Latest / The Accounting Podcast / JPMorgan's RTO Drama, VC Love for Accounting and the Fall of Bench

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JPMorgan's RTO Drama, VC Love for Accounting and the Fall of Bench · The Accounting Podcast

• TAP 419 [Final] Blake Oliver: [00:00:04] Generative AI is not creative. It is transformative. It transforms the prompts into something new, but that is based on what it already knows. That's the key difference between people and AI right now, is we can come up with entirely new concepts, and we can come up with unique solutions to problems, at least the intelligent ones among us. Whereas AI can. David Leary: [00:00:29] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:35] Hey everyone, and welcome back to The Accounting Podcast, your weekly roundup of news in the accounting profession, and the number one podcast for accountants in the world. I'm Blake Oliver and. David Leary: [00:00:44] I'm David Leary, and I've been distracted a little bit yesterday and today. Blake. Blake Oliver: [00:00:50] You we had to postpone our recording because you were digging in to the details of the bankruptcy filing. David Leary: [00:00:57] Yeah. And I said, I need 20 more 20 more minutes. But it was really like 20 more hours. I think I needed to have not just 20 minutes. Blake Oliver: [00:01:03] So bench filed for bankruptcy. The accounting bookkeeping startup started 13 years ago that raised $100 million and went belly up. Uh, I guess was it this year? David Leary: [00:01:17] December 27th. So December 27th, December 27th. Blake Oliver: [00:01:20] Right at the end of 2024, we have the bankruptcy filing. David has, uh, dug into it, and we are going to see who is owed money. And it's some surprising people and individuals that we know. We saw names we know in there. There are companies in there that you will recognize. We will go through it all. I also want to talk about how venture capital is getting excited about accounting. There was a story in the Wall Street Journal about that venture capital, not just private equity, but venture capital. Um, and I've got a clip from the All In podcast where they talk about this and they actually mention one of our favorite applications, the number one accounting application and books and not QuickBooks, you'll find out. David, we've also got to talk about JP Morgan and their return to office policy. I had my first viral tweet. I did not expect it to go viral. It got like almost 5 million impressions on Twitter. And it was all about that. We'll talk about return to office, what it means for JP Morgan, and then also accounting. We've got the Internal Revenue Service idea that Trump is pitching. We've got the Treasury getting hacked by China. Fasb is asking for input on intangible assets and various government regulators are spanking. H&r block, Capital One and Baker Tilly. All of that. We're going to try to get it all in this next hour. But first let's thank our sponsors David. David Leary: [00:02:44] Yeah. So our sponsors today we have tax bandits relay boom tax and Basil. And I did clarify it is Basil not basil b o y z I l. Well, it's. Blake Oliver: [00:02:56] Never it would never be Brazil, because that's not a word. Brasil. But it might be Basel. David Leary: [00:03:01] Basel. It could be Basel. Sorry. Okay. Yes. Blake Oliver: [00:03:03] But it's basil. David Leary: [00:03:04] Like basil. It's like the. Blake Oliver: [00:03:06] Herb. Thank you. To basil. Like the herb and boomtown or no boom. Tax relay and tax bandits. We really appreciate you supporting our show. And if you want to support us, please click the links in the show notes to to learn more. And I should also say because it's 2025 and it's a fresh start to the continuing professional education season for many folks who have a calendar year deadline. Don't forget that you can earn free continuing professional education credits for listening to this show. Go check out our app earmark app. That's your mark dot app and your web browser. Take a short five question quiz and earn free continuing professional education credits. Nasba approved Continuing Education continuing education credits for listening to this show. They work for CPAs, CMAs. We also have some courses on the app for enrolled agents. You can take our federal tax courses, look for the purple IRS banner on those. You can get free IRS credits. And these credits, by the way, also work in most jurisdictions abroad that have ACP requirements. So if you're in Australia or in the UK, you can be sure to check on this. You can use Nasba CPE to get your license renewed. So that's earmark app. All right. Let's start with let's start with the bankruptcy David. Yeah. Let's dig into that a little bit. David Leary: [00:04:33] So that's everybody that's attending the live stream. If you'd like to play along, I'm going to paste a link in the comments. And then you can go to the same page I'm going to go to as we add this to the stage here. And you can see this bleak. Blake Oliver: [00:04:47] I do I see CSV advisory. David Leary: [00:04:50] So this is the the firm that's handling the bankruptcy proceedings, and they've published all the documents. There's actually two companies. There's Bench Accounting Inc., and there's Ten Sheet Services, Inc., and you can click on the docs and zoom in. And this is the ten Sheet Services, Inc. Hopefully I'm zoomed in enough for anybody. Blake Oliver: [00:05:08] Yeah I can I can see. David Leary: [00:05:08] And it's structured pretty high level. They first they have to claim why they're declaring bankruptcy and some check boxes, lack of working capital and negative marketing conditions, faulty infrastructure or business model, unsuccessful marketing initiatives, poor financial performance, increased cost of doing business and poor management. So that's what they've selected as the reasons for the bankruptcy and then has the high level assets and liabilities. So they had assets of about $5 million and liabilities of 43 million. So that 43 5 million was secured creditors and 43 million was unsecured. Blake Oliver: [00:05:41] So 43 they owed $43 million to creditors. And how much cash did they have when they when they went bankrupt? It was like half a million, right. David Leary: [00:05:49] They had a half a million. Yeah. Blake Oliver: [00:05:51] Okay. And what's the total assets? David Leary: [00:05:54] They had some furniture trade fixtures. I don't know if they have the total assets called out. Let's see. Uh, machinery and equipment was. So trade fixtures, which I'm not sure what that is, is 4.4 million. Machinery and equipment, five. 5000. Blake Oliver: [00:06:09] Maybe that's like their office or something. David Leary: [00:06:11] Yeah. Blake Oliver: [00:06:11] Furniture 40,000. Okay. Got it. So really, it looks like. What? 5 million in assets. 43 million in, uh. In liabilities. David Leary: [00:06:20] And I went through they list all the creditors and really went through every creditor and try to bucket them into what I would argue is like high level parts of the business to get a better understanding of what bench did. So customer acquisition, development, management, operations, refunds, service delivery, revenue. I did ignore all. If you I'm scrolling in here and you'll see that there's notes payable to investors. I think that's more in the bench one. Let's scroll down. Zoom in here. So I kind of ignored all of the convertible notes. But they had shareholder loans, convertible notes with banks that were in hundreds of thousands of dollars. And I ignored those because I don't feel like those give us a picture to the business, other than obviously they were burning cash and had to keep dipping into funds. But I did bucket everything else. And so I have a little Google sheet here, and I bucketed things by customer acquisition, development, management, operations, refund service delivery and revenue. So if we drill down like on customer acquisition, a lot of this was firms like smaller firms that they owe, you know, money to 600, $700. I think we saw firms in here. We knew, for example, um, I think Shane. Blake Oliver: [00:07:32] Mason's name was in there and he's like, I don't know. I don't know why bench owes me $900. Yeah. David Leary: [00:07:36] Shane Mason did not know. I'm assuming a lot of these were referral fees. Um, very small commissions, referral fees. And it's sad because it's like almost 50 firms who've been sending bench clients, they aren't going to get anything for it, which is actually the worst, right? Because a lot of these are small businesses. But as you kind of poke around this customer acquisition number, some of them make no sense at all. They owe gusto $240,000. And that's not super clear why. It could be like maybe that a reselling agreement where maybe they were selling gusto. Blake Oliver: [00:08:09] Well, if they were bench gusto. You mean gusto selling bench, right? Because that's why. Bench with gusto money. David Leary: [00:08:15] Yeah, it could be. It could be referral fees. Blake Oliver: [00:08:18] I don't know what. Yeah. What could it be? David Leary: [00:08:19] Yeah. It's just a lot of money. $240,000 to gusto. Blake