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Israel War Impact on Fintech | FTX & Trump Trial Updates | Iowa Blames Workday · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:04] So Microsoft is saying that the IRS concluded its audit for the years 2004 to 2013 and have made a proposed adjustment. They sent a proposed adjustment to Microsoft. You want to guess how much it is? The IRS is proposing that Microsoft owes an additional 28.9 billion inches tax for those years, plus penalties and interest in interest. Oh my God, I don't even I can't even imagine what the penalties and interest are. David Leary: [00:00:32] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:38] Hello and welcome to the show. I'm Blake Oliver. David Leary: [00:00:42] I'm David leary. I'm Blake. We probably need to address, you know, the war in Israel. I mean, there's no other words. That's what it is. It's happening. But it does tie back to our space and our industry. So there was an article in. Cnbc about how Israel's tech community is responding to the Israel-hamas war. And I think for us, it's really understanding how big the community is. Yes. So the Israeli tech community is about 10% of the total labor force. Blake Oliver: [00:01:15] It's a lot of people. I mean, I know there's many apps that are developed that are headquartered in Tel Aviv, which is a hub for tech in the world. David Leary: [00:01:26] Melio I probably could list. Yeah, 20 to 30. Blake Oliver: [00:01:31] Trillion easily what others come to mind. David Leary: [00:01:35] You have anchor. You have Bluevine fundbox. Bake it on the one credit card reimburse product that's out there. You have Papaya Global, which is like a global payroll product. There's a lot of companies that are out of Tel Aviv. Yeah. And for a lot of them, their staff, a lot of them are reservists, right. They're tied back to the. Israeli Defense Forces, you know, a lot of them even like, because everybody has to serve and then they go back. And so a lot of these companies this article talks about how for some of these companies, 10% of their labor force has gone. There's a new bank called one zero, and they have 450 employees and 10% were drafted back into reserve duty. Blake Oliver: [00:02:19] I saw something similar. Wall Street Journal had an article about the Israeli startup community and quoted Avi Eyal, a co-founder and managing partner of a venture firm, Entree Capital. And that person estimated that most Israeli startups are seeing 10 to 30% of their workforce is mobilized in the war. So as much as 30%. David Leary: [00:02:41] And even friend of the show, Isaac Heller, who's a CEO of Trillian, he was quoted in the article, and he basically told them that they just finished their 2024 financial forecast, and the company finance lead immediately went and delivered new bulletproof vests to the Israeli Defense Forces that they raised money for to do that. I think the bigger thing is, I think for everybody. Everybody uses apps and you're your role keeps moving, right? World keeps going, and you're going to need support or just just be patient on all fronts. Yeah. Like because if you if you think about these companies, if they are even up and operating and still actively. Moving forward with. All things considered, they're short 30% of their staff. So think about your firm. If you had 30% of your staff kind of gone, how would you be operating? So just be patient, be polite. That's kind of the thing. And then, you know, it really hit home. Melio had an employee that was killed. Blake Oliver: [00:03:40] Yeah. And you used to work at Melio and. David Leary: [00:03:42] Used to work at Melio. Blake Oliver: [00:03:43] He was at the he was at that music festival. David Leary: [00:03:48] I did not. I couldn't confirm that. Blake Oliver: [00:03:50] That's what I said. That's what I thought. I could be wrong, but yeah. David Leary: [00:03:54] So I never met him. He actually started after I left. But, you know, it hits home. These are real people at real companies, and this is really happening. Blake Oliver: [00:04:04] Well, we've got a lot to cover today. So we're going to move on. And our thoughts and prayers are with everyone over there on that part of the world. Let's talk about AI and a really cool use of this listener. Heather Smith, our correspondent Down Under sent us a tweet. She tweeted at us and said that she is using one of these. How do you describe it? It's a it's a video tool that can change. It can over it can redub you into another language and make your mouth look like you're speaking that language. And we well. David Leary: [00:04:41] You demoed this a couple of weeks back with just some person. He was speaking English and he flipped it over to Spanish and his lips were still moving and the whole thing. Yeah. Blake Oliver: [00:04:50] So Heather was listening to that episode and she is running for the 2023 Council, and she used this tool to make some campaign videos, because Akka is a global organization, and I really want to show you what she did here. Clip from Heather Smith: [00:05:11] Ak yo. Yo. Yo yo yo yo. Blake Oliver: [00:05:25] Now our podcast listeners can't see this, but I'll tell you that, you know I took Chinese for a year and it looks like Heather Smith is speaking Chinese here. I mean, it's kind of it's amazing. It changes her mouth. She's speaking in English. So she reads. David Leary: [00:05:39] This in English, records herself in English. It changes the language and then changes the pixels of her mouth. So it matches. Blake Oliver: [00:05:46] Chinese. And now here is Hindi Heather. Clip from Heather Smith: [00:05:48] In Global Council Chudnov or app upvote. An email prompt adequate. Now I have no idea if this is accurate. Blake Oliver: [00:06:04] Or sounds right. Clip from Heather Smith: [00:06:07] Heather Smith now does. David Leary: [00:06:09] She do other ones or just those two? Blake Oliver: [00:06:11] It certainly looks impressive. I think she's done some others. She's been putting some more out there. But it's really yeah, it's a really neat way to like broaden your reach to a global audience. And I mean, maybe someday soon we'll be able to translate the accounting podcast into every language in the world through AI automatically. David, I see you've got a screen share ready to go. You've got a fun story here about Arthur Andersen. David Leary: [00:06:36] Yeah. I mean, we always talk about, like, how do you how do you how do you get people wanting to do accounting, right. And what better way than to show you what you could get at the peak of being an accounting mogul? So the Arthur Andersen, he's selling his house, it's in a suburb of Chicago. When he. When. When? Winnetka. Blake Oliver: [00:06:55] Winnetka. Yeah. David Leary: [00:06:57] Winnetka. All right. And it's $8.9 million. It's nine bedrooms, nine baths, 9600ft². It's on three and