further reading on the subject.

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