Oliver: [00:08:23] Maybe that's the payroll service fee for all the bench customers. And gusto. Like, instead of charging a credit card or a debiting a bank account like they do for individual subscribers to gusto, maybe they were invoicing. David Leary: [00:08:35] Yeah. And this could be maybe the payroll of bench themselves that I don't know. Does gusto support Canada? It's really confusing what this number is, but it's a. Blake Oliver: [00:08:44] Big I doubt it's that because gusto would not front somebody's payroll. That'd be crazy, right? Yeah. So, um. Wow. David Leary: [00:08:51] Linkedin 100 155,000, which is probably all ads and customer acquisition. They owe a. Blake Oliver: [00:08:58] Bunch of money to Salesforce. I don't think that's customer acquisition, David. I think that's like more operations. Yeah, yeah, I'm pretty sure. I mean, like, why what else would that be? Um, interesting. What about the other categories here? David Leary: [00:09:11] So in the other part of customer acquisition, they had a lot of and this is something I think accounting firms can learn from. They really did a lot of getting into where small businesses start. So either partnering with um incorporation service companies. So they owed a bunch of companies that specialize in corporation services money they owed smaller startup communities, like there's a lawyer community. There was a community for a luxury wedding planners. So it was like a coaching community. So they got into those communities because those were those are people that, hey, I'm starting a business. They're going to go to those communities. And this is something I think all accounting firms can learn, like reach small businesses when they're starting their business, like get into that discussion early. And that's what bench did really well. And but they obviously didn't pay all the bills for it. But they, they, they exploited it pretty well. I would say like gym owner community. They had deals with YouTube influencers that were small business influencers, small business coaches, that type of thing. So they got it early. Um, I did good. Blake Oliver: [00:10:11] Yeah. Well, let's go into the next section here. You've got development. What does that mean. David Leary: [00:10:14] So development. So these are things I mean I would say are the apps and tools the developers may have been using to automate the accounting if you want to call it that. So they owed Miro money. They owed Plaid $225,000. Because every time you I don't know if accountants know how Plaid works. We've all hooked up Plaid for our clients, probably to an account. But every time the developer makes a call to Plaid and sits down a bank statement or a bank feed, they get charged for that transaction if you want to call it that or that or that that API request. So obviously they are pulling lots of data down from Plaid from banks to the tune of $225,000. Github is like a developer ticketing system, something we use ourselves. The 78,000 for that retool, which is an internal software building tool for dashboards. And you can actually run software in there, $160,000 for that, using a lot of third party middleman apps. So your rudder. Ricardo Ricardo is kind of like a Zapier, right? An app called sync sneak out of, um, out of London. So they're using a lot of these, uh, middleman apps. Now, what's interesting about this, if you. Oh, let's say retool is an important part of their business, and you o retool $160,000 and one of these SaaS apps just turns off. You cannot deliver service. Right. If you need to pull down the bank feed from Plaid and Plaid like us, a quarter million dollars, you're off. We just cut off your API access. How does bench function right. So that's a question I kind of have. Like how did how did these fees get so out of control for some of these tools. Blake Oliver: [00:11:51] Yeah. How were they allowed to fall past due that much. Or were they being charged millions of dollars a year for Plaid? David Leary: [00:11:59] Because this is basically a statement of what they owed on that day. On that day. Yeah. Blake Oliver: [00:12:02] Yeah. David Leary: [00:12:03] Right. And who knows, maybe that's a month. Maybe that's three months of charges. We don't really have any any insight to that. Blake Oliver: [00:12:09] Let's go through let's keep going through this. So management. David Leary: [00:12:11] Management. Click the next one. So management I just placed they had some employee severance stuff in this document and the the paperwork. And these were severance packages. And it looks like they were all C C C suites. So it was the CEO, CFO, Chro and Chief people officer. They all had an accounts payable flagged to them for severance. Blake Oliver: [00:12:32] Okay. And it looks like tens of thousands of dollars for each of them. What about operations. David Leary: [00:12:37] So operations, I put a little bit more of the day to day things, like they had to get obviously computers from Apple Canada. They owed Apple money for the computers. They bought software from Microsoft. This is going to be not the software developers would use, but I would imagine would be the employees. For example, Calendly I think is in here. They owe Calendly 27,000 or something. Brex. Blake Oliver: [00:12:59] Hold on, this is crazy. So they owed how much did they owe PwC there? It looks like. David Leary: [00:13:04] 300,000. Blake Oliver: [00:13:06] Wow, that must be. That must be their audit or something. David Leary: [00:13:09] That's. Or maybe they're handling the bankruptcy. It wasn't really clear. I tried to Google search and I put links in here to. Yeah. Try to find. It's not. We're guessing a lot based on these numbers because they don't have any Ys. They owe these people money. Blake Oliver: [00:13:22] Look 5.7 is that $5.7 million that they owed their landlord? David Leary: [00:13:26] They just stopped paying rent, obviously, for God knows how long, because that's a lot of money. Blake Oliver: [00:13:31] Yeah. They owed Paro 276,000. 6000. Perot is outsourcing. David Leary: [00:13:38] That was interesting. So they had three outsourcers. They had Perot, which is your accountant, focused staffing services. They owed them 276,000. That's an India staffing for a company called Hinduja Global Solutions. And they owed 708,000 to them. And then they had a remoto, which is Mexican staffing and that in Mexico. And that's 91,000 or $9000. So, so almost a million bucks in outsourced staffing services. Blake Oliver: [00:14:04] That's fascinating because I thought that the pitch for bench was always that we're using people that are in Vancouver, that it's not going offshore, and we're using, you know, software to speed them up rather than sending it to India. But clearly they had, I guess, either abandoned that or were augmenting it with offshoring. David Leary: [00:14:22] Amazing. They were using there's software they used to increase employee engagement. So they had a like a mentoring program called 10,000 coffees. I think wavy was a way to have an internal remote culture hub. So if you have a remote team, they all can go in there and interact with each other. So these wavy. So it looks like they made attempts to enrich the life of their remote employees and of their team. They even had a thing called Bake It, which it'd be like a kit you mail out to your team, and then they can, through zoom call, bake cookies together because they got some kit. So they did things like that. Blake Oliver: [00:15:00] So that's what they're spending money on instead of figuring out how to run a profitable accounting firm. It's just nuts. Okay. What else? What else we got? Let's keep going here because we got lots to cover on this episode. David Leary: [00:15:11] Yeah. Refunds. So there's customers that were specifically listed that were due refunds as of the time of the bankruptcy, and that was about $16,000 in refunds that people were due. It doesn't say why these some of these were keep. Blake Oliver: [00:15:22] Going, keep going. David Leary: [00:15:23] $7,500 for one refund. Yeah yeah yeah. Keep going. I bundled service delivery. So this is where like one password Calendly carbon better cloud. So these are apps they probably needed to actually run the business. They actually. Blake Oliver: [00:15:35] Carbon. $44,000. Or it could. David Leary: [00:15:38] Be twice, which I don't understand yet. Maybe it's. Blake Oliver: [00:15:40] 88,000. Interesting. Or maybe that's just a mistake in the filing, but okay. What else? Calendly. They owe. David Leary: [00:15:46] $7,000. Blake Oliver: [00:15:47] $76,000 to Calendly. That's crazy. Did they, like everyone, have a Calendly subscription? Must be all right. What else? That's it. Right? David Leary: [00:15:56] Yeah, that's that's it. That's what I kind of bundled these in. If you kind of lump in the revenue, minus the refunds you dump in the customer acquisition. You deduct the service delivery and then you start taking out operations development. Management. Obviously this is a snapshot of the balances on that day. But maybe this was 90 days of numbers right. Of amounts owed. Or maybe it's 30. We don't know. But it's definitely a 9 