a half. Almost three and three and a quarter acres built in 1931. And if you scroll, I'll scroll through some of these pictures, like you get to the main stairwell. It looks like that stairwell in the Titanic. It's it's that kind of look really beautiful. Blake Oliver: [00:07:16] Got it. Can you expand on these pictures here? It's it's this. What is the style they call this? I don't even know how to describe it. Yeah, like you said, it looks like the Titanic. So if you are, if you are an accountant, if you are an accounting firm partner and you've got the money to buy an $8.9 million home in Winnetka, in Chicago, you can live in Arthur Anderson's house. And by the way, Arthur Anderson was the founder of the famous Arthur Anderson, which went under due to the Enron collapse. One of the great accounting firms of our time of the 20th century. He was born in 1885, in Plano, Illinois, and orphaned at the age of 16. He began working as a mail boy by day and attended school at night, eventually being hired as the assistant to the comptroller of Allis-Chalmers in Chicago in 1908. After attending courses at night while working full time, he graduated from the Kellogg School of Management at Northwestern University with a bachelor's degree in business, my alma mater. That same year, at age 23, he became the youngest certified Public Accountant in Illinois. He founded Anderson, Delaney and Co and they became Arthur Anderson in 1918. Their very first client was the Joseph Schlitz Brewing Company of Milwaukee. That's cool. Yeah. And. Yeah. So beautiful. Oh, that's a beautiful backyard there. Wow. All right. New life goes. David Leary: [00:08:45] Completely over the top. But the point is, if you're thinking about going into accounting, like we should be showing this house to high school students, like, look what you could get if you go into accounting. Like like the promise here. Blake Oliver: [00:08:57] That's right. All right. Well, there's so much more to talk about this week. We've got the FTC's trial. We've got the Trump trial. I want to give you some updates on that. So we did a lot of Trump in the last couple of weeks. So why don't we start with FTC's what do you say. David Leary: [00:09:16] You're becoming our court correspondent? Well, I'm. Blake Oliver: [00:09:18] Trying to stay up on this. There's a lot that's been going on. David Leary: [00:09:22] There's always an accounting story. Blake Oliver: [00:09:23] Yeah. So this week, Gary Wang, the former CTO of FTC's, testified in court that Sam Bankman-Fried was aware of the company's financial difficulties and lied to the public to prevent a surge in customer withdrawals. So you may remember how FTX was under scrutiny because an article got published online that said, hey, they they've got this own proprietary token, and that's what's propping up Alameda Research. And it was that token valuation that ended up sending the whole thing down. And so he basically testified that Sam Bankman-Fried knew about all of this and then went out there anyway on Twitter and said, oh, we're fine, don't worry about it. Trying to save the thing. The thing that really interested me from the case this week was how the FTX executives spent billions in customer funds. So the allegation basically is that through Alameda Research, which is a trading firm that Sam Bankman-Fried owned and that his girlfriend Caroline Ellison ran, they stole customer funds. And essentially the way they did this was they had a bit of code in the FTX exchange that allowed Alameda to have a negative balance, which no other customer was allowed to have. David Leary: [00:10:37] Effectively, they wrote a perfect a bug just for themselves. Basically. Blake Oliver: [00:10:41] Yeah. Effectively it allowed Alameda to go negative on FTX, which basically meant using other customers funds to, you know, trade and to speculate. And so we don't really know exactly how much money FTX actually stole, but the estimate is that there is an $8.7 billion that is unaccounted for. And our livestream viewers can see on the screen that we've got this like, beautiful chart that the Wall Street Journal prepared showing where all the money is. Right. So they have, you know, to this date they've recovered 3.4 billion of liquid crypto. There's 1.5 billion of cash. They've found 1.1 billion of FTX bank accounts, some seized assets, brokerage accounts. But 8.7 is still 8.7 billion is still unaccounted for. It was stolen from FTX. 5 billion of that was used to buy venture assets under the company control to make investments. So, for instance, FTX paid 1.15 billion to acquire around 20% of Genesis digital assets. A crypto miner that ran a number of mining facilities in Kazakhstan. A lot of these investments are now worth nothing. The real estate got a lot of attention, but was only 243 million. A tiny little piece of the unaccounted money, all that real estate in the Bahamas. Donations got a lot of attention. All the political donations. That was only $86 million. It was still enough, though, to make SBF one of the biggest donors in the last election. Yeah. Where the money really started to go out the door was direct payments to enrich insiders, 2 billion in payments to top brass. Basically, they would give themselves selves loans that they never paid back. And then still unaccounted for is almost $1 billion. No idea where that went. Yeah. Now, another aspect of the story that I found really interesting is the financial fraud, right? Like how did how did Alameda get away with this? Because they had investors and they were reporting financials to investors. Well, Caroline Ellison got on the stand and testified that she, under the direction of SBF, prepared not one but seven different balance sheets for Genesis months before the company's bankruptcy. Genesis was one of these investors. Right. So. David Leary: [00:13:07] You mean like the Mafia? You have one set of books and the other set of books. Is that kind of what you did? Blake Oliver: [00:13:11] Yeah, basically. So in June of 2022, Ellison presented alternatives allowing for selecting a version that omitted the disclosure of 9.9 billion owed to Ftxs customers. David Leary: [00:13:22] Oh so so so so instead of just, hey, I'm going to create a fake set of financials for us, she's like, I'm an overachiever. I'm going to give you seven different fake financials and you pick the one you like best. Is that what. That's how she delivered. Yeah. Hey, she's a good employee. Overachiever. Blake Oliver: [00:13:37] So they were going back and forth about this on slack, telegram and Signal. So apparently, like there's evidence, very clear evidence that this happened. I guess we'll see that later in the trial. Yeah. Then also this week, there was mention of $1 billion freeze in China, $1 billion of funds were FTX funds were like on an exchange in China that got frozen and they bribed Chinese