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Phar-Mor’s Inventory Was Just Merchandise Driving Around in Circles on Trucks

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In 1992, a professional basketball league folded overnight because something had gone catastrophically wrong at a discount drugstore chain in Youngstown, Ohio. When Phar-Mor went down, it took with it 25,000 jobs, $1.1 billion in investor money, and a basketball league with one bizarre rule: no players taller than 6’5″.

This wild story comes from Oh My Fraud, the true crime podcast where host Caleb Newquist digs into financial scandals with the kind of detail accounting professionals love. In this episode, Caleb unpacks one of the largest retail frauds in American history and how it started with something shockingly simple.

Picture a young CFO walking into his boss’s office with bad news about company losses. The boss takes the report, crosses out the real numbers with a pen, and writes in fake ones. Then, after doing this himself for four months, he hands the pen to the CFO and says, “Your turn.”

That’s how a $1.1 billion fraud begins.

 

The City That Needed to Believe

To understand how Phar-Mor fooled everyone, you first need to understand Youngstown, Ohio, because the two are inseparable.

For most of the 20th century, Youngstown was a steel town where mills ran 24 hours a day. The entire regional economy was essentially one giant bet that steel would stay relevant forever. Starting in 1977, during a period locals still call Black Monday, the mills began closing quickly. Tens of thousands of jobs vanished. Within a few years, the city lost a quarter of its population.

The mayor of Youngstown later described the city’s psychology this way: “You’re always insecure when you lose 5,000 jobs. It’s kind of a neurosis in a community where people assume the worst. Someone who has been beaten up so much expects to be beaten up again.”

Michael “Mickey” Monus walked into this beaten-down environment in 1982. A Youngstown native educated at Babson College, Mickey wasn’t naturally charismatic. Newsweek described him as someone who “seems to have been born without any natural grace. His large, fleshy face wasn’t brightened by warmth or an easy smile. He liked to dress casually, but still looked stiff.” A local columnist was even more blunt, calling Mickey “Unprepossessing.”

But Mickey had the ability to make people believe. And in a city desperate for hope, that was everything.

Power Buying and Phantom Profits

Mickey partnered with David Shapira, heir to the Giant Eagle supermarket empire, to launch Phar-Mor. The concept was simple: a deep-discount drugstore selling everything at prices so low they almost didn’t make sense. Mickey called it “power buying.” Stockpile goods when suppliers offer rock-bottom deals on huge volumes, then pass the savings to customers.

The growth was explosive. One store became two, then eight, within a year. By 1988, there were about 100 stores. By 1990, more than 200 stores were generating over $2 billion in annual sales.

Sam Walton, the legendary founder of Walmart, publicly stated Mickey and Phar-Mor were the only competition he genuinely feared. As board member Anthony Cafaro recalled, “Sam couldn’t figure out how Phar-Mor’s prices were so low. He could not understand it.”

There was a good reason Sam couldn’t figure it out. Phar-Mor had been losing money every single year since it opened, and almost nobody knew.

In the mid-1980s, Mickey hired Patrick Finn as CFO. Patrick was loyal, relatively inexperienced, and someone who found genuine meaning in accounting’s orderliness. As he later testified, “You could see yourself going after problems, challenging yourself, solving problems in accounting. Things are either right or wrong.”

Patrick found the wrong answer quickly. When he brought the losses to Mickey, his boss took the report, crossed out the real numbers with a pen, and wrote in good ones. Mickey did this himself for four months before turning the job over to Patrick.

“You knew you were doing something wrong, but you never understood how wrong,” Finn later reflected. “Give him time, and he’ll fix the problem.”

So Patrick gave him time. And the fraud grew.

Bucket Accounts and Driving Inventory in Circles

By 1988, the scheme had evolved into systematic inflation of inventory on the balance sheet. Patrick’s team created what they called “bucket accounts.”

After counting inventory at a store, the accounting team would prepare legitimate journal entries for the real books. Then they’d create fraudulent entries to inflate the inventory numbers and dump them into these bucket accounts. The fake entries had telltale signs, like round numbers, no journal entry numbers, vague account names like “accounts receivable, inventory, contra,” and zero supporting documentation.

At year-end, right before the auditors arrived, they’d empty the buckets and spread the fraudulent entries across individual stores, making sure no single location looked obviously wrong.

They kept the real numbers in a separate set of books. John Anderson, brought in from Youngstown State University to help maintain them, later described the culture. “Pat always had an aggressive approach to accounting. Call it aggressive or call it creative. That’s the way it was done ever since I remember.”

By 1990, when Stan Cherelstein joined as comptroller, John closed an office door, pulled out the subledger, and told him the financial statements were misstated by approximately $150 million. Stan stayed, rationalizing that they might be able to fix it through legitimate means. He also admitted to fearing that if he went over their heads, some harm would come to him.