million. Dollars. Blake Oliver: [00:16:20] That's crazy. David Leary: [00:16:20] And how they run their company. But I think there's. Accounts can take a lot out of this. They obviously invested in their employee engagement. And they obviously invested in Acquisition and how to reach those new businesses. And that's I think firms can take away from that. Blake Oliver: [00:16:35] And that's what that's what we theorized on the show in the last episode, is they were spending a ton of money on acquiring customers, but they did not have a business model that was profitable. So ultimately they just kept burning cash for 13 years, and they spent all 100 million that they raised, and they ran out of money. David Leary: [00:16:58] And you could see where they kept taking a shareholder loan here for $300,000, a convertible note with a bank for 1.5 million. They kept dipping into cash to make ends meet. It was never, never fixed. Blake Oliver: [00:17:10] The business model never fixed the business model. Um, boring. Accountant is asking if you can share the Google Sheets file link. David. David Leary: [00:17:18] Uh, yes. Don't make fun of my horrible spreadsheet skills, but I will. I will put that in and you can request formatting. Blake Oliver: [00:17:23] Here's formatting will make you ill. Uh, but in the while David does that, I'm going to read our first sponsor message. Thanks to Tax Bandits for sponsoring this episode. If you're feeling the pressure of juggling 1099, W-2s and ACA 1095 forms, listen up. Tax Bandits is the solution you've been waiting for. They've got over a decade of experience and support for 100 plus tax forms, including everything from your 94 X series to those tricky state filings. Tax bandits handles both federal and state e-filing seamlessly, so you're set. No matter how many states your client is operating in operate in. 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If you are ready to take control of tax season and join thousands of tax professionals who trust tax bandits, head over to The Accounting Podcast. Blake Oliver: [00:18:54] Promo tax bandits The Accounting Podcast. Promo tax bandits. And now, David, let's talk about venture capital and accounting. There was a story in the Wall Street Journal featuring several VCs that are very excited about the accounting profession. We've heard a lot in accounting about private equity, but what about venture capital? The The headline in the Wall Street Journal Pro venture capital site is I has venture investors excited about. Yes accounting firms. Um, and the firms that are highlighted are pretty big ones. Bessemer Venture Partners, General Catalyst and Thrive Capital. They are all among venture outfits taking stakes in accounting firms on the heels of private equity. They believe that generative AI tech can make traditional services businesses like accounting more profitable and scalable. So much so, they become desirable targets for the sky streaking growth ambitions of venture capitalists. Um, here's a quote from Mark Bhargava, the managing director at General Catalyst or a managing director there who leads the firm's creation strategy. He said, we do think there's a huge opportunity to roll up accounting firms and automate a lot of the workflow and let the same accounting firms take twice as many clients. The idea is not to cut people with AI. The idea is to enable them to do 2 to 3 times the work. So their strategy at General Catalyst is to invest in an AI business and then provide more capital for the startup to buy companies that would normally be its customers. That's an interesting approach. David Leary: [00:20:46] So these are a lot of VCs play where they do the investments, and they make that company buy and use the tools and the products their other investments are creating. And Y Combinator is the worst. I remember I met with a developer early on and they were like all the all the other people in our cohort at Y Combinator use our app. I'm like, great, get get a customer in Iowa, a small business in Iowa, to use your app. Then I'll be impressed. But this happens a lot, and I could see if they have all these investments in AI, if they can round up some accounting firms and force those firms to buy these AI products. That's a good way to bolster your usage on your. Blake Oliver: [00:21:23] Investment, on your product, on. Yes, you buy the people. You buy your customer. David Leary: [00:21:29] In a way. Blake Oliver: [00:21:30] Yeah. So who is the operator that is featured here? General catalyst is supporting Kossmann or Kossmann? Uh nicolescu. He's the former chief technology officer of Brex, and he's leading a business that will buy accounting firms and suffuse their operations with AI accrual. The business, helmed by Nicolas Su, has raised more than 16 million in equity. Um, so that's it's funny. David Leary: [00:22:04] Brex was the startup that told me that everybody in our Y Combinator is using our app. When I first met them, years and years and years ago. So it's a model they obviously like. Blake Oliver: [00:22:14] So here's the thing about this, Here's the. Here's my perspective, right? As somebody who has worked in startups and has been a bookkeeper, has owned an accounting firm, has worked in a large accounting firm. Is that like this idea that you can use tech to. Buy accounting firms and then allow the accounting firms to take on 2 to 3 times as many clients? That's what that's what the quote is here. Right. It's 2 to 3 times as many. Um, I think there's a challenge with that, right? And that's because of the of the sort of assumption that a lot of tech people make about accounting. They watch a bookkeeping process. They watch an accounting process, and then they think, oh, this is a simple process. I can automate this with AI. But they they're just looking at that one process and they then extrapolate that to the to the whole job. And they say, I can automate a bookkeeper, I can automate an accountant. And that's very difficult to do because there's a lot of stuff they're not thinking about. Right? Just categorizing transactions into a bank statement is one or into an accounting system is one thing. But actually doing the job of a bookkeeper, a staff accountant is a totally different thing. You may do that process as part of your job, but there's way more to the job than that process, right? And so I'm skeptical of this too, because when they say take on 2 to 3 times as many clients, you talk to a lot of accountants and they've already got more clients than they can handle. And it's not necessarily because of the time it takes to do the transactional work. It's because there's only so many client relationships that you can have as a service provider. Blake Oliver: [00:24:11] How many people can you have meaningful relationships with? That's the limiting factor in how many clients you can serve. So can you have a meaningful relationship with 1000 clients? No. I think we could all agree that doesn't work. And and we can we can think through a little thought experiment to to prove that out. Let's say you have 1000 hours in the year in which you're going to be billable. Just for sake of argument, right? Half of your time as a like an independent practitioner, you're going to be doing billable work. Well, if you spent all 1000 of those hours on zoom calls with clients or meeting with clients, you could spend one hour with 1000 clients one hour per year. So could you have a meaningful relationship with a client only talking to them for one hour a year? Debatable. Probably not. Right? Well, let's say you did a call every quarter with them. Then you could have 250 clients, right? 250 clients times four hours. 1000 hours. Right. So there's an upper limit on how many how many clients you can have, and a lot of accountants are already at that limit. A few hundred and if you want to have more, deeper, more meaningful relationships, it's way fewer. It might be a few dozen is the limit, right? If you're meeting with clients every week, you could probably only have like in half your time is meeting with clients. You could have 20. Maybe 30 if you're working a lot. Right. So that to me is what tech people miss. They they look at the process and they say, oh, I can automate this process. But that's not where the time is really spent. Like the value is not created in that process. David Leary: [00:25:55] And it's an opposite direction I think firms are headed. I think all the accounting coaches tell you raise your prices for your clients, have a more fulfilling life, right? Have a better, more fulfilling firm, a more fulfilling life by working less hours, getting to see your clients charging more? And this goes against that principle entirely, right? Blake Oliver: [00:26:18] So like I feel like I would be much more stressed out if I'm a staff accountant and I'm working at a firm in a venture capital firm, buys my firm and then like, gives me AI tools, but then also says you have to have twice as many clients. I'm not better off. David Leary: [00:26:35] I wonder what, because a lot of firms measure like you had to cast practice. How many, what was the ratio of like, clients to a cast employee? Blake