Rationalization and what accounting fraud can tell us about the fight between Triller and George Kambosos Jr

Two accounting experts share their insights on the war of words over Triller’s failed promotion of Teofimo Lopez vs George Kambosos Jr.

Teofimo Lopez is expected to fight IBF mandatory challenger George Kambosos Jr. in late November as part of a Matchroom promoted DAZN show. It’s a short, direct statement that may finally signal an end to an eight month odyssey that has so far repeatedly proven to be neither short nor direct.

We at Bad Left Hook have written extensively about the long and tortured journey of the Lopez-Kambosos fight, and the spectacular eruption and rival legal filings with the IBF by representatives of Kambosos and original fight promoter Triller. And, though I can’t speak for the rest of the team here, I can say that I filtered and interpreted much of the situation through takeaways from a 2019 article in The CPA Journal called “Rationalizing Fraud.”

In it, the authors outline and describe various techniques of rationalization that their intended audience of accountants, auditors, and examiners should watch and listen for in attempting to avoid or neutralize potential financial fraud. It wouldn’t appear on the surface to have much direct connection to boxing, but the ongoing and increasingly public dispute over Triller’s promotion of the Lopez-Kambosos fight featured a multitude of statements that seemed to fit within the rationalization techniques and examples discussed in the article.

So, in the spirit of previous articles on medical and legal issues, I reached out to the authors of “Rationalizing Fraud” to ask more about their work, and any insights they may have into statements made during the last days of Triller’s promotion of Lopez-Kambosos. Though they were understandably surprised to get an out-of-nowhere interview request from a boxing website, Dr. Natalia Mintchik, Associate Professor of Accounting at the University of Cincinnati’s Lindner College of Business, and Dr. Jennifer Riley, William C. Hockett Professor of Accounting at the University of Nebraska at Omaha, were kind enough to speak with Bad Left Hook about their work in general, and the specific rationalization techniques discussed in the 2019 article they wrote together.

Our usual explainer disclaimers apply: Dr. Riley and Dr. Mintchik have no first-hand knowledge of the situation between Triller and the IBF over the Lopez-Kambosos fight. Also, our discussions of “Fraud” refer to the general concept of deception or dishonest statements or actions for private gain, generally by means of denying another party their rights or valuables. The use of the word “Fraud” in our conversation is NOT meant in the legal sense, and should not be assumed to imply or accuse any individual or organization mentioned in this article of the crime of the same name.

Among the highlights of our conversation? I was firmly (but very politely!) reprimanded for contextually inaccurate use of the word “analytical.” Also, fun detours into tax loopholes in post-Soviet Russia, how to best give yourself permission to eat dessert, and a topical connection to the hit Netflix show, “Squid Game.”

Photo by Douglas P. DeFelice/Getty Images

BAD LEFT HOOK: We’re going to talk a lot in this conversation about “rationalizing” as a psychological or rhetorical concept. So that we’re all starting from the same place, can you give us a brief explanation of what rationalization means?

DR. JENNIFER RILEY, PhD, CPA, CIA: Rationalization is really a defense mechanism. It’s a way that, as individuals, we can “make it okay” to choose some decision that we know might have negative consequences for another person or even ourselves. There are sociopaths in the world who don’t have regret or a conscience. But, that’s a small percentage. The vast majority of individuals have some level of knowing what’s right and what’s wrong.

So, in order to make our minds okay with choosing something that we know inherently is wrong, we have to come up with a reason that takes it out of: “Well, I’m just doing this and I’m wrong”. We tell ourselves it’s for someone else, or something else, and that allows us to assuage the guilt we anticipate from our decision.

DR. NATALIA MINTCHIK, PhD, CPA, CISA: I want to make sure we start with a disclaimer, that this is not an exact science. It’s not empirical research in that sense that you could go in and measure it somehow. The studies that we cite, they are interview based. They’re not experimental research, or something you could measure in another way, like through stock prices. But, because now everyone is obsessed with measuring things, you don’t find many studies about this sort of thing, because it’s difficult to measure.

Jen mentions the conscience, and I completely agree with that. It’s like the inner voice that’s always within our heads when we question ourselves. The reason we’re interested in that research is because when you’re obsessed with numbers, you see things as black and white. And when people talk about fraud, they think, “those are bad people.” But most people are good people. And those rationalizations are things they’re doing in their head in a subconscious way, not something we discuss in a way that should be confused as a defense in court.