The fraud kept growing, and to survive, it needed auditors who weren’t looking too closely.

The Watchdog That Never Barked

Coopers & Lybrand was one of the world’s most respected accounting firms when it won the Phar-Mor audit. It won with a very competitive bid, which meant a very low price and pressure to cut costs.

Instead of auditing inventory at every Phar-Mor store (there were more than 300), Coopers checked just four stores out of 300. They also told Phar-Mor management months in advance exactly which four stores they’d check.

Think about what that means. If you know Store A is being counted on Tuesday and Store B was counted last week, you load a truck with inventory from Store B and drive it to Store A. The auditors count a beautifully stocked store on Tuesday. On Wednesday, the truck takes everything back. As Caleb puts it, “Hundreds of millions of Phar-Mor’s reported inventory was just merchandise driving around in circles on trucks.”

In 1989, three years into serious fraud, Coopers & Lybrand signed off on financial statements showing Phar-Mor had earned a record profit. A company that had never been profitable was suddenly reporting record earnings, and the auditors said everything looked great.

Patrick couldn’t produce documentation for a single one of those fraudulent journal entries. The auditors kept signing off anyway.

When later asked about it, Coopers’ associate general counsel offered this defense: “An accountant is a watchdog but not a bloodhound.” Caleb counters the watchdog was asleep.

Meanwhile, warning signs kept getting ignored or suppressed.

Red Flags and Ripped-Up Memos

In November 1990, a secretary accidentally sent David the wrong financial report with the real numbers, not the fake ones. David called Patrick to his office, but Patrick didn’t panic. He said those were just preliminary numbers that needed adjustments. David believed him. When you have that much riding on something, you don’t go looking for problems.

Then came Charity Imbrie, Phar-Mor’s legal counsel. At a Las Vegas convention in 1991, she heard vendors complaining about unpaid bills and being pressured to support something called the World Basketball League. She wrote a confidential memo documenting her concerns and sent it to David.

He advised her to “rip it up.”

At the bottom of the memo, Charity noted that David said it was “particularly important to rip it up now because of pending financing.” The $200 million deal closed four weeks later. David stood to make more than $2 million from it.

By spring 1991, Phar-Mor was holding back $150 million it owed to vendors. Stan described the scene: “We had cabinets stuffed with held checks at the company. We couldn’t mail them because if we mailed them, the checks would have bounced.”

Vendors stopped shipping products. Shoppers started noticing empty shelves, a terrible look for a company whose whole promise was low prices on everything.

While the fraud machine was falling apart behind the scenes, Mickey was living a life that should have raised its own questions.

Basketball Leagues and Gold Wedding Dresses

Mickey drew a salary of about $500,000 a year, but he also took extra company money for home renovations, credit card bills, and an engagement ring. His second wedding at the Ritz-Carlton in Palm Beach featured a bride in an 18-karat gold mesh gown valued at more than half a million dollars. The dress came with two armed guards.

He had a suite permanently reserved at Caesars Palace. His associate Tom Zawistowski described the lifestyle: “Life was a game. You’ve got all this money coming through your hands, whether you own it or not. That’s for someone else to decide.”

Then there was the basketball league. In 1987, Mickey co-founded the World Basketball League with one bizarre rule: no player could be taller than 6’5″. Despite having Hall of Famer Bob Cousy as co-founder, real teams, and a TV deal, the league lost an estimated $13,000 per game. Mickey structured it so he owned 60% of every franchise. At its peak with 14 teams, that meant he was covering the majority of massive losses, and it was all bankrolled by Phar-Mor.

Back in Youngstown, Mickey built a 14,000-square-foot mansion with an indoor pool and basketball court. He was part of the ownership group pursuing what would become the Colorado Rockies. In Youngstown, he was bigger than life, a civic deity who could do no wrong.

Until an $80,000 check changed everything.

The Check That Brought Down an Empire

Edward DeBartolo Sr., the shopping mall developer and one of Ohio’s wealthiest men, noticed something odd: an $80,000 check from a Phar-Mor account to a travel agency for the World Basketball League. He tipped off the board. The board started pulling threads. The threads didn’t stop.

The collapse was swift:

  • July 28, 1992: Mickey demoted to vice chairman
  • July 31: Mickey, Patrick, and two executives fired
  • August 1: The World Basketball League implodes mid-season
  • August 4: Phar-Mor announces a $350 million charge against earnings
  • August 17: Bankruptcy filed. 25,000 jobs gone.

The community was divided. One radio caller said: “Al Capone, Dillinger, Monus. They’re all the same. He played Youngstown for a bunch of hicks from Mayberry.” Another defended him, saying, “The Monus family has done more good for this valley than any harm.”

The half-finished mansion sat abandoned behind police barricades, insulation exposed, birds moving in.