Oliver: [00:26:44] Well, so we were specifically doing bookkeeping and we were doing it for like, let's say $500 a month for a client on average, right? Maybe, maybe we had we had some bigger ones too. But, you know, at that level of bookkeeping where you're just like doing cash basis accounting, you're paying some bills, you're paying running payroll, that sort of thing. Uh, you know, we charge more. If we did all those things, you could have. But my rule of thumb was you could have like, 30 clients per clients per bookkeeper. David Leary: [00:27:12] That's what I've heard. Always. It's between 30 to 45. Maybe if you're really efficient, you could squeeze it up to 60. But I wonder. Blake Oliver: [00:27:18] What a rock star who could do 6070. But that's rare. Yeah, and it's really hard to. David Leary: [00:27:23] Like like bench. Right. What was their pressure like? Everybody had to handle 100 clients. Like I wonder what those ratios were at bench. If anybody happens to know, it'd be interesting to find out. Blake Oliver: [00:27:33] To me this is like if venture capital was like going to go into schools and their attitude was, you know, we're going to make teachers more efficient with AI. And instead of having a class of like, you know, 20 or 30 students, they're going to have 40 to 60 or 60 to 80. Like there's there's a the limiting factor is not like the work that the teacher is doing. It's the relationship with the students. You just can't have a a relationship a deep relationship with a, with that many students because you can't know them that well. You can't spend enough time with them. So I think that's what they're missing here. While we're on the I, uh, discussion, I want to play a clip from the All In podcast, one of my favorite podcasts. Um, and they're talking in this clip, uh, in a recent episode about, um, AI agents. David Leary: [00:28:28] And in that clip. Ready? Yeah. I'm going to go ahead and get our next ad going. So. Blake Oliver: [00:28:33] Okay. Great. David Leary: [00:28:34] As you. Blake Oliver: [00:28:35] Go for that. David Leary: [00:28:35] Up. All right. So our next sponsor is relay. So between Blake and myself we now have three, four, maybe five business entities. It could be six now I think 20 or so checking accounts, dozens and dozens of virtual cards. And it would be impossible to manage all of this if we weren't using relays. Our small business bank relay is truly a part of the tech stack we use to run our business. Relay allows Blake and I to each have our own logins. We can grant our team and even our accountant without sharing passwords or two factor authentication codes. Relay allows us to grow and scale our banking needs without ever going into a physical branch. I recently added an account to receive inbound merchant services with merchant inbound merchant services with just a few clicks, and had to create a payroll checking again, a few clicks and I had instantly have access to ACH info to give to my payroll provider. With relays virtual cards, we can issue debit cards to our team around the world for needing needed business expenses. I can instantly spin up a new visa debit card and set both daily monthly spending limits and when the team member doesn't need their card, I can freeze it until they need to use it again. Really also has automation features to sweep money automatically from one account to another based on dates, amount or target balances or percentages. For example, inbound payments could be split daily to your payroll sales tax payable operating in saving accounts based on predefined rules. To learn more about using relay for your firm and clients, head over to The Accounting Podcast. Relay that is The Accounting Podcast. Promo for relay. Thank you. Relay. Blake Oliver: [00:30:01] You made it through without losing your voice. David Leary: [00:30:03] I know it was good. Blake Oliver: [00:30:03] Go get some water. Some tea. David Leary: [00:30:05] David? Yeah. Play that Play that video. Blake Oliver: [00:30:07] Okay, I'll play the video. It's, uh, it's like 4 or 5 minutes long, I think. Um, but before I do that, I just want to highlight some comments from our live stream viewers, welcome live stream listeners and viewers. Joseph Rotman says just a fabulous coverage of the bench liabilities and the bench story. Well done. David. Coffee doggy says. Sounds like hell, I think, referring to the having 2 to 3 times as many clients, Jonathan says, have you seen the meme where the farmer tries to milk the emaciated cow? I think I've seen that one, uh, client management of two x to three x. And then the surprised face. Yes, Christopher says, not unlike nurses or doctors who are by law, limited to the number of patients they can see a day. Yes. And we know what happens when they have too many patients, right? They can't keep track of them all in their head. Raffi says if someone can get AI to replicate the month end slash, year end close process, then you can replace the replace the accountant. I needs to think about accruals, depreciation schedules, revenue recognition issues. Well, I still disagree that you can replace the human accountant, even if it can do some of that month end close. Because somebody's got to, like, work with the client directly. And we are not at the point with AI agents where it can do that effectively and have like the memory and the context and the understanding to do that. You can do parts of it. Sure. But this is the mistake is it's sort of like with self-driving. How like 15 years everyone was so optimistic that we would get there really fast. And I was too. And it turns out that that last mile of self-driving, that last little bit is really, really hard to get to. And I think we're going to see the same thing with accounting. It's going to be like a 15, 20 year journey. Um, before we get to the point where you can actually replace a human with a AI agent. David Leary: [00:31:59] Well, if you think about it like, look at how much bench owed Calendly $76,000. Why they were meeting with clients like that is a piece of the business. You just can't automate accounting. You have to meet and talk with clients like that's proof of it. Here's a business model where they had to spend $80,000 a year, or whatever they owed on Calendly services because they had to book meetings, or clients had to book meetings with them. That's right. I can't get rid of. That's if they could automate the client meetings, then maybe you could automate. You could be more efficient, but you can't. It's people. Blake Oliver: [00:32:30] Yeah. And I mean that's just there's a there's a limitation to the way LMS work right now, which to me makes it impossible at this time to eliminate the client communication, to automate the client communication, um, for this kind of work. And, and it has to do with the fact that, like when you train an LLM, it costs a lot of money to train one. It takes a lot of time. Compute. Openai spends like millions to train models, right. They are fixed in an LM essentially works the same way as a as as the human brain, but it's fixed, whereas the human brain changes with new input. So you can give an LM knowledge, you can give it access to knowledge, and you can like save information into a knowledge bank that the LM then works with to transform prompts into outputs. But there's a limit on the amount of knowledge that you can give it, and it can't. It can't actually, like the LM itself cannot learn anything. It's not intelligent. It's just transforming. That's the T in GPT. It's just transforming your prompt and using statistical, essentially a statistical model to guess what the next word is that should come out or the next sentence. So like that's why the human stuff is going to be really hard for it to, to get like the comprehension. There's no actual comprehension. Um, anyway. David Leary: [00:33:58] I think some of this too, is the VCs belly button staring right? When VCs are they they look at their own problem. They're like, I hate dealing with my accountant and I have to deal with them. And why can't they just download the transactions and just get it? Plaid exists and they don't want to be involved in the process at all, but I think they're out of touch with the rest of small businesses across the globe, how they want to interact with their accountant. I think that that's the part they're missing. They want to solve for them and other startups, which I've got a story. Blake Oliver: [00:34:25] I've got a story for you. David is a startup founder. Um, reached out to me and asked if I'd talked to him to consider being an advisor for the for this company. Um, it's an amazing founder team that has had successful exits before, not in the accounting space. And they've got an AI expert on the team. Um, you know, they're raising money. They're going to build an AI agent powered bookkeeping service accounting service. And their goal is to completely automate the job of a bookkeeper with AI agents. And I asked him on the call. I said, have you or any of your founders ever worked as bookkeepers or done bookkeeping or had a bookkeeping job? And the answer was no. But we've we've watched bookkeepers work. And I