May 10, 2017

SVSU student examines causes of fraud in honors thesis

Nearly 16 years have passed since the public became aware of widespread fraud at Enron, an energy company that ultimately had one of the biggest bankruptcies in American history. Legislators have enacted stricter laws to try to prevent future such catastrophes, but just last month, banking giant Wells Fargo was outed in the latest scandal.

For her honors thesis, Saginaw Valley State University student Jessie Klisz sought to find out why high-level corporate fraud continues to happen. While each company’s story is different, there was one common theme, Klisz concluded.

“My main thesis idea was that Wall Street stock expectations are what primarily drive the need to commit this fraud,” Klisz said. “And I generally found that was true. It just differed on how it was perpetrated.”

An accounting major who graduated St. Clair High School and whose family now resides in the Detroit suburb of Beverly Hills, Klisz was one of 15 students from SVSU’s Honors Program to deliver their thesis presentations in April. She discussed and defended her findings to an audience of peers and university faculty and staff who then had the opportunity to ask her often-challenging questions. Her faculty advisor was Betsy Pierce, SVSU assistant professor of accounting.

“She got asked some really good, solid questions, which she did a really good job in answering,” Pierce said. “And it was helpful to have those questions, because she was able to bulk up her thesis a little bit more.”

Klisz researched nine companies and examined the evolution of their corporate cultures and how those cultures led to fraud. She read countless peer-reviewed articles from economic journals, some of which included interviews with the individuals who worked at the fraudulent companies, and filings made by the U.S. Securities and Exchange Commission.

Klisz found that regardless of which employees were the ones committing the fraud, it consistently was a result of pressure from top executives. Whereas with Enron and telecommunications giant WorldCom, the fraud was committed by those high-ranking executives, in more recent examples, the pressure from top executives led lower-level employees to commit the fraud, Klisz learned.

In the Wells Fargo scandal, employees opened banking and credit card accounts in the names of individuals who did not know those accounts were being opened. At HealthSouth, a healthcare provider, employees fixed a penny on transactions, but that ultimately caused a $750,000 difference in real earnings to those reported.

“In general, they were all fudging the numbers to make them meet their earnings that they were supposed to be meeting,” Klisz said. “In some cases, it started out so much smaller. They were like, ‘I’m just doing this tiny little thing,’ and then it would grow and grow and grow. Once you convince yourself that one small thing is OK, it’s not too hard to keep doing it.”

Klisz came to SVSU after receiving the President’s Scholarship, an academic scholarship. She joined the Honors Program, which allowed her to live in the same residence hall as other honors students.

“I wanted to live with people who have the same mindset,” Klisz said. “I met a lot of my friends living in the honors dorms.”

After taking her second class with Pierce, Klisz asked her to be her faculty advisor. Pierce, who mentored two honors students the year before, was happy to do so.

“It’s been a good working relationship the whole time she’s been here,” Pierce said of Klisz.

Pierce proved to be an ideal honors mentor because she came to SVSU with a research background.

“Coming here, I was really very excited about being able to introduce a research culture to the students, because I think it’s really important for them to learn these skills,” Pierce said. “It took me going back to school and changing my career to understand that this is what my mindset was like the whole time. If we can get them to do it while they’re in school, that just puts them in a better place when they go to work, because in the world of accounting, there is so much research that you have to do. So she has the skills now that she might not have had otherwise.”

While there are new laws that have brought stricter rules and penalties and there are continually new suggestions for fraud prevention, such as personality audits for executives, fraud is still “very, very hard to catch,” Klisz said.

“It’s constantly changing, and it’s constantly different,” she said. “People are still going to do it.”

Klisz completed her bachelor’s degree in accounting and participated in Commencement exercises at SVSU Friday, May 5.

Other students who delivered their honors thesis presentations in April were:

•    Katie L. Gall, an English major from Hemlock, whose presentation was titled “Is black so base a hue? A character analysis of Aaron in Shakespeare’s “Titus Andronicus.” Her faculty advisor was Daniel Gates, an associate professor of English.

•    Stephen J. Holihan, a biology major from Saginaw, whose presentation was titled “Developmental aromatase inhibition through endocrine disruption and the effects of sexually dimorphic morphology and brain organization in the Norway rat.” His faculty advisor was Gary Lange, a professor of biology.

•    Michaela M. Hoogerhyde, a marketing major from Mancelona, whose presentation was titled “Mood and luxury perception: A tale of two genders.” Her faculty advisor was Mazen Jaber, an associate professor of marketing.

•    Graceson C. Kerr, an exercise science major from Grand Blanc, whose presentation was titled “Primary care students’ perceptions of using physical activity counseling as a medical intervention.” Her faculty advisor was John Lowry, an assistant professor of kinesiology.

•    Tyler J. Lefevre, a biochemistry major from Bay City, whose presentation was titled “Validation of qPCR rapid bacterial quantification through viable E. Coli cell count in the Saginaw Bay Watershed.” His faculty advisor was Tami Sivy, an associate professor of chemistry.

•    Haley E. Livingston, a biology major from Holt, whose presentation was titled “A comparative examination of veterinary practice and opinion between the United States and France.” Her faculty advisor was Lange.

•    Bethany C. McCarry, a physics major from Auburn, whose presentation was titled “Frequency and temperature dependent magnetic susceptibility.” Her faculty advisor was Matthew Vannette, an associate professor of physics.

•    Victoria R. Phelps, an English major from Rochester Hills, whose presentation was titled “Depictions of disabilities once upon a time: Analyzing disabled characters in the context of Victorian fairy tales.” Her faculty advisor was Daniel Cook, an associate professor of English.

•    Emily K. Phillips, a graphic design major from Carleton, whose presentation was titled “Creating quality design for the restaurant industry: The rebranding of the White Horse Inn.” Her faculty advisor was Thomas Canale, a professor of art.

•    Cameron L. Pratt, an accounting major from Howell, whose presentation was titled “The equilibrium point hypothesis: An analysis of firm performance and renewable energy development in publicly held U.S. electrical utility companies. His faculty advisor was Mark McCartney, a professor of accounting.

•    Madison J. Rase, a chemistry major from Pinconning, whose presentation was titled “Anaerobic digestion of phragmites.” Her faculty advisor was David Karpovich, the Herbert H. Dow Endowed Professor of Chemistry.

•    Nicholas P. Toupin, a biochemistry major from Dearborn, whose presentation was titled “Effects of alkyl chain length on gel-forming carbohydrates.” His faculty advisor was Jennifer Chaytor, an assistant professor of chemistry.

•    Rachel J. Weller, an accounting major from Fenton, whose presentation was titled “Measuring up: An analysis of state CPA requirements and pass rates.” Her faculty advisor was McCartney.

•    Kylie M. Wojciechowski, a professional and technical writing major from Bay City, whose presentation was titled “Advocating for student-users: Results and recommendations of a usability study of the WCONLINE platform.” Her faculty advisor was William Williamson, a professor of rhetoric and professional writing.