Justice, Sort Of

A grand jury indicted Mickey on 129 counts in January 1993. The first trial ended in a mistrial because one juror had been bribed by a Mickey associate. Both were charged with jury tampering.

The second trial in May 1995 produced the expected result: guilty on 109 counts. Mickey got 19.5 years, served ten. Patrick served 33 months. John Anderson and Stan Cherelstein, who knew everything and testified, served no prison time at all.

Coopers & Lybrand settled claims for hundreds of millions of dollars. The reputational damage contributed to their merger with Price Waterhouse, forming PricewaterhouseCoopers in 1998.

What This Means for Accounting Professionals

Caleb distills four crucial lessons from the Phar-Mor disaster:

  • Fraud snowballs. Patrick wasn’t hired to commit fraud. He made one small adjustment, then another, then he was maintaining fake books and helping truck phantom inventory between stores. Each step feels only slightly worse than the last until you’re $1.1 billion deep.
  • Audit procedures matter (a lot). Counting four stores out of 300 and telling management which four a field trip, not an audit. The procedures give fraud room to breathe.
  • Fishy journal entries are red flags. Round numbers, no documentation, no entry numbers, and vague account names are signs somebody is making things up.
  • Watch the lifestyle. When someone’s spending is completely detached from legitimate income, it’s worth questioning.

The Phar-Mor case shows what happens when pressure meets rationalization meets opportunity. The red flags were everywhere, from unexplained journal entries to vendors screaming about unpaid bills and a CEO whose lifestyle made no sense. Every procedural shortcut, unchallenged rationalization, and warning memo that gets ripped up creates space for fraud to grow.

Want to hear the full story with all the jaw-dropping details? Listen to the complete Oh My Fraud episode.

Why Are Big Four Firms Laying Off Partners When There Aren’t Enough Accountants to Go Around?

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The accounting profession is facing turbulence on multiple fronts. KPMG is laying off roughly 100 audit partners in the US, while the best artificial intelligence available still gets one out of every five accounting tasks wrong.

In episode 485 of The Accounting Podcast, hosts Blake Oliver and David Leary unpack these converging stories that show the challenges and opportunities facing the profession. From venture-backed firms abandoning their “automate everything” model to a heated controversy over CPE standards with NASBA, the episode paints a complex picture of an industry in transition.

The Hard Truth About AI’s Current Capabilities

A new benchmark study from DualEntry tested 19 AI models across 101 real accounting workflows, and the results are interesting. Claude Opus 3.5, the current darling of AI enthusiasts, achieved the best performance at 79% accuracy. GPT-4o from OpenAI came in slightly behind at 77%. For context, GPT-4 scored only about 40% on the same tasks. It’s progress, but still nowhere near the reliability accounting demands.

The tests covered transaction classification, journal entry creation, bank reconciliations, and month-end close procedures. As Blake pointed out, the problem compounds. “It’s not like you’re automating 80% of the work because you have to clean up that other 20% the AI messed up.” Those errors cascade through financial statements and create cleanup work that erodes efficiency gains.

David put it in relatable terms. “If you had a human employee and ten hours of the week their work was just wrong, you’d probably freak out.”

The gap between 79% and acceptable accuracy for unsupervised work remains enormous. AI can assist and accelerate, but it can’t yet operate independently in accounting.

Tech Firms Abandon the “Automate Everything” Dream

The accuracy issue explains why venture-backed accounting firms are abandoning their original models. Decimal, which raised significant capital and even acquired KPMG Spark’s client base, pivoted away from providing services directly. Instead, they franchise their technology stack to independent firms that handle the actual client work.

“You can’t have SaaS valuations and raise money when you’re a human service business,” David explained, listing the other casualties, including Bench, ScaleFactor, Visor Tax, and Botkeeper. “We’ve seen this over and over again.”

Pilot made a similar move about six months ago with its “local partners” program that lets small practices use Pilot’s technology rather than Pilot doing the work itself. The technology is valuable, but human expertise is still essential.

Meanwhile, traditional players are moving in. H&R Block’s new CEO wants to transform the company from a once-a-year tax relationship to a year-round partner offering bookkeeping, payroll, and business support. Collective is buying OpenLedger. Even a fractional HR provider Austin Alliance Group wants into the bookkeeping space.

This sparked an interesting debate between the hosts. When discussing whether AI will handle routine work while humans focus on advisory, David pushed back. “I think it’s the opposite. Humans will be more involved in the data entry and the compiling of data. AI is really good at just taking scattered numbers and data, unstructured data and summarizing it, which arguably is advisory.”

Blake disagreed, pointing to a real-world example. A San Francisco store let an AI agent named Luna make operational decisions. Luna understaffed during busy periods, over-ordered candles, and lost $13,000. “AI doesn’t have memory the way people do,” Blake explained. Without context and accumulated experience, AI struggles with strategic decisions.

