Walking through the side door

A euphemism is an almost automatic and alternative method we use to phrase possibly negative things in a less harmful fashion. Fraudsters use euphemisms to rationalize their crimes. Fraud examiners can use them to elicit confessions or detect fraud in an organization. Here’s what you need to know to spot euphemisms and when fraudsters are using them to mask nefarious deeds.

You're one of the top executives at a U.S. multibillion-dollar corporation. Your stock has skyrocketed as your company has experienced massive growth. In the most recent quarter, the financial picture isn’t nearly as good as expected, and your stock is sure to plunge. The problem is somewhere in the details because you have this gut feeling that there’s a hidden error in the accounting records that will be discovered shortly after financial results are released. You’re so sure of the error that you authorize changes to accounting procedures, which lead to “adjustments” in the accounting records and the reporting of profits to shareholders.

This scenario, which is exactly what occurred at American telecommunications company MCI Communications, offers a great lesson in the power of euphemistic language. (See Why They Do It: Inside the Mind of the White-Collar Criminal, by Eugene Soltes, 2016.)

Does a clear definition for “adjustments” come to mind if you don’t have the MCI narrative? Take a look at these terms and see if you can define them:

• Alternative facts.
• Grease payment.
• Human capital surplus reduction.
• Creative accounting.
• Under the table.

These terms, including adjustments, are examples of euphemisms. A euphemism is an almost automatic and alternative method we use to phrase possibly negative things in a less harmful fashion. You’re likely to derive the true meaning of the terms above rather easily, but you might not know that euphemisms serve a cognitive purpose. When you’re disturbed by a situation, feel guilty or awkward, or simply want to comply with accepted in-group norms, you can use euphemisms to effectively cope with conscious and unconscious feelings.

“Through euphemism, distasteful activities can lose their repugnancy, harmful conduct can be made respectable, and that which is socially unacceptable can be transformed into something socially approved,” according to academics Albert Bandura and Howard Stein, as quoted in Euphemisms and Ethics: A Language-Centered Analysis of Penn State’s Sexual Abuse Scandal, by academics Jeremy Fyke and Kristen Lucas, Marquette University, June 1, 2013.

Euphemisms can be an important component of the fraud rationalization process. When you do something wrong, your brain automatically works to soften the blow and dampen the effect of what you just did. According to academics Judee Burgoon and Ellen Langer, as well as Ann Tenbrunsel and David Messick in “Euphemisms and Ethics,” a euphemism “can alter the visibility and meaning of the phenomena it signifies—which consequently can impede individuals from having full understanding of the gravity and moral implications of a situation.” The brain’s automatic and unconscious reaction to minimize what’s being done or what has been done is essential to rationalizing behavior through self-deception — a motivated desire to see and perceive things in a certain manner that’s favorable to the self.

You’ve always been proficient at some forms of self-deception. Whether it be justifying why you didn’t get a promotion at work, why you treated someone poorly or why you failed at something, your brain doesn’t have to work hard to create a reason as to why you’re the aggrieved victim.

Stein, in “Euphemisms and Ethics,” explains that individuals take unethical actions when “things cannot and must not be called, or felt, for what they are. To do so would bring on overwhelming guilt, anxiety, and remorse. Therefore, there is a tendency for individuals to engage in self-deception— a lack of awareness or acknowledgement that one is behaving unethically—as a way to reduce the dissonance experienced when there is a disconnect between their actions and identity.”

Fraudsters use euphemisms to create new meanings and different perspectives

Fraudsters deceive themselves when they use euphemisms to create new meanings and different perspectives that help justify committing fraud as logical and appropriate decisions.

Recently, the FBI exposed the Operation Varsity Blues case (otherwise known as the college admissions scandal), a federal bribery case that involves parents, college and university administrators and athletics coaches, and business consultants conspiring to obtain admission for their children into several top-rated higher-education institutions. (See: 5 most scandalous fraud cases of 2019, by Emily Primeaux, CFE, Fraud Magazine.)

In his pitch to prospective parents, Rick Singer, the orchestrator of the scheme and the owner of The Edge College & Career Network, LLC, offered to assist wealthy parents by cheating and lying to improve their children’s test scores plus bribing certain college coaches to place children on sports scholarships even though the children didn’t have the requisite athletic experience or abilities.