said to him, okay, my best advice for you is to just go get a job or go get some clients and do bookkeeping for a little while. Do it for six months, and I think you will find that what you observed, the processes that you observed the bookkeeper doing, are actually not the hard part of the job. And it's not where the value is created. All right. Let's listen to this clip from the All In podcast where they where they talk about the number one app in accounting and using AI agents to potentially replace us all. All-In Podcast Clip: [00:36:05] You know how much the world spends on software and software related things. Every year it's about $5 trillion, and that's compounding 13% a year. I I'm pretty sure that the market here shrinks by an order of magnitude. And instead of fighting over 5 trillion, I think we'll be fighting over 500 billion. What do you think, Aaron? You buy that? All-In Podcast Clip: [00:36:30] No, not at all. I mean. Blake Oliver: [00:36:33] And by the way, this is, um, Chamath Palihapitiya, Jason Calacanis, David Friedberg, and then who's speaking right now is Aaron Levie, CEO of Box, who is a guest on the show this week. All-In Podcast Clip: [00:36:47] I don't know if you want to make the case more, but but. All-In Podcast Clip: [00:36:49] I the only reason is that I think that as we Deliver the software development process from humans. I think the unit cost of creating code effectively becomes so cheap that it's going to be very hard to differentiate price these products the way that they are. So an example would be that let's say you use, I don't know, pick your favorite piece of software. I don't want to pick on anybody. That's why I'm not saying let's just say an office suite. All-In Podcast Clip: [00:37:17] Let's pick an office suite. Everybody's got one. Sure. All-In Podcast Clip: [00:37:20] Let's pick let's pick on Excel. Because maybe that's. All-In Podcast Clip: [00:37:22] Like sure, Excel Google sheets. Yeah. All-In Podcast Clip: [00:37:25] It's not it's not that Excel isn't valuable. It's incredibly valuable. It's what is the marginal cost of creating the Excel equivalent. That is good enough that people switch. The marginal cost today is very expensive. And you can see that because it's what it costs Google to make sheets, but that's humans. So the real question is, if you have a legion of bots that works 24 over seven incrementally and increasingly more accurately every day. The question is what is the marginal cost? And I think the marginal cost of that is going to be very cheap. And when you do that, it's very difficult to price it anywhere near the same. And the reason is that other companies will then replicate it and say, hold on. If Excel wants to charge $100, I'll charge 50 and I'll take a lower margin. That's just supply demand economics. All-In Podcast Clip: [00:38:15] Yeah. So so so so I think I think there's I just don't agree with the Tam compression because I think there's another kind of counter event that's happening that AI is really going after services. And so that then then conversely expands the Tam of software where IT budgets weren't usually applied to those types of things. But we can get to that in a second. But I think we've already seen I think we've already seen this though, and it hasn't exactly played out as you're saying. So you already have like a like so Zoho is this really interesting business. It's probably a couple billion in revenue at this point. And it's basically a suite of of extremely low cost, affordable software products by category. All-In Podcast Clip: [00:38:53] The cycle time of Zoho is poor. All-In Podcast Clip: [00:38:56] But that's not been. That's not been the reason people don't switch, though. They don't. All-In Podcast Clip: [00:38:59] It's all levered to humans. I just think it's not a good product. It's decent enough. All-In Podcast Clip: [00:39:04] Why do you think people don't switch? Aaron, by the way. All-In Podcast Clip: [00:39:07] I do agree with you, Aaron, by the way, that when you bring that whole offline services category online and you automate them with AI, I agree with you that that Tam could be ginormous. All I'm saying is the traditional software Tam today, what people spend $5.1 trillion on, I think people will spend $500 billion on and barely, if that. There may be other things that people spend money on that, that are that are wrapped in AI. All-In Podcast Clip: [00:39:33] Yeah, I guess the, the, the counter. And maybe you look at an ERP system or a CRM system or something else, like, like that is sort of those. All-In Podcast Clip: [00:39:42] Things are totally. All-In Podcast Clip: [00:39:43] Screwed. All-In Podcast Clip: [00:39:43] No, but like but but this is my point. The opposite. Like the last thing you want to touch is the system that is like like powering your supply chain companies. All-In Podcast Clip: [00:39:52] The companies I talk to, they're consistently like, rip it out. Get us to a point where we can rip it up. And the reason is because what they've realized is they'll spend 50 to $100 million a year for five features. And they're like, just give me these five features as workflows, give me a simple Crud database, and just get me get out of the way. And it's like the trade off for that makes a lot of sense because, look, let's face it. Like when you have to build one piece of software that has to sell to 50,000 companies, the reality is that that piece of software is trying to do everything and then some, and it's trying to solve 2 or 3 use cases, plus around 5 or 6 common use cases that are generalized for 50,000 customers. So you end up with 50,000 features. All-In Podcast Clip: [00:40:34] You know, it's really interesting because, Aaron, you kind of alluded to there's a Tam expansion moment there, and I'm seeing this on the front lines. We run a program at university. I've talked about it here before where we see people pitching us their year zero startups, 2 or 3 person teams. And what they're doing is they're not going after existing legacy software. They're kind of going after jobs. They're looking at a position or a job somewhere. This is an accountant. We're going to take an accountant. We're going to make the number one accountant in the world. That's an AI agentic an agent. We're going to make a podcast producer with podcast AI. We're going to make a virtual assistant with Athena. We're just seeing it over and over again. That's a whole nother category where you study a person's behavior as they work, a social media manager and what they do, and then you replicate it with AI. Blake Oliver: [00:41:25] So there's sort of two ideas there. Fascinating concept. Right? Chamath laid out the first one, which I have to disagree with, and I think Aaron Levy disagreed with that as well. Chamath is really smart, but he's totally wrong on this. He says that we're going to use AI agents to replicate software That already exists. That's been very hard to do before. So like he uses Excel as the example. It took Google how many years to make Google Sheets until it was like comparable to Excel. And there's still plenty of people who say I'll never use Google Sheets. Took them like, what was it, 20 years? David Leary: [00:42:02] Yeah, they probably don't have half the market share yet. Blake Oliver: [00:42:06] Oh, not even close, right? A tiny little fraction. And and so he's saying we're going to companies are going to use AI agents to like replicate software like Excel and do it quickly and, and and then he he believes that the the market for software will therefore shrink because the cost of creating it will, you know, go. David Leary: [00:42:32] Blake, I lost your audio. Blake Oliver: [00:42:39] Sorry. I lost the connection to my microphone. David Leary: [00:42:42] You conked out again. Blake Oliver: [00:42:48] Can you hear me? David Leary: [00:42:51] I can hear you now. Blake Oliver: [00:42:52] I lost the connection to my microphone. David. Why don't you go on now? David Leary: [00:42:58] So you're back? Yeah. Why won't I want to comment on this? I buy into the fact that internally, a company. His whole argument of a company needs 4 or 5 niche features. I buy into that if I need. We're doing this with our own company. I'm buying software and it never really works the way I want it to. And I'm like, why am I paying for this? We could just build it ourselves. And so I agree, enterprises are going to start to build their own versions of software. They need some, some, some bolt ons to their software. That I agree with, I completely disagree with. Oh because of I, some companies are going to just create a new Microsoft Excel. Let's say technically you could do it. Great. How do you get people to switch? Because people already have the skill set to use Excel and then be Microsoft's a marketing machine. A good example of this is go look at zero, right? Zero has spent billions of dollars for a decade and has barely made a dent on QuickBooks in the US market. Like, it's it's simple. So even if you can create the software, how do you get people to switch? How do you make that dent? That's actually harder than it is to build the software, probably. Anybody can