Big Four Layoffs, Demotions, and Massive Fines

While tech firms pivot, the Big Four face their own challenges. KPMG cut roughly 100 partners from its US audit practice (about 10% of audit partners) after too few accepted voluntary early retirement. The firm calls it “multiyear rightsizing,” but as David asked, “Does audit demand ever actually decrease?”

The situation is similar in the UK, where KPMG and EY started demoting equity partners to salaried positions. “Getting to partner at a Big Four firm used to mean a job for life,” Blake noted. Now that security is disappearing.

PwC faces different troubles. They’re paying a $166 million fine related to their audit of the China Evergrande Group, the collapsed property developer accused of inflating revenue by $82 billion. PwC audited them for over ten years before resigning in January 2023. As David observed, they probably made far more than $166 million from the engagement.

PwC is also ending its fully remote option for US tax staff, requiring three days in the office starting July 2026. Going Concern speculates this might be a way to thin headcount without announcing layoffs. Remote workers either need to relocate or quit.

The NASBA Controversy: A Debate Over CPE Standards

One of the episode’s most heated discussions centered on a demand letter Blake received from NASBA regarding comments he made at an AICPA conference. While demonstrating how to use AI to create CPE courses, Blake suggested the traditional approach of creating learning objectives first, then content, was “backward.” He argued it made more sense to let experts teach, then create the objectives based on what they teach.

NASBA’s letter accused him of making “unfavorable, unprofessional, or inappropriate comments” and demanded he cease such remarks immediately.

“If there’s any place for a discussion about NASBA policies, it should be at a conference with 200 L&D people from all the big accounting firms,” David argued. The hosts expressed frustration that NASBA treats different pedagogical approaches as inappropriate rather than worthy of professional debate.

“The pendulum has swung too far towards regulation and too far away from learning,” David said, noting how CPE often becomes just checking boxes rather than actual education. Blake shared a copy of his response to NASBA on his blog. In it, he asks NASBA to explain why expressing a different educational philosophy constitutes unprofessional behavior.

Where the Shortage Hits Hardest

A new index from Sam’s List reveals which states face the worst accountant shortages. Nevada tops the list with just 1.75 accountants per 1,000 residents and 139 professionally prepared returns per accountant, the highest ratio in the study. Nevada’s accounting workforce also fell nearly 30% from 2019 to 2024.

“Sounds like it’s a state accountants don’t want to live in,” David observed. “Accountants probably don’t want that Vegas gambling lifestyle energy.”

While Nevada has the worst per-capita shortage, Texas needs almost 25,000 additional accountants. This puzzled the hosts, given Texas’s population boom from high-tax states. “Are the benefits just not that good, and accountants see through it?” David wondered.

On the flip side, Washington, D.C. has nearly 14 accountants per 1,000 residents, almost ten times Nevada’s rate. New York has a surplus of 27,000 accountants above the national baseline.

Looking Ahead

The picture emerging from these shows AI is transforming accounting but not replacing accountants. The 79% accuracy ceiling, the pivot of tech-first firms, and the Big Four’s struggles all point to the need to find the right collaboration between humans and AI.

For firm leaders, the franchise and partnership models emerging from companies like Decimal and Pilot may offer a more sustainable path than pure automation. For individual practitioners, the message is encouraging. While AI raises the floor on routine tasks, human judgment, experience, and adaptability remain irreplaceable.

Listen to the full episode of The Accounting Podcast for the complete discussion, including more details on the NASBA controversy, state shortage data, and whether Kentucky’s elimination of the 150-hour rule signals the beginning of the end for that requirement nationwide.

The Accounting Profession’s Favorite Performance Metrics Are Now Dangerously Misleading

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PwC Australia cut partners by 35% and staff by nearly 40% since 2023, yet partner income went up 6%. Meanwhile, the IRS says it just had its “most successful filing season in history” with 25% fewer employees. Fewer people are doing more work than ever. But the accounting profession’s core systems for measuring performance, deciding who to hire, and tracking technology investments were built for a different world.

In a recent episode of The Accounting Podcast, hosts Blake Oliver and David Leary talk about a profession transforming from the inside out. From IRS staffing cuts and Big Four workforce reductions to outdated metrics and licensing bottlenecks, we’re seeing technology race ahead while the infrastructure lags.

Tax Season Success Story (with a Catch)

IRS CEO Frank Bisignano told the Senate Finance Committee that the 2025 filing season was remarkably successful despite the agency losing about a quarter of its staff. The IRS received more than 134 million individual returns, 98% of which were filed electronically. Over 90% of filers got refunds in under 21 days, and the average refund jumped 11% to over $3,400.

The agency credited technology upgrades and AI for the performance boost. Using AI and data analytics to identify underreporting, the IRS sent 500,000 letters that prompted corrections, generating $250 million in additional collections. Enforcement revenue was up 12%, and amended return processing improved from six weeks to just three days. Five noncompliance cases alone brought in $2 billion.