officials like 100, $150 million to get that unfrozen. Just a side note there. But yeah, basically they just prepared balance sheets that did not have this loan from FTX and presented that to their investors. Pretty simple. And of course, the investors weren't auditing these things right. The financial statements were never audited, and they were able to get away with it until it leaked into the press that they had this. So somebody at FTX or at Alameda, we don't I don't know how that happened, but somehow that got over to the press. Maybe it was maybe it was one of the investors. Who knows? That makes no sense. David Leary: [00:14:38] On an opinion piece this week related where they hate this trial because it's embarrassing for the entire crypto industry, and they want this trial to go away. It's a galactic embarrassment for the industry because the industry wants to move on. But I just don't know. There's so many stories of these, like the whole function of the thing is set up to be made up. It's all based on fictitious made up stuff, which in even the we've talked about the volatility and the transactions. Right. It's the same transactions going through over and over again, like the whole thing is just a house of cards. Or like you said two years ago, crypto was a scam. But the fact that the industry is upset about this trial, it just seems silly to me. Blake Oliver: [00:15:24] We've got an update now on Trump, so well, let's start with that IRS contractor who stole Trump tax returns and gave them to the media. David Leary: [00:15:35] We talked about last week, Charles, on that one. Well, he's now pled guilty. Blake Oliver: [00:15:39] So he was charged. We discussed that. Now he's pled guilty to it. The possible prison sentence is up to five years. But his plea deal suggests an estimated range of 8 to 14 months. Trump's attorney objected to the plea deal. This is the tax data that was shared with The New York Times and ProPublica, covering more than 15 years of tax information for billionaires, including Ken Griffin, Jeff Bezos and Elon Musk. And Trump was in there. How did Little John get the tax return information? Apparently he used broad search parameters to conceal his actions, evading IRS protocols designed to prevent large data transfers. He saved the tax returns to personal storage devices and then shared the data with the media outlets. He also obstructed the subsequent investigation into his conduct by deleting and destroying evidence of his disclosures. David Leary: [00:16:31] So just to make sure I'm hearing this right, so basically you can roll into the IRS with thumb drives, put stuff on them and leave. Blake Oliver: [00:16:37] Guess so. David Leary: [00:16:40] Oh, boy. So. But he was an IT contractor, so he could have bypassed if maybe if there was a system maybe in that. Blake Oliver: [00:16:48] Hey, thanks everyone who has joined us on this Friday, October 13th as we record. Trinity says playing off the story about Heather. Google translate has been a huge help to me in dealing with my unusual international client situations. Yes, translation. Incredible tool in AI now. Thanks, Stephen for joining us as well. If you have stories you want us to cover, if you have thoughts on what we're talking about, please put that into the chat. We love to hear from our listeners live, and if you want to catch us live, subscribe on YouTube, search for the accounting podcast on YouTube, hit subscribe and you'll get notified when we go live every week. So now let's talk about the Trump trial. What is new in the Trump trial? They put a banker on the stand this week, banker Nicholas H. A h hey, Nicholas. Hey. I'm going to say hey, he's a retired bank official. He worked for Deutsche Bank. He testified that the financial statements in question. The fraudulent financial statements were instrumental in Trump's approval for a $125 million loan in 2011 for his golf resort in Florida, and a $107 million loan in 2012 for his Chicago hotel and condo skyscraper. The bank did not conduct full appraisals of Trump's properties, but would give them haircuts if they found them unbelievable. So this goes to that question. I think you asked David, why didn't the banks do due diligence? And I think they. Skip due diligence in a lot of cases with people like Trump, right? The more money you have, the more celebrity you have, the less likely you are to go through the due diligence that the rest of us normal Americans have to go through when we get loans. But I also think, like it's unfair to say like the banks should be able to rely on financial statements, right? Like, yeah. David Leary: [00:18:47] It makes me wonder because, you know, my football team, the Buffalo Bills, he tried to buy them. And the other to be part of the NFL. The other owners have to say, yes, you can be an owner like us as well. And they never approved him to join the NFL. And this is the second time he's tried to be in the NFL. He tried to do this in the 80s and he but like. During that vetting process. Did they just vet him better, or is it just all ego and his personality and the reason why they wouldn't let him in? But I imagine those guys are all they're all most of the NFL owners are all billionaires. They're they're business people. I'm sure they looked at financials and were able to make calls that he's risky and didn't let him in, but nobody else does it. Blake Oliver: [00:19:27] We had more witnesses on the stand in the Trump trial. Jeffrey Mcconney, a longtime executive of Donald Trump's real estate company, admitted in court to inflating Trump's net worth by including nonexistent mansions and valuing rent stabilized apartments at market rate. This practice allegedly added tens of millions of dollars annually to Trump's financial statements fictitious mansions just making up properties. They were valued at 35 million each and resulted in an annual addition of $161 million to Trump's net worth for several years. And apparently those rent stabilized units, which they didn't say were rent stabilized. They added billions of dollars annually to Trump's asset values from 2011 to 2021. He is also a defendant in the case. Makani. He's the. Oh, he's the controller. Jeffrey Mcconney is the controller. He was the controller. So he also testified that he was directed by the CFO, Allen Weisselberg, to commit tax fraud. He initially denied knowing that overestimating the value of Trump owned assets was illegal, but later admitted under questioning that he was aware he was breaking the law. So they've got financial fraud and they've got tax fraud here going on. David Leary: [00:20:46] It's funny that you put both of these stories back to back like the parallels of made up stuff. Right. The the internal usage of things is just amazing. Right. Blake Oliver: [00:20:59] So Allen Weisselberg is set to testify. As we record, I haven't heard that he's