The point of our studies was that you can not measure these things, but you can predict that if you create a bad culture, a culture that subconsciously corrupts people like what Enron had, for example, then it’s very likely that people will do something that is very questionable. Because it will be easier for them to silence their conscience.

DR. RILEY: Natalia makes a great observation there about defense mechanisms. When I mention defense mechanisms, I’m not referring to a legal strategy, but the mental strategy of making something okay. When someone says “Well, I got up and worked out this morning, so tonight I can go out and eat whatever dessert I want!” It’s that mechanism that lets our mind defend our actions. Not necessarily a legal defense for a fraud or problematic thing that we’ve done.

DR. MINTCHIK: The bad thing is that it’s not measurable. But, the good thing is that it’s applicable everywhere. It’s not about accounting, it applies everywhere. It applies to exercising and eating dessert just like it applies to the temptation of taking money from the company.

Your work, and the article we’re going to be referring to frequently, are based in fraud prevention for accounting, specifically. But, the reason I reached out to you was because of how the tools and concepts from your research and article seemed to apply to the situation between Triller and their management of the Teofimo Lopez vs George Kambosos fight. Any caveats or qualifiers to keep in mind with respect to how much we can or can’t translate these analytical techniques to executives outside of your field?

DR. RILEY: One thing Natalia said a moment ago is really important here. It seems this is based in accounting, but in fact, it’s not. It goes back to Donald Cressey’s Fraud Triangle, in which rationalization is one of the necessary sides of the triangle. And that was based on his interviews with prisoners and people who had committed crimes. That’s where he came up with this back in the 50s and 60s. It has been applied to accounting and business, but it is much more based in psychology and criminal justice than anything else.

DR. MINTCHIK: I don’t think your article is going to be targeted at accounting people, but I still want to be careful about how we use the word “analytical.” In accounting, people use “analytical” as synonymous with “math-based.” So, I would call it “conceptual,” probably.

So, to clarify, what we’re talking about here with rationalization is obviously not quantifiable, but it is observable.

DR. MINTCHIK: It is observable, and the framework was observed based on interviews. We talk about conscience as an inner voice, but this inner voice sometimes translates into an external monologue. What Cressey did was look at people who took a position of trust and access to money, and did interviews with ones that were caught stealing funds. We also worked with other, much broader research that came after.

And is this work coming from an academic perspective, or from practical, forensic experience? Where do each of you get your background and training individually?

DR. RILEY: I think it’s a mix of both. We obviously do academic research on this, but I got interested in this because of my first job, as an auditor for a public accounting firm. One of my very first audits, right after the CPA exam when I had no idea what I was doing and was brand new on the job? We found fraud and embezzlement. It was so interesting, because the individual that committed this act had been the controller for the company for over two decades. Her family knew the family of the owners, and they’d get together for barbeques and family vacations. But, somehow, she was able to make it okay to steal for nearly 11 years until getting caught.

So, it was fascinating to me from that point forward. Then, when you get into academia, and you see the research looking into these behaviors and outcomes? You can connect it to what you’ve already seen in the real world.

DR. MINTCHIK: I didn’t have such an interesting experience like Jen had, but I worked as an auditor in Russia back in the 1990s. That was an interesting culture, and for me, it really highlighted the significance of culture and how much depends on it. Because at that time, people weren’t used to paying taxes, for example. This concept was foreign for people there who grew up in a planned economy. All of a sudden, they’re asked to pay taxes, and with all of the legal loopholes that were available, there were various schemes that were legal but not ethical. We as auditors, because it was legal, we were facing those dilemmas.

So, when I moved here, I became much more mindful. When you grow up in one culture and move to another that is so different, you become more mindful of how strongly culture affects everything. And the point of these studies and this research was that most of the time, people focus on the “bad apples.” They think that if we put controls in place, people won’t do bad things. But, we’re trying to show how research indicates that it isn’t about bad apples. It’s about the mentality of the people who do these things. And, if you create the wrong incentives and the organization has the wrong culture, even the good people will be corrupted.

Can you tell us a little bit more about what the two of you started out to accomplish in your work together? What is your research meant to do in analyzing someone’s comments or behavior to identify and prevent fraud?

DR. RILEY: I think that the first thing is awareness. The more that you recognize your own ability to rationalize, and the more you identify that behavior? You can make better decisions yourself, or at least more aware decisions. We can all just decide: “I want a piece of pie. I don’t care and I don’t need to justify it. I know it’s not good for me; I still want it.” But then you know you’re not rationalizing in a way that could cause problems for someone else in justifying your other choices.