“Just five cases and $2 billion,” Blake noted. “That shows there are some real whales out there when it comes to not paying your taxes.”

But David pointed out an interesting wrinkle. There’s still no confirmed IRS commissioner. Bisignano is serving as CEO without congressional approval, yet Congress seems to have accepted this arrangement with little pushback.

Managing by an Outdated Scorecard

For decades, accounting firms have relied on metrics known as LUMBAR: Leverage, Utilization, Margin, Billing rate, and Realization. These metrics made sense when firms billed by the hour and success meant maximizing billable hours. But as AI compresses work time and firms shift to fixed fees and advisory services, these metrics become misleading.

Douglas Slaybaugh argued in Accounting Today that firms need to track different categories entirely. Instead of hours and billing rates, he suggests measuring:

  • Value creation, like advisory revenue as a share of total revenue
  • Automation rates
  • Redefined leverage, like revenue per employee rather than staff-to-partner ratios
  • Organizational health, including “regrettable turnover,” or losing people you wanted to keep
  • Client relationships

Blake was blunt about why traditional metrics fail. “If you go over or under on a job based on a job profitability calculation, which is based on hours, it doesn’t actually change anything in the firm because your staff costs are fixed.” When staff are salaried and clients pay fixed fees, being “over budget” on hours is meaningless. “We get so in the weeds,” he added. “We lose the forest for the trees.”

David pushed further, comparing it to Apple before Steve Jobs returned. The company had separate profit-and-loss statements for every product, optimizing each individually while missing the bigger picture. Jobs collapsed it all into one P&L, recognizing Apple as an ecosystem. “Why do you need all these metrics?” David asked. “Focus on the big picture of your firm.”

The shift is already happening at big firms. Client accounting services is the top growth driver for Top 100 firms for the third straight year, with 85% of firms reporting CAS growth. These services now include cash flow forecasting, budgeting, and strategic finance. That work doesn’t fit hourly billing models, yet many firms still try to manage these engagements with traditional utilization targets.

Licensing Rules as a Talent Bottleneck

Current CPA licensing creates what Jack Castonguay of Hofstra University calls a one-way street: firms can hire accountants and train them in AI, but they can’t easily bring in AI experts and train them in accounting.

“The US licensure model almost forces us to start with accountants and teach them AI skills,” Jack wrote in Bloomberg Tax. “It’s good to have accountants who are well versed in AI, but it would be better to also have AI experts trained in accounting. We should create space for both.”

Jack delivered a sharp observation about recent reforms. “We took away the 150-hour moat around the profession, but ultimately built a wall higher for non-accounting majors seeking to become CPAs.”

Blake agreed strongly. “If you can learn accounting theory on your own and pass the CPA exam, why do we require you to go take all these courses? The CPA exam is supposed to test the knowledge. And if you got the knowledge in another way, why do we care?”

The problem plays out in real life. A viewer shared that, despite having a business degree with an accounting minor, Arizona’s requirements and the need for CPA sign-offs create additional barriers for those with non-traditional backgrounds, such as military service.

There’s some progress. Maryland and Nevada joined roughly 30 states adopting alternative CPA pathways that require a bachelor’s degree, two years of experience, and passing the exam, without the 150-hour rule. But David expressed frustration. “We just got past the 150-hour rule, and we’re going to be on this debate and treadmill now for the next five years.”

Meanwhile, big firms aren’t waiting. Beyond PwC Australia’s dramatic cuts, Deloitte US slashed benefits for non-client-facing staff, halving parental leave from 16 to 8 weeks, cutting PTO by five days, and eliminating the $50,000 adoption and surrogacy benefit.

“What if this is just a way to get people to quit so you don’t have to lay them off from AI later on?” David wondered. The timing makes sense. While 51% of workers said they’d quit over return-to-office mandates in 2025, that number has crashed to just 7% in 2026. Workers are scared, and employers know it.

Betting on AI Without Measuring Results

A Thomson Reuters survey of 1,500 professional services respondents across 27 countries revealed only 18% track AI’s return on investment. Forty-two percent don’t measure at all, and 40% aren’t sure whether they do.

“Pretty much 80% aren’t tracking the return on their AI spend,” David said.

Those who do measure focus on the wrong things. Seventy-seven percent track cost savings, 64% track employee usage, but only 26% track client satisfaction, 23% track revenue growth, and just 17% track new business generation.

“They’re not tracking the correct metrics in their firms,” David noted. “This is not an accounting firm problem. This is professional services.”

The risks of poor AI implementation are real. Deloitte faces investigation in Newfoundland and Labrador after a resident discovered its $1.6 million healthcare report contained AI-generated fake citations. This is at least the third Big Four AI incident.

“They’re selling AI consulting services,” David said, “and then they prove they can’t do it themselves.”

