FEAR OF ROUNDING
Sad but True:
Some People Are Afraid to Round to the Nearest Whole Number
George Wilson Adams CPA MBA
September 4, 2022
Fear of Flying, Fear of Spiders, and Yes - Fear of Rounding
Fear takes many forms and there are literally thousands of phobias out there. Mental health professionals assign various technical names to these very real phobias, such as 'agoraphobia' for people who are afraid of open spaces, 'hydrophobia' for those afraid of water, 'claustrophobia' for people afraid of closed in spaces, etc. And then there is an especially deadly and destructive phobia: alethophobia - fear of the truth. Judging from current conditions it is obvious that millions of people suffer from alethophobia.
Once upon a time I had a business client (let's call him "Roy") who was truly afraid of rounding. Roy insisted that the financial statements and tax returns for his business contain pennies, in order to avoid rounding to the nearest whole dollar. I wasted significant time arguing with this client, trying to persuade him to allow rounding in order to avoid the messiness and silliness of using pennies. In Publication 17 the IRS specifically allows rounding to the nearest whole dollar on income tax (but not payroll tax) returns.
Perhaps Roy's fear of rounding came from adverse past experiences with the IRS, childhood traumas in math class, or simply hiding behind the precision of pennies while stealing vast sums of money from his family owned business. Who can say for sure….
How a Young, Junior Auditor Was Rounded Down to Zero
Many years ago there was a young junior auditor fresh out of DePaul University, and just beginning his career. He was hired by one of the largest auditing firms in the world and noted for being a short nerdy guy with glasses, a driver of a mint-condition 1982 Bonneville Brougham, and a member of the prestigious Triple Nine Society.
After a few months on the job the young junior auditor was assigned to the annual audit of a large company with 80,000 employees ("Bigco" hereafter). He was part of a team of twenty accountants who comprised the audit personnel overlooking the financial statements of Bigco.
In the course of his work the young junior auditor noticed something odd with Bigco's payroll account. Millions of dollars of employee payroll funds flowed through this account, but every employee paycheck was always rounded down to the nearest whole cent. The young junior auditor was familiar with the Central Limit Theorem in statistics and knew that something wasn't right. If employee paychecks followed a typical random distribution, then only half of them would be rounded down and the other half would be rounded up to the nearest whole cent. See:
and
The young junior auditor wrote a memo summarizing this issue and brought the matter to the attention of his supervisor. The supervisor was upset and told the young junior auditor to stop wasting valuable time chasing trivial rounding differences and instead focus on 'the big picture.' The supervisor was famous for saying that an individual, acting alone, was nothing. According to her, only teamwork could accomplish great things in this world.
But the young junior auditor knew he had discovered a major problem and naively thought that being right gave him innate authority to persist in his attempt to sound the alarm on this audit engagement. Bigco's payroll accounts didn't add up. A substantial amount of money was missing. Although tiny rounding differences of less than one cent were insignificant, the huge volume of payroll for Bigco and its 80,000 employees meant that a large amount of payroll money had been diverted elsewhere.
The audit supervisor and manager wouldn't listen to the young junior auditor, and ignored his memo to the file (titled "How Small Numbers Get Big"). Soon, he was fired for "not being a team player" and for offending a major client with annoying questions about trivial rounding differences. The young junior auditor was so disgusted he decided to switch careers, leave auditing, and become a tax accountant.
About a year after the young junior auditor was fired, news of a major fraud at Bigco came to his attention. Bigco employed a computer whiz who had personally designed the company's payroll software. It was discovered that this software cheated about half of Bigco's employees about half the time, with the accumulated sum of petty rounding differences being stolen by the computer whiz through a cunning fictitious vendor scheme. Millions of dollars had been embezzled over many years. Bigco was in big trouble and the auditing firm became the target of extensive litigation.
Veritas omnia vincit
The young former junior auditor began to read a fascinating book about a man who was the only seeing person in a world of completely blind people.
"The hardest thing to explain is the glaringly evident which everybody has decided not to see."
Ayn Rand, The Fountainhead
"It is what a man thinks of himself that really determines his fate."
Henry David Thoreau
George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
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Brewer, Maine 04412-2339
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