“There is a front door which means you get in on your own,” Singer would explain to some parents. “The back door is through institutional advancement, which is ten times as much money. And I’ve created this side door in.” (See Affidavit in Support of Criminal Complaint, by FBI Special Agent Laura Smith.)

Singer created the “side door” euphemism to mentally disguise his illegal act: bribery. He then could characterize his actions as somewhat heroic because he was assisting good people in navigating arduous college admissions processes. However, he didn’t consider that his actions had an equal and opposite harmful effect on others. Every admission slot a college or university gave to one of Singer’s clients denied a spot for another potential student who might have earned admission.

Through euphemism, distasteful activities can lose their repugnancy, harmful conduct can be made respectable, and that which is socially unacceptable can be transformed into something socially approved.

“When it comes time to make a decision,” Bazerman and Tenbrunsel write, our minds “are dominated by thoughts of how we want to behave; thoughts of how we should behave disappear.” (See Blind Spots: Why We Fail To Do What’s Right And What To Do About It, by Bazerman and Tenbrunsel.)

Most parents want the best for their children and are willing to do whatever is in their power to help them, which allows the “want self” to dominate their thought processes. Singer’s use of the euphemism “side door” allowed parents to disregard the warnings and potential consequences emanating from their “should self.”

Felicity Huffman, Hollywood actress and one of the parents who pleaded guilty to the scheme, acknowledged her role and the unintended consequences of her actions. “There are no excuses or justifications for my actions. Period. … And I especially want to apologize to the students who work hard every day to get into college, and to their parents who make tremendous sacrifices supporting their children.” (See Felicity Huffman issues apology after prison sentencing: ‘There are no excuses or justifications for my actions,’ by Herb Scribner, DeseretNews, Sept. 16, 2019.)

Bounded ethicality

The MCI and Operation Varsity Blues cases highlight a quandary known as “bounded ethicality” — the systematic and predictable ways in which people engage in unethical acts, but they’re not aware they’re doing anything wrong.

Many fraudsters don’t initiate their schemes with the intention of committing a crime; rather, they get caught in situations where bounded ethicality assists them in failing to see the ethical dimensions of their decisions. In the MCI case, executives were able to convince themselves that they were only correcting a hidden accounting error, while in the Operation Varsity Blues case, parents believed they were circumventing a biased and unfair admissions process.  Once they’re down that slippery slope, it can be almost impossible for them to work their way back to legitimacy.

Fraudsters perpetuate their bounded ethicality by using euphemisms. For example, read this statement:

“I am going to embezzle money from my organization.”

How likely is it that a fraudster would come to this conscious conclusion and maintain a positive self-image? Compare the previous statement with this:

“It was another one of those ‘unpaid overtime’ days.”

We start to see how a euphemism can change the perception of how you might rationalize a fraud. Someone who’s on salary might feel like they’re working overtime but not receiving any benefits. Using a euphemism like “unpaid overtime” to rationalize “self-payment” is much more acceptable than “stealing.”

Hundreds of euphemisms apply to fraud, and each serves a purpose. According to academic Judith Houston in Issue 61 of the Business Ethics Briefing at the Institute of Business Ethics, “The choice of words and formulation of a statement can manipulate perception and how a situation is interpreted or framed. For example, using the phrase ‘creative accounting’ doesn’t sound as serious as ‘accounting fraud’. This makes it easier for employees to rationalize their behavior.” (Using Behavioural Ethics to improve your Ethics Programme, April 2018.)

HealthSouth was one of the largest frauds in American history with approximate losses of $2.8 billion. Aaron Beam was co-founder and the first CFO of the company. Beam, who eventually served three months in prison for his role in the scheme, now travels around the U.S. telling his story in the hopes that he can prevent others from falling into similar traps.

Beam still uses euphemisms to describe his conduct. In a 2010 speech he gave at the Stanford University Graduate School of Business, he refers to his fraud as “not good accounting” and calls the fraudulent stated earnings “the hole.” (See the video, Ethics and Fraud at HealthSouth: Lessons from Inside a Corporate Meltdown, by the Stanford University Graduate School of Business.)