create a accounting system these days. Every week. Every VC thinks they can create an accounting system, but winning the market is a whole different game. Blake Oliver: [00:44:10] Can you hear me now, David? David Leary: [00:44:11] You're coming in perfect and clear. Blake Oliver: [00:44:12] Excellent. I'm back. Um. So basically. Yeah, like, I don't I don't buy that argument that we're going to, like, see a shrinking of software that, like, these AI agents are going to be able to build like the, to get people to switch. Right. They're already in. And if you think about it like the cost of Excel and the Microsoft Office suite is really not that much, right? So like there's there's no great benefit to switching at this point. Um, what about the you know, what about the startups that are looking to eliminate these jobs that Jekyll is seeing in his founder university. That to me is is interesting, right? It's the same thing we were hearing, um, that I heard from this other founder who called me. And I just think that's also like way too early. That these AI agents are nowhere near, uh, going to be able to completely replace a job unless it's a very, very, very narrow type of job where it's an accounts payable specialist whose job is literally just to process documents into an AP system all day long. And there's very little judgment. But if that's the case, you can already offshore those jobs to India and pay like dollars per hour. You know, very little money to do that. So I don't really see like a huge benefit at this point. So anyway, uh, I hope you all enjoyed that clip. That was, um, just like I just they mentioned this stuff a lot. It's whenever they talk about eliminating jobs, it's always the accountants that get picked on. And I guess that's just because I don't know why that is. Tech people don't seem to like, really value accountants. And maybe that's because, you know, the work that we do is not really that relevant in subscription businesses. Like we never looked at the financial statements when I was at Floqast because it's all SaaS metrics. And like traditional GAAP doesn't mean anything to startup founders. That could be why. David Leary: [00:46:02] Their buddy Steve Case, not Steve Case, the other guy, Mark. Mark Cuban, right? Mark Cuban had a tweet. I was in the thread on it, and he was basically saying how all these trades are going to get eliminated by I like plumbers and I'm like, there's no way maybe for new construction where there's no variables or surprises, but like, have you ever done a I know you're not a huge DIYer, but when you try to do a DIY project, how many trips do you have to go to Home Depot to finish the project? Blake Oliver: [00:46:30] David, this is this is this question for me is embarrassing. I hired a TaskRabbit to like, fix a, uh, I, I hired a TaskRabbit to attach a bookshelf to the wall, you know, with, like, an anchor, so I can't. I mean, the last time I went to Home Depot, it was to buy salt for the water softener. I can do that. I can do that. But I'm not. I'm not very handy, actually, no, I did install a curtain rod and I successfully did that. Like for blackout curtains. I could do that. David Leary: [00:47:01] Yeah, but if you if you tear open a wall to do a plumbing job, you don't know. Not you do not know what's inside that wall that's been there for 50 years. And I cannot deal with these variables. It's impossible. It has to just. Right. It can do new construction. I fully buy 100%. You could have bots doing new construction. I doing it, but you cannot solve problems, right, of existing problems. Blake Oliver: [00:47:26] And that's the way these models work, is that in order to be able to solve a problem, it generally has to have seen something very similar before. So you have to have a lot of training data. But like you said, there's so many variables when you're doing this kind of work that it it will eventually see something it's never seen before, and it won't know what to. David Leary: [00:47:45] Do with having all the pieces you need to solve that problem in a truck. A very low this. Hence the you get so far in a project. You're at Home Depot four times. Blake Oliver: [00:47:53] Yeah, it takes a lot of creativity to do that kind of work. David Leary: [00:47:56] That's that's the magic word creativity. Blake Oliver: [00:47:58] And that's the. David Leary: [00:47:59] Thing is creativity, creative process. It's more of an art. Blake Oliver: [00:48:02] And and AI. Generative AI is not creative. It is transformative. It transforms the prompts into something new, but that is based on what it already knows. That's the key difference between people and AI right now is we can come up with entirely new concepts, and we can come up with unique solutions to problems, at least the intelligent ones among us. Um, whereas I can't. David Leary: [00:48:31] Okay, I couldn't get AI to I to take the bankruptcy paperwork and dump it out to a spreadsheet for me. That's where we're at. I mean, here's here's a table and a PDF, and it was struggling to do it. So I gave up. Blake Oliver: [00:48:42] Um, now, that's not to say that eventually these agents aren't going to do a lot of the work we do. Right? But it's not going to replace this for, I think, quite a long time. Um, okay. Let's thank our third sponsor, and I lost my spreadsheet here or my oh, here it is I got it. All right. Thank you to boom tax. Are you dreading tax season. Did you know that it doesn't have to be overwhelming really. With boom tax you'll discover a simpler way to file your 1099 W-2s and ACA forms. 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Thousands of firms across the country have already made the switch to boom tax to streamline their filing process. If you're ready to see how much time you could save this tax season, head over to The Accounting Podcast. Boom! Tax. All right. I want to talk about my viral tweet because I'm kind of proud of it. It's my first one ever. Not that often that this happens. You know, when you're talking about accounting stuff. And actually, I really wasn't talking about accounting stuff, I was talking about JP morgan's auto policy return to office and the tweet is JP Morgan just told all 300,000 employees they must return to the office full time in March. Their response to employees raising concerns about childcare and commuting costs. They shut down. Comments in that tweet somehow got 4.8 million views, 5000 retweets, 52,000 likes. That's a record for me. David Leary: [00:50:59] And a bunch of arguments. Blake Oliver: [00:51:00] And I think it's because that's why it started a just a firestorm of of, of debate in the comments about whether or not people are actually working when they're at home. And I got to say, I was honestly shocked at how many people on Twitter are like anti remote work and are saying like, get back to the office, you office, you slackers. It's about time. And I just wonder, like what that is all about. Um, and then also a lot of, like, criticism of the idea that you should or that employer, employer should even care or consider the employees child care duties or the cost of commuting like, like and a lot of the the tweets were along the lines of like, well, what did people do before Covid? It wasn't the employer's job to think about this stuff, get back to work. Covid's over. You know, that was kind of the sentiment. Um, by the way, the story behind this is that, uh, JP Morgan announced that they were going to require all of their staff to come back, um, starting in March. Uh, the change is actually not affecting all 300,000 employees because they already had something like half of them were already back in the in the office five days a week and the rest were not. Um, it's mostly back office stuff, so probably the accountants are in here. Um, or the call center workers. Blake Oliver: [00:52:34] They previously had the option to work remotely two days a week, but now they're going to be pulled back into the office. And there was a post in their internal forum, their intranet, about this. And then there's the ability to have comments. And apparently the post attracted so many comments with criticisms about this policy. And uh, and some, some employees were talking about starting a union in the, in the comments that, uh, JPMorgan shut down the comments on the post. And that's where the news story came from. So, you know, there's something about this whole debate about Toe that just like bugs me, which is that there's all these people saying in in the comments on this, on, on this tweet that I did that, like, people are not productive at productive at home, they are productive at the office. And that is simply not true. There is evidence, basically, if you sum up all the studies that have been done, the evidence is like there is no change in productivity. Some studies show a slight increase in productivity. Some studies show a decrease in productivity. But on net it's like not what makes people productive. Like whether they are in the office or at home seems to be very much up to the like. The productivity is very much up to the employee or their job or what they're doing. David Leary: [00:53:58] It's