The measurement problem extends beyond AI. Annual recurring revenue (ARR), the metric driving virtually every subscription company’s valuation, has no GAAP definition or standardized calculation. Companies define it however they want. A startup CEO recently made headlines for simply making up ARR numbers.

“If I were in charge of accounting standards, SaaS metrics is the first project I would have FASB do,” Blake said. “It’d be the best thing we could do for tech companies.”

The Path Forward

The accounting profession faces a challenge. The technology works, but the supporting infrastructure hasn’t caught up. Firms still manage by metrics that don’t reflect value creation. Licensing rules block the tech talent firms desperately need. And most organizations aren’t even measuring whether their AI investments pay off.

PwC Australia’s CEO, Kevin Burrowes, put it bluntly: “The future is fewer people doing the same amount or fewer people doing more.” Firms that don’t rebuild their internal systems to match this reality risk falling behind in a rapidly transforming profession.

For the full conversation, including discussions about Representative Ilhan Omar’s accounting disclosure error and more details on all these developments, listen to the complete episode.

Why Your Team Resists Change and the Simple Framework That Fixes It

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A client builds an AI-powered dashboard, gets his CPA to validate it, then turns around and asks, “So what value do you bring that I can’t get from this thing?” The CPA doesn’t have a great answer. Services get scaled back.

Meanwhile, an oral surgery practice with four doctors and $8 million in annual revenue is still running QuickBooks Desktop, booking revenue through monthly adjusting journal entries, and entering its entire American Express bill as a single payment each month. They haven’t updated a single process since they founded the business decades ago. Both of these clients exist right now, and they could both be sitting in your pipeline this week.

That’s the change landscape accounting firm leaders navigate today. And if you think the biggest threat is AI or the private equity money flooding into the profession, Marcus and Rachel Dillon say you’re looking at the wrong problem.

In this episode of Who’s Really the BOSS?, the Dillons, owners of Dillon Business Advisors, make the case that the real risk isn’t the change itself. It’s how you lead your people through it. Drawing on real client stories, their own leadership missteps, and a framework borrowed from Patrick Lencioni, they lay out a practical approach to change management any firm leader can start using immediately.

 

The Change Landscape: From Silicon Valley to Main Street

Before you can bring your team through change, you need to understand what you’re actually up against. The answer depends on where you’re standing.

Marcus spends time networking with partners at top-20 and top-100 firms with $60 million or more in revenue. What he hears from those conversations tends toward doomsday. These firms serve private equity-backed businesses whose principals all have finance or business backgrounds. Those clients are leaning hard into AI, meaning the professionals serving them have to keep pace or move faster.

One leader at a larger firm told Marcus he no longer opens conversations with “How are the kids?” Instead, the first question he asks clients, prospects, and peers is, “How are you using AI today?”

“If your clients are changing faster than you are,” Marcus explains, “you’re going to be the weakest link in that relationship, and they’re going to move on faster than you can.”

The Big Four are already placing their bets. PwC is doubling down on technology and AI at the entry level, slashing recruiting and campus visits. If that layer of the workforce shrinks, they don’t need to wine and dine as many college students. EY is taking a different approach, doubling its CPA exam pass bonus to $10,000 and investing in the human side.

But while Silicon Valley types are sounding the alarm, Main Street tells a different story.

Remember that oral surgery practice? The lead doctor told Marcus they set up the business nearly 30 years ago and never updated their processes because the same team has been in place the whole time.

DBA’s plan for this client is to set up QuickBooks Online, enable bank feeds, connect them to a service like Ramp, and automate the revenue journal entry. Low-hanging fruit by any modern standard.

“You have to choose how analog you want to exist in this digital world,” Marcus says. The clients who want a human touch continue to pay a premium for it. A purely digital product, he argues, is a race to the bottom.

When Change Communication Goes Wrong

Marcus doesn’t sugarcoat DBA’s early track record on change communication. When the firm merged in another practice nearly a decade ago, Marcus was so excited about the acquisition that he gathered everyone in the conference room and essentially announced it cold. Most team members were hearing about it for the first time.

“That probably didn’t go over as well as I could have hoped,” he admits.

The fallout from moments like this is bad. People disengage. The service atmosphere turns mediocre. Tension builds. Marcus found himself labeled “addicted to change,” which bred resistance rather than readiness.

“If you don’t work on your culture, you still have a culture,” he says. “It’s just unintentional. The same can be said of change.”

Rachel offers the perspective from the other side. When she talks to team members about why they push back on change, the answer is almost always a lack of clarity. They don’t understand why it’s important. They can’t see how it impacts them personally.

“A lot of times it feels like, ‘This is going to take me longer and I’m going to have to work more. And I don’t have any more hours or capacity left to give,'” Rachel explains.