You’re owning your decisions.

DR. RILEY: Exactly. If you can become aware of that in yourself, you can make decisions in a way that’s better for everyone. And when you learn to stop yourself from rationalizing, you can better identify it in others. Then, you can decide how to prevent or deter it. But, you have to be aware of it before you can try to do anything about it. Whether that’s to prevent, avoid, or detect that sort of behavior.

DR. MINTCHIK: I’ll follow up from a different angle, but also building on the concept of awareness. Our article you’ve read is not the same as our academic work. It’s an article published in a practitioner’s journal, not an academic one. Because, we have a disconnect between what research tells us, and what business does. So, for me, writing this article was about raising awareness within the profession about what academic research shows us. Because there’s that very simplified approach that thinks putting controls in place alone will prevent fraud. And it’s funny, because Cressey himself wrote that if you put too rigid controls in place, you’ll eliminate your own business. You’ll kill the business!

So, focusing on controls is not the way to go. The way to go is to focus on culture and inner awareness of management, and the subtle impact of the culture that management creates. We’re trying to achieve that by communicating with a different group of people than who usually sees our research. Because we want to not just talk to each other, but communicate this to a broader audience.

Well, speaking as someone that is not an accountant, and usually writes and thinks about people punching each other for a living... I can tell you it was easily comprehensible and helped guide my interpretation of what’s been said and shared publicly during this situation.

I sent you both a list of some statements made by Triller executives as the situation was ongoing. [NOTE: The specific comments came primarily from three stories: Mike Coppinger’s story about Kambosos filing with the IBF to find Triller in default, Dan Rafael’s coverage of Triller’s response letter to the IBF, and Kevin Iole’s conversation with Triller’s Chief Operating Officer.]

Does anything particularly stand out as it relates to the sort of rationalization you identify and look for in your work?

DR. RILEY: I would say, is there anything that doesn’t stand out here? Because as I read these quotes, that’s what was going on in my head: “Oh my gosh, this is diffusion. This is euphemistic labeling.” Because almost every quote would fit into the discussion we had in our article.

One thing that really stuck out to me was the comment about “what happens when it’s a fighter that really matters?” [NOTE: Mike Coppinger quoted Triller co-founder Ryan Kavanaugh as saying he wouldn’t give in to a Kambosos “shakedown” because of the precedent it would set for future dealings with “...a fighter who actually matters.”]

That one was particularly stunning. Because, that can potentially lead observers to assume it was appropriate that they did certain things. That [Kambosos] doesn’t really matter, and so it’s not that big of a deal, he’s not a big fighter. It also changes public perception of Kambosos. Because now, it makes him look like he’s just a disgruntled employee. It can create a perception that, “He’s just looking for a payday, he’s just someone that’s not a good fighter but wants to cash in.” It has the potential, intentional or not, to influence the public perception beyond just rationalizing, possibly, among Triller and Triller execs why they did certain things.

DR. MINTCHIK: It’s very difficult to address scientifically and distinguish between rationalization and excuses. Excuses, we use them to justify things to others. But rationalization is something people tell themselves, and often honestly believe. But, from a scientific point of view, it’s hard to discriminate. We don’t know if they believe it when they say those things.

DR. RILEY: We just have to infer possibilities, unless someone explicitly tells us, “Well, I told myself this…,” which nobody ever does. You tell yourself things subconsciously to make something okay. You don’t actually say, “Well, let me think of an excuse for why I’m choosing this behavior.” It’s just the subconscious way that the mind makes things okay.

The individual involved in the audit I mentioned earlier? Her reasoning was that she had to put her son through college. He would make more money going through college, and she would eventually be able to pay it back. Does that make it okay that she stole from the company? No, of course not. And, was she consciously coming up with a way to excuse the behavior? No. But, it allowed her to do that and then still feel as if she was okay, a good person, not doing something criminal. It’s just human behavior, and you can’t measure it. It’s a lot of inference, a lot of psychology.

You’ve talked a lot about culture. A lot of the statements I shared with you come from Triller’s co-founder. Obviously, we’re hearing from other executives, and legal representatives as well. When you hear these sorts of responses across multiple agents and representatives of the company, does that reflect the sort of things you discussed earlier about company culture as a factor?