been on the stand yet. So I'm very eager to know what is going to happen next in this case. David Leary: [00:21:11] In breaking news, you might you might live stream them in if it happens. Blake Oliver: [00:21:14] Well, and while we're on this whole fraud beat, we got to touch on Jorge Santos. The the congressman from, uh. What part of New York is he in? Is it? He's new. David Leary: [00:21:28] Jersey. Blake Oliver: [00:21:28] No, it's not new Jersey. It's like Queens, isn't it? Part of Queens or something? It's New York, and he's just it's like incredible that he's still standing. He has been now charged with identity theft, credit card fraud. It's 23 counts. He apparently is charged with repeatedly charging his donors credit cards without their consent, distributing the money to his own bank account and other campaigns. Conspiracy, wire fraud, aggravated identity theft. So like, for example, he used 11. He used a donor's credit card to transfer over $11,000 to his own bank account. That's the allegation. And swindled $50,000 from two other donors using a fake nonprofit. He is also accused of falsely reporting a $500,000 campaign loan to secure financial support from Republican leaders. His campaign treasurer, Nancy Marks, recently pleaded guilty to a felony count of conspiracy to defraud the United States and admitted to a role in fraudulently reporting the fictitious $500,000 loan. The superseding indictment identifies Santos as her coconspirator, and despite the charges, Santos has refused to comment and has no plans to resign. He has consistently denied any involvement in his campaign's finances, blaming any discrepancies on his controller or his treasurer. I should say his campaign treasurer, Nancy Marks. David Leary: [00:22:48] So apologies. I got him confused with the story from last week or the week before with the other congressman who had the gold bars sewn in jackets and the cash. Right? Oh, he was new Jersey. I mixed them up. That was the. Blake Oliver: [00:23:02] Senator. Yeah. David Leary: [00:23:04] Senator Menendez, Senator Menendez, stop voting for these people. It's very confusing. We have too many criminals, criminal politicians to keep track of. Now, you can't stay on top of it. I have an update for a story last week if you're kind of done with the trial. Yeah. Blake Oliver: [00:23:19] That's it. That's all I got. David Leary: [00:23:21] So last week we were talking about this standoff that's happening right in Canada. Yeah. Between Ontario and with the. Blake Oliver: [00:23:31] Cpa Canada, the national. David Leary: [00:23:32] Organization, with the national organization. And I kind of like summarize it at the end. I was like, it just doesn't make sense. Like, why are they really fighting? And this morning, actually I already had all my stories ready. And then this story kind of came through. So I grabbed it. We kind of have an answer for this now. Essentially, CPA Ontario and Quebec have the most members put in the most money. They want control. This is they want control over the entire organization since they have all the pool. So this is a power play move. That's what's really happening here. It has nothing to do with these other things. This has to be basically it has to do with they want to control the national organization because they put in the most money. Blake Oliver: [00:24:15] And that's your analysis of it. You haven't we haven't. David Leary: [00:24:17] Well, this is the article. I'll actually give you a quote. So this is a quote from Kareem Kareem Jamal. He's a professor at the Department of Accounting and Business Analytics at the University of Alberta in Edmonton. Okay. I don't think there's any huge split on specific accounting issue. It's just a power grab. He believes that CPA Ontario and the Quebec CPA order want to greatly want greater ability to control CPA Canada's agenda and budget, and they have an argument to do so, since Ontario and Quebec are collecting a disproportionate amount of the budget of CPA candidate for their members. So that's the argument is we're bigger, we're bringing the money. We should control things. So now at least then we understand why this spat was happening. Because it was very confusing. Blake Oliver: [00:25:02] Yeah. There was no messaging to the members or anything like that all happening. Opaquely. Um, well. So we talk about the nationwide accounting shortage and how it is threatening Alabama's small towns. David Leary: [00:25:17] Yes. Blake Oliver: [00:25:18] I think we're going to see more and more of these kind of stories in coming years. This appeared on ABC news. And it's about York, a small railroad town in Sumter County, Alabama, whose history dates back to 1833. Yeah, they were unable to secure a revolving loan fund from the Alabama Department of Environmental Management due to delayed audits. It's a significant setback for York, demonstrating the real world consequences of the accounting deficit, and the situation underscores the urgent need for more accountants across the country. So it's another example. All right. This is a town of just 2400. And they don't have the skill to hire anyone. Like the mayor. The mayor is Willi Lake and is hoping to find a volunteer. David Leary: [00:26:15] So so this is actually just internal accounting. It's not even trying to find an audit or. And that part of the struggle. Blake Oliver: [00:26:23] Yeah. And meanwhile, we saw another story about how the number of accounting graduates has dropped again for another year. The AICPA is out with data new benchmarking data on 2022. And and we saw accounting graduates drop again. Let me pull this up. Accounting graduates dropped by the highest percentage in years. Overall the number of US accounting graduates with either with either a bachelor's or master's degree, dropped 7.4% to 65,305in the 2021 to 2022 year. The largest drop in a single year since at least the 1994 to 1995 year, when 51,622 students graduated in accounting. A review of AICPA data showed. And there's this chart here on the screen, and you can see from 2010 the numbers going up and up and hit a high of about 80,000 in like 2016 and has just plummeted from 80,000 down to below 66,000 in that time. So in less than ten years, you know we're down. 14. David Leary: [00:27:36] 14,000 and obviously listeners can't hear this, but just staring at that, it has like that disturbing shape the curve does. It's like, oh no. Like it's really going to fast down on the other side. Blake Oliver: [00:27:50] Yeah. David Leary: [00:27:51] But I clicked on that stutter. So I think if I read correctly as well, like all college graduates or graduates are down. Right. Blake Oliver: [00:28:00] Right. Well and that's. David Leary: [00:28:00] The that's. Blake Oliver: [00:28:01] The defense right. Is like oh yeah. Just for those years all enrollments are down. So the good news is that colleges