The Dillons evolved toward a three-question framework:

  1. What is changing?
  2. What is staying the same?
  3. How does this impact me?

It was an improvement, but still incomplete. It only addressed the team’s perspective, not clients or other stakeholders.

A peer group introduced Marcus to Patrick Lencioni’s Four Ps framework. The Dillons adopted it as their change-management filter and introduced it to the team at their recent Gather event alongside their rally cry for 2026: “Lead change, create impact.”

The Four Ps: Your Repeatable Framework for Leading Change

The framework gives firm leaders four sequential steps to follow every time they introduce change, whether it’s a new tech stack, a team restructuring, or a client exit strategy.

Purpose: What are we changing?

You need to anchor every change in something bigger than “we found a cool new tool.” At DBA, that anchor is their mission, vision, and values. Their core values spell out the word IMPACT, and Rachel describes how they literally map each proposed change back to specific letters in that acronym.

The trap most leaders fall into here is vagueness. Marcus admits he’s guilty of softening language because he wants to be liked and avoiding directness to dodge conflict.

“Just tell me what you expect. Just tell me what you need me to do,” Rachel says. “People don’t want 20 options. They want one or two.”

Marcus borrows from Andy Stanley: “To be clear is to be kind. To be unclear is to be unkind.”

“If you can’t clearly say what’s changing, the team will default to their comfort level,” Marcus warns. “Which means they’ll do as little as possible.”

Picture: What does success look like?

Leaders often skip this step. They explain what’s changing and how it will happen, but they never describe what winning looks like on the other side.

Marcus uses a family vacation analogy. You decide to take a trip (that’s the purpose). Now tell the kids you’re going to Disneyland and describe the destination so everyone can see it.

In a firm context, that might mean showing the team what life looks like after implementing a team-of-three service model: predictable capacity, no more overtime scrambles, better client satisfaction scores.

The Dillons deploy an exercise called Optimist/Pessimist. Pair people up. One person must articulate at least one or two positives about the proposed change. The other must find negatives. This gives explicit permission to voice concerns that would otherwise get whispered in private channels.

“Once we are sick of saying the same thing over and over again, they’ve actually received it, processed it, and can carry it out,” Rachel says. 

Plan: How do we get there?

The plan phase breaks the picture into executable steps. Extending the road trip metaphor, explain whether you’re flying or driving. If driving, are you taking the scenic route? Where do you pull over to celebrate progress?

Rachel emphasizes two non-negotiables for every step: a responsible person and a deadline. Each milestone needs an owner and a date, so there’s no ambiguity about who’s doing what by when.

This is also where you appoint change agents from within your team. Team members who showed energy during the Picture phase are natural candidates to lead portions of the execution.

“A simple plan executed beats a perfect plan that’s been delayed,” Marcus notes.

Part: What’s my role in this?

Every single person needs to understand their role, including those whose role is “nothing changes for you.”

Marcus shares a recent example from DBA’s acquisition work. For some team members, the message was, “Keep serving your current clients well. You’re not getting new clients from this acquisition. You’re not learning a new process or technology.”

Simply telling people “your job stays the same” is just as critical as the detailed instructions given to people at the center of the transition.

When you don’t tell people their part, they default to their worst experience. Maybe a previous boss promised “nothing will change” and then changed everything. You can’t control the baggage people carry, but you can replace old narratives with present-tense clarity.

This step requires a conversation, not an email. People need two-way dialogue where they can ask questions and process in real time.

Leading Through the Messy Middle

Marcus closes with an honest confession. “I’m as guilty as anybody. I want to initiate the change. And I want all the fruit from the success of that change. I don’t want to live through the change. I want to just speed through it or delegate it.”

Successful firms have leaders who bring their people through change intentionally, with clarity, conviction, and care.

The Four Ps give you a repeatable filter for any transition:

  • Purpose: Anchor the change in your mission and values and say it plainly
  • Picture: Show people what success looks like, then repeat until you’re sick of it
  • Plan: Break the vision into steps with owners and deadlines
  • Part: Tell everyone their role in a live conversation, not an email

Whether you’re navigating a firm acquisition, a technology overhaul, or wondering how fast AI is coming for your services, the same four questions apply. As the Dillons put it, the goal for 2026 is to lead change and create impact.

Listen to the full episode to hear Marcus’s take on how fast AI is really moving, Rachel’s breakdown of the Optimist/Pessimist exercise in action, and why moving homes during busy season might actually make perfect sense for a couple “addicted to change.”

Rachel and Marcus Dillon, CPA, own a Texas-based, remote client accounting and advisory services firm, Dillon Business Advisors, with a team of 15 professionals. Their latest organization, Collective by DBA, supports and guides accounting firm owners and leaders with firm resources, education, and operational strategy through community, groups, and one-on-one advisory.