Beam and other fraudsters use euphemisms unconsciously to accept bad behavior by portraying it less seriously.

Euphemisms can apply to frauds other than embezzlement. For example, Wells Fargo initiated a “cross-selling” program that encouraged many customers to buy products they didn’t need and led to the creation of fake accounts the customers’ names. (See The Wells Fargo Cross-Selling Scandal, by Brian Tayan, Dec. 19, 2016, Harvard Law School Forum on Corporate Governance.)

Jeffrey Wada, formerly of the Public Company Accounting Oversight Board (PCAOB) and KPMG, illegally obtained a confidential list of upcoming audit inspections for KPMG and relayed the list to a KPMG employee. Instead of referring to the information as a criminal act, Wada called it the “grocery list” — a blatant euphemism. (See the U.S. Department of Justice release, March 11, 2019.)

Subprime mortgages for those who have less-than-perfect credit scores have started to reappear on the market, but they’re now referred to as “non-prime loans.” (See Subprime mortgages make a comeback—with a new name and soaring demand, by Diana Olick, April 12, 2018, CNBC.)

What this means for fraud examiners and organizations

Fraudsters’ uses of euphemisms can be valuable indicators for fraud examiners. Because we mostly subconsciously form and utter euphemisms, a fraud examiner who listens carefully might be able to detect when a topic or detail is unsettling to an interviewee. If the interviewee indicates they might be “overleveraged” as opposed to deeply in debt, they might be providing a telling clue that they’re experiencing an internal struggle. If a fraud examiner takes the time to carefully ask probing questions while being careful not to openly cast blame, an interviewee might expound on the statement and provide valuable information.

Fraud examiners also can use euphemisms as a self-checking tool when they’re performing their examinations, or to mask their feelings and behaviors. Just like interviewees, euphemisms can also indicate when you, the fraud examiner, are having issues with a detail or subject. Train yourself to listen carefully to what you’re saying; you might be able to catch your euphemisms. You’re not necessarily doing anything wrong or acting unethically, but your euphemism detection could potentially alert you to an unreconciled idea or opinion you’ve formed in your fraud examination.

Fraud examiners who comprehend the psychological basis of why we use euphemisms might be able to better recognize when someone (including ourselves) is coping with an internal struggle.

Organizations’ managers who use euphemisms can drastically affect internal cultures and members. But leaders who speak in plain language hold themselves and employees accountable for their actions, and deliver positive messages that can counteract “ethical fading” — the psychological process where the moral and ethical implications are unconsciously removed from the decision-making process. According to Houston in Using Behavioral Ethics to improve your Ethics Programme, using positive language that’s consistent with the organization’s values can be a driver of change.

According to Houston, Mott McDonald, a global management company, saw a significant increase in the number of reported concerns when it changed the name of its whistleblower hotline to the “Speak-Up Line.”

Employees can negatively interpret their leaders’ euphemisms. “Classic research in organizations has found that leaders tend to be reluctant to use ‘moral language,’ ” says David M. Mayer in his Harvard Business Review article. “For example, leaders are more likely to talk about deadlines, objectives, and effectiveness than values such as integrity, respect, and compassion. Over time, this can license unethical conduct,” Mayer writes. (See Urban Meyer, Ohio State Football, and How Leaders Ignore Unethical Behavior, Sept. 4, 2018.)

Understanding organizational cultures and whether leaders hide or mask conscientious issues can give fraud examiners indications of good and unacceptable behavior, which can help them establish more accurate risk profiles.

Don’t underestimate that seemingly flippant turn of phrase

Euphemisms serve an important role in society. They make it easier for us to talk about difficult topics, help us raise sensitive issues with others and allow us to maintain our positive self-image. Yet, they also allow our unconscious minds to rationalize questionable behaviors. Fraud examiners who comprehend the psychological basis of why we use euphemisms might be able to better recognize when someone (including ourselves) is coping with an internal struggle. This understanding could be the difference in failing to get the information we need or building necessary bonds so interviewees can provide difficult details and admissions.

Bret Hood, CFE, is director, 21st Century Learning & Consulting and an ACFE Faculty member. Contact him at 21puzzles@gmail.com.