and universities projections for the new academic year suggest improvement in the level of future accounting graduates, 75% of responding university bachelor's programs and 78% of master's programs expect enrollment in the 2023 to 2024 year to be the same or higher than the 2021 to 2022 year. But I mean, that's just plateau, right? Like, I mean, it's not it's not going to make up for the deficit of 10,000, 20,000 accountants we are going to have every year soon. And, you know, this doesn't take into account the like market demand, right? We need something like 100,000 accountants every year. And we're only putting out 50, 60,000. Like that's a huge gap tens of thousands every year. And it grows. The gap grows every year as we produce fewer and fewer. Right. So oh, we have stimulated a bunch of conversation in the chat here, David, with this. Goat Man, 1776, says, I don't think the projections mean anything, especially without hard data to support an increase in enrollment. Stevens says our business majors down. It's a competition between different majors in business school. That's right. All majors are down a bit. But accounting is down more than everything else. David Leary: [00:29:28] So I saw an article. I'll read you the headline Iowa can pay the bills, but it lacks transparency in its accounting. And I was like, oh, I bet you they don't have accountants. That was my gut. I went down the same path. You just talked about how Alabama is having a problem. That's where my brain went. Okay, so I click on the article and then basically they haven't released its annual financial reports, the state of Iowa yet. State of Iowa. And I was like, oh, of course this is because of accounts. We've seen this with other municipalities. They couldn't get an audit, they couldn't get something done, and that's why they didn't finish. But no, it's not that at all. It's because the universities couldn't finish their financials. I'm like, okay, that's weird. Why is that so apparently Iowa University hasn't even delivered its financials on time for the three, three past years. And they're blaming this on their rollout of Workday's ERP. Oh no. They had an ERP work roll out that was really the cause of this. And so then coincidentally, I saw a whole different article that also came out and it said new accounting system causes bill backlog. And basically it's another university. So University of Washington was behind on 12% of its bills. One vendor even claims like, hey, they owe me $200,000. David Leary: [00:30:48] So they're behind and I know. So I started going down the rabbit hole and found like an architectural diagram slide of University of Washington's systems. And they use workday for payroll, but it doesn't look like they're using it. For the AP side, it looks like they might actually use a product called Ariba E-commerce, which is an SAP product. But by this time, I was already down the rabbit hole. And so I found, you know, I started googling workday and universities and you started seeing lots of things. And Washington State University. So that's the cousin of University of Washington, right? They were recognized as being a workday expert, and it was even covered in the workday blog. And it talks about how they're collaborating with other schools like University of Washington on on rolling out workday. Then I started doing lots of other searches and started to see lots of other problems. So before I kind of read some of those headlines. So to rewind, I'm not an ERP rollout expert. I know it's very hard to roll out an ERP system, right? But here's the picture I was able to cobble together from these universities. Most of these universities probably have a 1975 ish computer system that they're using for accounting and finance and payroll. Right. And that's their tech stack and scheduling of people. David Leary: [00:32:00] And they obviously want to move to the cloud. You know, Deloitte and others consulting companies are helping them do this workday, which historically was a payroll HR system. So they got their foot in the door with these universities, from what I can tell, discovered their legacy tech stack and is like, hey, well, we could probably build financial R app. They're building like a full blown class student registration system, grant management software. So workday is trying to be the intuitive universities, right? They're not for small business but for universities. And over the last like five, six, seven years, hundreds of universities are going down this path with them, you know, and these cost five, 12, $70 million is ERP implementations. The revenue just keeps increasing every quarter. You just Google Workday's revenue and you see these beautiful graphs, right? It's amazing to see that. But you start as I was going down this path, you start seeing stories and just just the headlines of some of these. Ljmu announced his Workday Forward staff reflect on the abysmal fiasco of the workday launch. No water slams governor of state. Delays threatening universities. Ut switched to workday, came with more than a few hiccups, but they were to be expected. Isu switched to workday accounting, delayed state financial report. And then the funny one I saw. David Leary: [00:33:22] If Amazon can't make workday work, who can? Which I thought was kind of a funny headline that was out there. And there's like even smaller posts where workday is a registration nightmare. Employees weren't getting paid, right. They messed up payroll. Employees don't get paid, that type of thing. And then so full circle now some of the schools have backed out. Ohio State's backed out after they spent tens of millions of dollars. Iowa University backed out almost two and a half years ago. But there still have repercussions to this. But they spent $20 million and maybe had another $28 million contract. Erie Community College officials in 2017 announced they were moving to workday because it was going to save them $3.7 million a year over the next decade. Instead, it's cost them $12 million in the last five years to not even fully roll it out. So they've completely backed out and shut the whole thing down. So I get that it's not easy to roll out ERP systems, but what I'm considering, how many universities have now? They're probably mid-stream rolling this out. Is this going to be like a bigger issue where more and more problems keep happening with this? I don't know, it's just went down the rabbit hole. There's a lot it could have kept going. Blake Oliver: [00:34:28] That is not good PR for workday. If I was a competitor, I'd be I'd be using that in all of my marketing. David Leary: [00:34:37] But I mean, I remember before California tried to build their own big old system for all the school systems, and that had massive failure. So that's the problem of when do you have a system that's working this what scares me about the IRS changing