DR. MINTCHIK: It can, but I”m not familiar with this particular company. Make sure and put the disclaimer that I really don’t know boxing! [Laughs]

So, I’m not able to speak about this particular company. But, yes, failures of leadership are fundamental to any institution. There’s other research we didn’t cite that’s very popular in accounting specifically, about ‘tone at the top.’ There are different frameworks for the practitioners and for the auditors. So, yes, the culture comes from the values of the management team, including CEO and Board of Directors, and their hiring policies and whom they select and promote in their organization. That’s very important.

With the specific statements you shared? The struggle I have is that they are statements. They aren’t internal. It is difficult to distinguish if those are leakages of internal, subconscious monologues, or if they are conscious strategies that the management employed to defend themselves or that their lawyers suggested.

So, because at least some of these are intentional, public statements, we should keep in mind that this may not be subconscious rationalization. It may be very intentional public relations to excuse or explain away things.

DR. MINTCHIK: Exactly. As a scientist, that’s my struggle over commenting on those statements. Because, I don’t know and can’t distinguish between those possibilities, which of course would lead to different conclusions and outcomes.

The other thing is, again, that what we’ve written about in our work together is about ethics rather than law. In this country, those often go together. But, they don’t necessarily always go together, so we try not to confuse them. In this case, from a legal perspective, the situation seems to be much more black and white, because of the contracts. But, in accounting, it isn’t always so clear. Because when someone manipulates numbers in a subtle way, it’s not always totally clear what the intentions are. That’s where professional judgment comes in.

DR. RILEY: There was one statement mentioning ‘we were told.’ And that ‘we were told’ seems similar to the sort of off-guard statements we look for that might show an attempt to diffuse responsibility. You hear people make statements like that all the time. That sort of off-the-cuff remark that, though we can’t say for sure, seems more indicative of candid thinking than intentional strategy.

But, again, there’s the court of public opinion. So, you don’t know how much intentional strategy may be involved with those statements.

Do these types of rationalization techniques tell us anything definitive on their own? Meaning, is it possible for someone to be rationalizing their behavior or choices, but still be acting in an honest, legitimate, good faith way?

DR. RILEY: Well, “definitive” is never a word we would use. Nothing is definitive when it comes to cognition and human behavior. But, can someone legitimately rationalize? Absolutely.

There are reasons you could think a certain way subconsciously, and it’s not necessarily to create fraud or to get an upper hand on another person. It turns to the illegitimate side when the other side doesn’t have the information you do, and a decision that you make causes harm or damage to that other person. That’s when it crosses over the line.

But, can your mind make it okay? We do that all the time with cognition and decision-making. We have reasons. But, like Natalia said, there’s a gray area. It’s not always a clear black or white when someone crosses the line from legitimate to illegitimate.

DR. MINTCHIK: And rationalization is also a natural response. We wrote about rationalization in the context of fraud and the Fraud Triangle because there is so much written about Pressure and Opportunity. Usually, Rationalization is the last element. When a person is under pressure, and there’s an opportunity? Say you have a sick person at home and need money for medical bills, and there’s an open box of money on the table? Some people will take this cash, and some won’t. That’s where rationalization becomes a decisive factor.

Yes, honest people will think about doing it, but something will stop them. The question is: What? Many times, it depends on the culture they are in. If they’ve seen someone close to them act dishonestly, or the company allows a culture of dishonesty to exist? That will make rationalization much easier for them.

We didn’t write about rationalization as a measuring instrument companies can use on their employees to sort them into groups that are potential fraudsters and ones who are not. We wrote about it to show that most of the people who commit these fraudulent acts are good people. And the reason they take this path is because it is much easier for them to rationalize it when the whole culture encourages it.

Any parting thoughts you’d like to share with our readers about your work? Try to be less dishonest? Be kind to any forensic accountants you meet? That sort of thing?

DR. RILEY: [Laughs] Parting thoughts is a bad question to ask academics. Parting thoughts could be another half an hour, right?

I would say, like Natalia said, that this is human nature. It isn’t something that can or should be rooted out, because it goes along with temptation. So, while accounting is a context where it occurs, this is much broader human behavior. And the more aware we make ourselves of our own ability to do it, perhaps the better decisions each of us could make in our own lives.

DR. MINTCHIK: I would also emphasize the idea of awareness. We should be much more mindful of how culture around us affects our thoughts and actions. Research demonstrates that just showing people physical money influences their decisions. For anyone who watched Squid Game on Netflix, there are scenes where characters are shown money, and it changes their decisions. So, I think if people are mindful about those tricks that our brain plays on us, they and their organizations will be much more safe.