something employees are still going to suck when they work at home or if they're in the office, it doesn't. Blake Oliver: [00:54:01] Exactly. And good employees are going to be productive no matter where they are. Um, and the reason given by management for these return to office policies is always that, you know, it's a culture thing, right? It's a it's a we need to be in person to be creative, to brainstorm, to come up with all these new ideas. Um, but when it comes to culture, the the studies show also mixed results. A Pearl Maersk survey that was reported on Air Dive shows that tow policies have a positive effect 37% of the time, and a negative effect 42% of the time on morale and culture, and that is based on surveys of 300 HR professionals and organizational leaders. So these are the people that are responsible for putting in place these policies. And basically it's mixed, right? Probably within the margin of error. Some say positive, some say negative. I don't think it really matters. Um, so, you know, I'm curious what our live stream viewers think about this. Like, do you agree? Do you disagree? I really think it's very contextual. And so, you know, if you think about like, the costs of, like, everybody coming into the office every day and you think about, um, like the cost of then them having to, like, go find childcare for kids who might, you know, be in school. I mean, you can't come home and take your and help your kid with the homework, that sort of thing. Blake Oliver: [00:55:26] Like, there's a significant cost that the employees are bearing. And you can actually see this now you're seeing in job postings on accounting job sites where the employee will actually request a higher salary if you make them come into the office. Somebody posted about this recently. It was like a $25,000 difference. And that's because of the high cost of like commuting and and the time it takes. Um, people have to live an hour away from the office. When I was in LA and I commuted 12 miles, it took me an hour each way. That's two hours a day in the car that I was not compensated for ten hours a week. So being able to work remotely was a big deal for me. I couldn't do it all the time, but even just like a couple days, it made a big difference. So that's my take on this. Um, I'm curious what you all think. Uh, one of my one of my points I like to make is that the executives who make these policies don't have to bear the cost of them. They can afford to live close to the office. J. You know Jamie Dimon, is that his name? Ceo of Chase, a private driver? He probably is. He probably takes a helicopter. Helicopter? Right. He doesn't have to sit in traffic. So, um, if. David Leary: [00:56:39] You have a private driver, you can work in the car on your way. It's very convenient, but. Speaker6: [00:56:43] Yeah. Blake Oliver: [00:56:46] David says my former employer required a partial tow. I went looking for and found a remote job before they mandated tow. One of my best decisions over the last five years. Um, yeah. I mean, I've, I've owned remote companies now since 2011. My accounting firm was 100% remote. Earmarked media and Earmark Inc are both 100% remote businesses, and I couldn't imagine going back to an office five days a week. It would be nice to have a space to go to, like when I need it. But for me as a parent, the ability to go pick up my kid from school and help him with the homework and then, you know, log on later at night to finish my work, is I can't calculate the value of that. I don't think you could pay me to give that up. And the same people on Twitter who are telling everybody to get their butts back to work are probably also the same people that are wondering why Americans aren't having more kids and and saying, this is bad, right? They're probably the same people. Well, maybe it's policies like, you have to be in the office from 8 to 5, and your commute is an hour each way. That makes people struggle to have children and raise a family when both spouses have to work in order to have a decent middle class lifestyle. And who's going to take care. David Leary: [00:58:10] Of the kids when people are at the at the at the office? Blake Oliver: [00:58:14] Well, it depends if you work at Zenefits or not. Right. Yes. Before Parker Conrad left. Um. Blake definitely voted for cackling Kamala. That's one of the comments there. Um, let's see. Patrick says C-suite also make enough for nannies and sometimes don't like being with their family or don't have one. Yeah, if you don't like being with your family, 100% in the office is great, right? You have a really good excuse not to be at home. Uh, Christopher says one would think not being tied to a desk all day would keep health care costs down as well. Yes. Uh, every, every everything about my experience in the last few years, like, I, I lost 40 pounds over the last few years. Um, maybe two, just by being more active. And I couldn't do that if I had a commute. If I had to be in an office every day. David Leary: [00:59:15] Actually, Blake, you should do one of those memes. The then and now and the then will be the overweight you. And you worked at a firm and you did not have remote work. And then you could have the current picture and you could create a whole meme on this. Blake Oliver: [00:59:26] I mean, if you look at the life expectancy of Americans, it has dropped a lot over the last few decades, and I don't have evidence to support this other than my own personal experience, but I really believe it's because we're too sedentary that we just don't move. And if you just sit at a desk all day and you don't move around your body, just like, stops working. I mean, that was my experience. Like, I have never been healthier, happier, mentally better, you know, physically better than when I started getting like 90 minutes of exercise every day. It's it's it's incredible. So I, I highly recommend it. And if you have hybrid work policies, people can get more exercise. It's better for your employees. It will keep your health care costs down at your company. It's just I feel like, you know, the people making these policies. They get the flexibility. Executives always have flexibility. They can come and go as they please. Right? And it's just lazy management. So you're not you're not willing to figure out how to manage people by their outputs. You just manage people by the time they put at their desk. Well, you know, come up with a better management style. Figure out how to manage people in a remote environment, and then you can be productive. And maybe you don't even have to. I just saw an article yesterday in the Journal JP Morgan Chase and Goldman Sachs post surging profits. So even with all these people working hybrid and remote. Jp Morgan Chase saw a 49% increase in investment banking fees and a 21% rise in trading revenue, contributing to a $14 billion profit. So what's what's wrong with letting people have flexibility? Guys, what you need. David Leary: [01:01:04] Arguably, accounting firms are busier than they ever were when Covid hit and they had staff work at home and for decades. We can't have people work from home. And no, I don't know any accounting firms that didn't bench, that went under. Right. They all they all work went to remote and they all seem to be doing just fine. Blake Oliver: [01:01:19] That's right. Hey, David, we have one more sponsor to think, don't we? Before we do. David Leary: [01:01:22] That, I want to do another story. Then we'll jump into that. I want to talk about H&R block. So apparently H&R block was using some old school AOL tactics. Do you remember, did you ever have AOL when you were a kid? Blake Oliver: [01:01:33] Uh, we had CompuServe. David Leary: [01:01:35] Right? Well, you probably, but AOL. Blake Oliver: [01:01:38] Was. It's the same idea. It's same. David Leary: [01:01:39] Idea. You try to cancel your account and they would make you call to cancel your AOL account. You could never just disconnect it and cancel it. And they had a team that would convince you with three more months to stay on it. Apparently H&R block was using some of these old school methods. If you wanted to downgrade your subscription for H&R block, you'd have to call customer service to do this and then get this. They'd actually remove your data. So let's say you started to do your tax return and you sign up for H&R Block Super Supreme. I don't know, I was making up a product and then you wanted to switch to switch to H&R basic. They stripped out all the work you did so far and put you back into the basic product. So the Federal Trade Commission has finalized an order requiring H&R block to make a number of changes for the 2025 filing season, as well as longer term changes. The settlement also requires block to pay 7 million towards compensating customers that were harmed by the company's unlawful practices. And this all stems from a complaint last February where the FTC charged the tax prep giant for, um, for these unfairly unfair practices, essentially. And then they also weren't too happy with the way they used the word free filing, which everybody exploits those words. Um, and so they have to disclose free in the