all their back end computer systems? It's very, very scary. Like what worked in the 70s is pretty solid still. Blake Oliver: [00:34:57] Well, David, you want to talk about the upcoming ski season because I am really excited to get on the slopes again. And I spotted an article, Wall Street Journal again. This headline is the 300 a day lift ticket that every skier hates. What does this have to do with accounting, you ask? David Leary: [00:35:19] Stick with this has to be a client pricing issue thing. This is great. I'm trying to see the tie in. Blake Oliver: [00:35:24] So this is something that has become more and more of a trend. In recent years, where ski resorts are raising the prices for one day tickets. If you just show up at a resort and buy a ticket right then and there, it's going to cost you $100 200, sometimes $300 to ski. But you can buy a pass, an unlimited pass for sometimes just $1,000. And that is where the ski industry has moved to. They are raising prices on individual tickets and encouraging skiers to buy Epic Passes icon passes. Those are the two. Epic and icon are the big ones, and you get unlimited skiing. Or you get a certain number of days for, say, 500 or $600 and you commit. And so I already bought my pass. You know, I'm going to do a week of skiing this year. So I've bought a week. So I get five days and I can split it among any of the epic pass resorts. Right. And I think it was like $500 for that. Right. So of course, this is kind of like creating some tension, right? Old timers who are used to just showing up and buying tickets hate this, but people like me, I frankly, I love it, right? I like being able to like, get a discount for agreeing to buy an advance and. And I was thinking, this is something that accounting firms should be doing, especially since we're right here at the end of the final tax extension deadline. And we've got a bunch of people working today on tax returns and getting everything done. Why don't we price like this? Why doesn't the accounting profession? Why doesn't the tax profession price like this, where you get your clients to pay up front in advance and commit to you doing the return, and you get them to do it way ahead of the season? David Leary: [00:37:25] But I think there's a difference, though, because in theory, the business model of these. Ski lifts, right? It's you're basically getting a higher margin. You're getting somebody who everybody's like, all right, fine, I'll buy the bonus size French fries. Even though you may not want, you might not even finish eating them. You'll still buy them. It's kind of like that. So you're going to sell capacity. It's never going to be used. But I think an accounting firm, if you get people to pay that money, they're still going to take advantage of your services eventually. I think that's the difference. I think there's a certain percentage of people that are never going to use that pass. You might use the pass, but most probably won't. Well. Blake Oliver: [00:38:01] So Tino in the stream has a good suggestion. He says accountants should raise their prices for single use services, for example, tax prep, and also have a different pricing model for subscription services. So if somebody just wants you to do their tax return, you should be charging the highest amount you can because a one off tax return is not really worth that much. A subscription where they're paying you every month for bookkeeping plus tax, or let's say they're paying you quarterly for tax planning plus tax prep is way more valuable. So discount your subscription services and maximize the price of your one off services. I agree 100%. Makes sense. Yeah, and guess what? You'll minimize the number of people coming to you last minute, which is why our live stream audience is about half of what it normally is today. And we've got data here. David Leary: [00:38:53] Everybody's working on returns. Blake Oliver: [00:38:54] Nobody's working. Right. But, I mean, I also have seen tweets from folks who are like, you know, who have embraced the subscription type model that say, hey, I finished all my returns last week. I'm done. That's possible. It can be done. But you got to restructure the model, the pricing model, the subscription model, stop doing one offs, get people on a, on a on a monthly or quarterly, or at least bi annually. Get them paying in advance and penalize those who don't get you the information until a week before the deadline. Make them pay so much that you'll be happy to do it. Oh, and guess what? You'll have all the work done for your regular clients, so you have capacity to take on those last minute clients who are paying you a premium. And guess what? When it comes down to the last minute, they don't have a lot of options. They have like zero options, honestly. David Leary: [00:39:45] You get that tow truck driver or plumber pricing, right? Blake Oliver: [00:39:51] So. Should we talk about some remote work stories or should we talk about app news? David Leary: [00:39:58] Remote work works for me because I do have a teeny one. Okay. Blake Oliver: [00:40:02] Here's a story. David Leary: [00:40:03] Add on to something you have. Blake Oliver: [00:40:04] Here's a story I saw in brew about how a survey found that two thirds of CEOs. I'm sorry, not CEOs, CFOs. Two thirds of chief financial officers believe that their companies will continue to use a hybrid work model five years from now. So that's a lot. Like two thirds of CFOs are saying we're going to keep doing hybrid work in five years. The same survey also found that 81% of CFOs believe that hybrid work saves their companies money. So hybrid work saves money for the companies, 74% are considering a move to shared offices or flexible spaces, 64% are reducing office space, 48% are signing shorter term leases. And this all aligns with what we've seen. With office space becoming less in demand, accounting firms downsizing, moving to shared office spaces, hot desking, that sort of thing. Now, what's interesting is, of course, as we know, hybrid and remote work also saves employees a lot of money. And we've got data on how much employees save. According to the State of Work report by Owl Labs, 66% of US employees who have returned to full time office work spend an average of $51 daily on work related expenses. $51 a day is the cost of going into the office. That includes lunch, commuting, breakfast and coffee and parking. Now, granted, you're still going to have to eat something if you eat at home, but it's going to be way less expensive than if you buy it at a restaurant. Employees with pets occur an additional $20 daily. I assume that's for pet care, dog walkers, that sort of thing. So if you have a pet, it's $71 a day. Full time office workers spend approximately $1,020 monthly on these expenses, compared to hybrid workers who spend about 408 monthly. So we're talking about a $600 per month savings for hybrid workers. David Leary: [00:42:06] And had the article to the part that really struck out for me is. So they surveyed 2000 workers, and they found that 94% are willing to come back to the office if their their bosses shore up the financial difference. Right. They mainly expect the commuting cost subsidized meals, snacks, coffee, all of which adds up. So so basically, if you want people in the office, you're going to have to give them $51 of food in parking. Yeah. Blake Oliver: [00:42:31] You're asking people to come back. You got to pay for it. Otherwise you're asking them to pay for it. And I think that's the big gap between the CEOs and managing partners who are saying employees got to come back to the office is they don't have to shoulder any of the costs. Right. They just are justifying that they have this big office now, right? David Leary: [00:42:52] But well, on the other side too. You just had the last article. They're saving money on real estate. They're saving money on all these other fronts. Well, give some of the employees. Blake Oliver: [00:43:02] All right. That's my remote work. We're just plowing straight through here. Let's talk about apps and tech. And let's start with this Microsoft tax audit press release. So Microsoft has been under audit by the IRS for nearly a decade, addressing questions about income and expense allocation for years starting from 2004, tax years starting from 2004. Microsoft put out a blog about this. Not often. You see, you know, a blog on the Microsoft website about taxes. This was authored by Daniel Goff, the corporate vice president of Worldwide Tax and Customs. One thing that's interesting about this post. Well, let me just say what it says, and then we'll get into the. David Leary: [00:43:50] Yeah, cover the facts. I've what's interesting too. Yeah. Blake Oliver: [00:43:54] So Microsoft is saying that the IRS concluded its audit for the years 2004 to 2013 and have made a proposed adjustment. They sent a proposed adjustment to Microsoft. You want to guess how much it is? The IRS is proposing that Microsoft owes an additional 28.9 billion inches tax for those years, plus penalties and interest in interest. Oh my God, I don't even I can't even imagine what the penalties and interest are now. It's not a final determination. And it doesn't account for taxes that Microsoft paid under the Tcja, which could reduce the final tax owed by up to 10 billion. But anyway, still, it's tens of billions of dollars, right? Yeah. Now Microsoft, this is all about transfer pricing, right? Microsoft is is maintaining that it acted accordance in accordance with IRS rules and regulations and is going to appeal. That could take several years. So there might be they're going to they basically are not accepting this and they're going to appeal and they're trying to get to a resolution. David Leary: [00:44:58] Yeah. Because it was interesting how they ended the he ended the blog post talking about how you know, hey, they've they're one of the top tax payers in the country. You know, we've paid 67 billion since 2004. And it goes on to say how they're looking forward to working with the IRS. And then they frame it. But it could take years to get this resolved. And then it goes on to say, and then even if we ruled against, we could we'll just take this to court. And it's so I'm kind of looking at this. I'm like, this just feels like a negotiation. And the other interesting thing is this was picked up everywhere in the media, but I didn't see it start as like the IRS said this and now Microsoft's responding like this is like Microsoft playing using offense to play defense. Like they pushed this out to all the media. They pushed out a headline that says they owe the IRS all this money. Blake Oliver: [00:45:44] What's interesting to me about this release, the way this blog post is written, it's not a it's not a press release. It's a blog post is the third sentence. We have changed our corporate structure and practices since the years covered by the audit, and as a result, the issues raised by the IRS are relevant to the past, but not our current practices. So. I'm going to play the skeptic here, right? If what you did is totally legit, then why did you change what you were doing and you no longer do it? So they're saying. David Leary: [00:46:17] Well, think they were legit then maybe. Speaker5: [00:46:20] Well. Blake Oliver: [00:46:21] It's the that's not clear to me. But the way this is, there's an. David Leary: [00:46:26] Article in fortune that said, because they were moving billions of dollars offshore jurisdictions like Puerto Rico. Yeah, yeah, yeah. Blake Oliver: [00:46:32] So you assign, you know, this is the classic technology company transfer pricing thing, right? You offshore profits by selling the IP to an entity outside the United States. And then that entity collects royalties for that IP that it licenses to the US company. And then you got profits offshore. And they're not in the US. So. Until you repatriate the money. You don't have to pay tax on it. Right. Classic. I think the Irish sandwich is the old one. I don't know if that works anymore, but yeah. So anyway, that's where situation is with Microsoft and Taxes. David Leary: [00:47:12] It's a great headline though. Microsoft owes an outstanding 28.9 billion in back taxes. The headline is great. Blake Oliver: [00:47:19] Well, and I don't think it helps Microsoft that the IRS updated its tax gap projections for 2020 and 2021. And. Found that the tax gap, which is the difference between what taxes owed and what is paid, has widened to $688 billion in 2021. It's an increase of over $192 billion from 2014 to 2016, and an additional $138 billion from 2017 to 2019. So $688 billion it should have been paid. That was not paid according to IRS estimates. David Leary: [00:48:00] It makes the 28 billion seem like nothing. Speaker5: [00:48:03] Yeah. David Leary: [00:48:03] But because that 28 billion is for like a decade. Blake Oliver: [00:48:06] Right. So it's part of it. Speaker5: [00:48:08] Yeah, yeah. Um. Blake Oliver: [00:48:12] Late payments and IRS enforcement efforts are expected to generate an additional 63 billion on tax year 2021 returns, resulting in a projected net tax gap of $628 billion. Iris is also warning about a new tax scam like this. It's not a new tax scam that's been around, but they're calling it out. Specifically art donation scams. Have you heard about this one, David? David Leary: [00:48:38] I think I've seen a TikTok. There's a way to do like. It's like, here's how the rich people do things. They buy some art and then gift it. I don't know what the story is, but yeah. Blake Oliver: [00:48:45] So the way this scam works is a taxpayer buys art at a discounted price, and the scammers promise that the art is worth much more than the purchase price. They advise the buyers to