advertising, either the percentage of taxpayers who are eligible to get free products or that most taxpayers don't get the free service. Um and H&R block, in their statement, they said they're just happy to put this behind them so they can focus on serving their clients in the 2025 tax season. But yeah, like making people redo work is sketchy. That's the worst. That's just horrible because it's just data. It's just data. Blake Oliver: [01:03:13] Yeah, it's very unfriendly, very unfriendly. But they do it for a reason, right? It's to make money. Um, I've got I've got a story on a similar, uh, line, which is, uh, the Consumer Financial Protection Bureau is filing a bunch of lawsuits because I think when Trump comes into office, he's going to, like, stop them from doing this because it's like the Republican's least favorite department. And, um, they have sued Capital One and accused them of cheating customers out of $2 billion. The bank, Capital One, which in my experience is the worst of the big banks. I had a Capital One credit card at one point and oh my God, like they're the worst. Um, so how did they do this? It's kind of similar, David, to this whole free filing thing where there's like the paid version, the free version. It's hard It's hard to tell which is which. Well, Capital One was doing something similar with savings accounts. They created and offered nearly two identical savings accounts. They had an account called a 360 savings and then an account called a 360 Performance Savings. And the performance savings accounts offered higher interest rates. And this is during the time of high interest rates. Blake Oliver: [01:04:27] We still have fairly high interest rates. And so people are signing up for these high yield savings accounts and moving their money into it from their normal checking account. Well, employees were specifically instructed not to inform existing customers about the higher yielding 360 performance savings accounts, and they kept the rate on the 360 savings account artificially low, even as the Federal Reserve increased rates. So as the fed increased rates, if you had the performance one, you got the bump. But if you had the 360 savings, one, you didn't. And the split was fairly small. It was like less than a percent, but it was enough where Capital One made like $2 billion doing it. And so the Consumer Financial Protection Bureau has accused Capital One of deceptive and abusive practices. They say they're illegal. And Capital One denies the allegations and plans to contest the lawsuit in court. But I mean, if anything they said is true about these two different accounts and that employees were told, you know, not to like, explain them. I mean, it seems seems seems like, you know, this is like a classic scheme, right? David Leary: [01:05:32] I feel a lot like a lot of this is happening before the administrations change. I don't have a story for this. I only heard it on NPR. That's the gist of the story. Southwest Airlines got fined for having significantly late flights out of Chicago. And obviously Department of Transportation. And Biden wanted to crack down on airlines in these late. Blake Oliver: [01:05:51] These late, persistently late, uh, flights. David Leary: [01:05:54] And I think the quote from the southwest leadership was, we can't wait till the next transition, next leadership change. That's where they're banking on like that. Trump's going to get in office and these problems will go away or the fines will go away. I guess maybe that's the way to think about it. Blake Oliver: [01:06:10] Okay. So you had a story about how H&R block got spanked by the FTC, and I had a story about how Capital One got spanked by the CFPB. Well, here's one more story about Baker Tilly, the accounting firm getting spanked by the PCAOB. The PCAOB Public Company Accounting Oversight Board has fined Baker Tilly $500,000 over quality concerns regarding their audits, apparently despite earlier warnings back in 2018 and 2019, when the PCAOB identified significant deficiencies in Baker Tilly's audit engagements. Baker Tilly never made improvements to the testing of internal controls, accounting estimates, or execution of engagement quality reviews that the PCAOB inspectors demanded. They were informed they did not do it, and similar deficiencies were found in subsequent inspections in 2021 and 2022. And so the PCAOB has now imposed a $500,000 civil fine, a censure of the firm, a requirement to hire an independent consultant to review and recommend improvements to quality control practices. Mandatory training for all issuer audit staff. Now, one piece of context that I think is helpful for understanding this fine, because $500,000 sounds like a lot of money. Uh, Baker Tilly's annual revenue globally is in excess of $5 billion. David Leary: [01:07:36] It's just not much. Blake Oliver: [01:07:38] So what is $500,000 to Baker Tilly? Over the period of of many years, right before this actually got, um, penalized. Yeah. Global revenues of $5.2 billion for the year ended 2023. So the Pcob, you know, we talked about on the show there, their fines for all of the entire year were like 35 million. And and one firm has not even a top four firm, right. Not even a big four firm has revenues in, you know, a handful of billion. It's just not effective. It doesn't move the needle. These fines don't work. We need something else. David Leary: [01:08:24] What should we do? Public shaming arrests. What should happen? Blake Oliver: [01:08:28] I mean, I think that the number one thing the pcob could do would be to name the clients that had shitty audits. So when they identify an audit with part one a deficiencies, an audit that is so bad that the auditors should not have issued their opinion, they should name the client so that investors know that the audit that was done on these financial statements was not to standard, and the investors can do what they want with that information. And if the investors care and if the company cares, then they can go find a new auditor. If they don't want it to happen again, I think that would motivate the market. David Leary: [01:09:10] Solve the problem. Blake Oliver: [01:09:11] Let the market solve the problem with transparency. But the pcob has been captive to the accounting profession. It's all people going back and forth from accounting, and it's not cool to name and shame. And so we don't. And that's why nothing changes. So transparency would do it. Otherwise I say just do away with the PCAOB because it's just it's just a game for the big firms that can afford to play games with the PCAOB. And it's really harmful for the small firms that have to deal with all of these fines and and the pcob, because it's easy. They'll go after you for like administrative filing errors and you'll get fined for like, oh, you didn't file a form, but not because you're not doing bad, like not because of your audit quality. David Leary: [01:09:52] They don't accuse you of of something real. They want to accuse you of an administrative problem. Blake Oliver: [01:09:56] Something. Yeah, because it's easy to find you for that. Right. You just missed a deadline or something like that. So like if you really want to improve the profession, it needs to be more transparent. Um. 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There is no hidden fees and no surprises. It's just straightforward pricing that makes sense. The monthly cost is a low $30 per team member, and that includes unlimited clients, allowing you to scale your firm without huge software bills piling up. If you're ready to transform your practice and want to give Basil a try for free, head over to The Accounting Podcast promo. Basil that is The Accounting Podcast Basil. Thank you. Basil. Blake Oliver: [01:11:20] Thank you. David Leary: [01:11:22] All right David headlines. We got to knock out right. Blake Oliver: [01:11:24] Well I think we can get to them next week. I want to talk about the External Revenue Service internal Revenue proposed. But maybe we'll get some follow up on that. We can have more. Um, and that Treasury hack by China and FASB asking for input on intangibles that can wait. So thank you everyone who joined us today. Don't forget, you can earn free continuing professional education credit for having joined us. Go to Earmark App and find the accounting podcast and you'll find so many other amazing podcasts, webinars, uh, lots of great shows, tax audit, client accounting services, practice management, sales and marketing, all sorts of knowledge. And it's completely free to sign up and start earning CPE. And if you want to get more than one a week, you can subscribe for the low price of $150 a year and support our work. You can do that in your browser at earmark app or download the mobile app for iOS or Android. And we hope to see you around here in the future. If you have recommendations for stories we should cover, you want to give us your opinion? Send us an email. Our address is the accounting podcast at Earmark Me. That's the The Accounting Podcast the accounting podcast at Earmark Me. Hope you all have a great weekend and we'll see you around here soon. David Leary: [01:12:43] Bye everyone.