donate the art after at least a year, and claim a tax deduction for an inflated fair market value, often much higher than the original price. This to me like, seems very similar. Similar to those conservation easement kind of scams, right? Where you're donating something at an inflated value that is not actually supported. The IRS has completed 60 over 60 taxpayer audits related to these schemes, resulting in more than $5 million in additional taxes being imposed. And they are warning taxpayers that they are always responsible for the accuracy of their tax returns. So it seems like a pretty simple one, right? You buy a cheap I mean, I wonder if anyone's done this with NFTs, right? You buy you buy an NFT on the cheap, you get somebody to appraise it at a higher value, and then you donate it. And you claim the deduction. David Leary: [00:49:49] And just the personality of the the the gall to do this is just amazes me. You know, I have a Airbnb and I'm always worried like, oh, the toilet paper and paper towels I bought for the Airbnb. I got to make sure they don't get mixed up with the toilet paper and paper towels at our house, because I don't just get the IRS shows up, you know, for $200 in toilet paper or whatever. I'm like, this is crazy. Like, I'm worried about that. And then people are like, yeah, just make up $3 million donation for a painting that was. Probably not worth $5. I don't think. It's amazing the I don't know if I was just raised different or I'm just weak or what. Blake Oliver: [00:50:24] You're honest. David. David Leary: [00:50:26] Honest, like most. Blake Oliver: [00:50:27] Hardworking Americans are honest on their tax returns. Unfortunately, there are cheaters who are ruining it. Ruining it for the rest of us. All right, let's talk about some I in the time we have left. Jpmorgan Chase CEO Jamie Dimon, who loves to opine on just about everything from remote work to AI, said that he is predicting that advancements in AI will reduce the traditional workweek to 3.5 days for future generations. 3.5 day work weeks. I actually think a four day workweek is possible with. I mean, there's no reason why we couldn't automate like 20% of the work that we do completely with AI tools. Openai has estimated that about half the tasks currently done by people in offices could be automated with AI. So I think 20%, if you dial that back a little bit. Totally doable. It's funny though like he's bullish on AI, but then he thinks that like, people working remotely aren't working. David Leary: [00:51:30] Maybe they have an announcement for their product and they need to boost the stock a little. Blake Oliver: [00:51:36] Zero has announced some new features. They have improved their algorithms to recognize new contacts and bank reconciliation statements, even if they're not already in the user's contact list. This new feature is now live and accessible to all zero customers worldwide. So basically, if you've got a statement line that doesn't have a rule, zero will suggest a new contact name based on that statement line using AI. Now I opened up my file and I haven't seen it working yet. So they say that it's available to everybody worldwide, but it's not working in my file, so I don't know what's going on there. I think this is a great use though, but what I would love to see beyond this is actually using it to do bank statement coding proactively, not just relying on what I've done in the past. But look at that statement line, look at my chart of accounts, look at what other people have done, and then suggest coding for me. David Leary: [00:52:30] I have an AI story that's kind of quick. Go for it. So, I mean, this has been my gripe of wikis and internal big corporation knowledge databases and firms have these right? Even ours is a problem now. Bleak. We use Mnuchin and I tried to search for them the other day, but because you put every news article you've ever talked about on the podcast in a notion, it would get all of these hits for news articles, I can't find what I was trying to find. It's an issue. And you've even talked about this and we've talked about this like companies could possibly use AI on top of their internal information. Yeah. So you could do research and get the information quicker, etcetera. Well, we saw. Blake Oliver: [00:53:07] The Department of Defense is doing that. The DoD put all of their like policies and procedures into an AI and now people can query it. David Leary: [00:53:13] Yeah. So Grant Thornton has rolled out they call it git assist. And users can query internal knowledge repositories, making it easier to access internal firm processes, policies and procedures, and getting answers, along with a link back to the sources. So I know we have listeners that are at Grant Thornton. I would love for somebody to tell us how that's working. Like, what is that like? Does it actually work? It's just over promise, because that would be great. Is it a press release? Blake Oliver: [00:53:42] Did that come from Grant Thornton? Speaker5: [00:53:45] Oh. David Leary: [00:53:46] Let's see, let me work backwards. It's an accountancy daily kind of work up the ladder here. Let's see. Blake Oliver: [00:53:53] Was it there people promoting this? Was it there PR people. While David looks for that. If you want to send us a message and let us know a story we should cover, or you want to answer David's question, you can email the accounting podcast at earmarked me that is the accounting podcast at earmarked me, earmarked me. Send us an email. Send us a voicemail. Let us know your thoughts. We love to hear from you. David, you look pensive. I you can't find this. David Leary: [00:54:25] Come through as a press. A press release other than it is written in Accountancy Daily by Sarah White. Blake Oliver: [00:54:31] Where did they get the information? That's what I want to know. David Leary: [00:54:34] Nobody links to the original sources we do in our show notes, though. We put our links in the show notes. Speaker5: [00:54:39] Yes. Blake Oliver: [00:54:40] So check out the show notes. Follow us on YouTube. Subscribe to us on YouTube, I should say and follow us on Twitter. I'm @BlakeTOliver. How about you David? David Leary: [00:54:50] I'm just @DavidLeary and. Blake Oliver: [00:54:52] If you made it all the way to the end of this episode, did you know that you can earn free CPE credit for your trouble? Download the earmark app on the iOS App Store or the Apple App Store, the Google Play Store it's totally free. About a week after this episode drops, we put out a course that you can take for free CPE credit that qualifies for Naspa CPE. You can use it for your CPE or KPD if you are abroad. It works in the UK, Australia, New Zealand. Check with your local licensing body if it accepts Naspa. Most of them do because Naspa has got the strictest rules on CPE. David I'll see you here next week. Bye everyone.