AI Can Reconcile a Bank Account End to End Without Instructions

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The accounting profession sees AI companies building tools that weren’t meant for accountants but are increasingly doing accountants’ work. On Episode 482 of The Accounting Podcast, hosts Blake Oliver and David Leary discussed Perplexity and Palantir’s moves into core accounting territory while most firms struggle to see any productivity gains from their AI investments.

Trump Accounts Hit 90% Adoption in First Year

Before getting into AI disruption, the hosts discussed a surprising government success story. Around four million children have been signed up for Trump Accounts in the program’s first year. That’s an 85-90% adoption rate among eligible births since January 2025.

“Think about 401(k) plans,” David pointed out. “It’s been decades and they’re only at 35-40% participation. With college savings plans, it’s been 25 years and 25% participation.” The difference is Trump Accounts combine simplicity (a one-page form filed with your tax return) with immediate value (a $1,000 government contribution, plus additional funds from donors like Michael Dell for low-income families).

Blake ran through the potential impact. If families contribute the maximum $5,000 annually, a child could have $271,000 by age 18 based on historical S&P 500 returns. “That’d be pretty nice,” he said. “Turn 18 and you get $271,000. Maybe that would be a down payment on a house someday.”

Perplexity and Palantir Target Core Accounting Work

The real disruption story started with a simple Instagram ad that caught David’s attention. It read “Find every duplicate entry hiding in your QuickBooks.” The advertiser wasn’t a QuickBooks app developer or accounting software company. It was Perplexity, an AI company better known as a search engine competitor.

Clicking through revealed Perplexity’s new QuickBooks “health check” offering. It includes P&L analysis, expense categorization, AR/AP aging reviews, and reconciliation audits. Perplexity’s homepage also features tax-specific prompts, and they’ve officially launched “Computer for Taxes,” an AI agent that drafts full federal tax returns.

“Perplexity is doing what a whole company just launched to do,” David observed, referring to startups like TaxGPT that built entire businesses around AI tax prep.

Meanwhile, the IRS is testing a $1.8 million pilot with Palantir to build an AI system called SNAP for selecting audit targets. The system will analyze both structured and unstructured data to identify potential fraud and noncompliance.

“People have called Palantir the most dangerous company on earth,” David noted. “So that’s who’s going to pick audits now for the IRS. It’s a little bit scary.” The system could potentially cross-reference tax returns with e-commerce storefronts, social media activity, and data from other government agencies where Palantir operates.

Blake’s Test Whether AI Actually Does the Books

Blake decided to test whether these AI tools could handle real accounting work. He asked Claude Cowork to reconcile a brokerage account in Xero that had no bank feed connection.

Without detailed instructions, Cowork created its own task list, asked clarifying questions, then got to work. It parsed the PDF bank statement, converted it to a CSV formatted for Xero’s import requirements, imported it as a bank feed, matched transactions through the Chrome browser, ran the reconciliation report, and exported it as a PDF.

“End to end, no hand-holding,” Blake said. Even better, he had Cowork save the entire process as a reusable “skill” that improves with feedback. “Now I can upload a PDF and say ‘reconcile this account’ and it will do everything as I like it.”

This raises questions for accounting software companies. “What is the point of Jax in Xero then?” David asked. If external AI agents can perform full reconciliation by interacting through a browser, why build internal AI at all?

Blake says Xero built Jax by copying chatbot functionality from ChatGPT. It’s limited to conversation windows with no ability to handle multi-step workflows. “The AI platform companies have simply raced ahead,” he said.

Firms Are Automating the Wrong Things

Despite all this technological capability, 80% of firms report no measurable AI impact on productivity after three years and billions in spending. The problem, according to a CFO.com opinion piece Blake highlighted, is that firms use the wrong measurement framework.

Most organizations use cost accounting, which rewards local efficiency gains, including hours saved here, a task automated there. But they should use throughput accounting, which asks whether AI actually removes the main bottleneck limiting revenue generation.

“You may have theoretically saved all these hours on tax prep, but if all the returns pile up at review, it’s not getting to the client any faster,” Blake explained. “You’re not delivering any additional value.”

Both hosts agreed the real bottleneck in most accounting workflows isn’t doing the work; it’s getting the information needed to do it. Client document collection causes the biggest delays.

Blake sketched a solution: an AI agent that monitors client folders, compares submissions against a requirements list, and automatically follows up on missing or incomplete documents. “AI won’t be tired on day two or day three,” David said. “It can review these things and send the email again tomorrow. And it’s never going to complain.”

The Three-Person Firm of Tomorrow

The hosts painted a picture of accounting’s near future: firms where a few people do the work of ten, supported by AI agents handling staff-level functions.

“Instead of having 30 clients at your firm, you now can have 90,” David said. “That makes a huge difference.”

Blake envisions a new role structure that includes a CPA or tax expert, a dedicated technologist, and an apprentice, plus “half a dozen AI agents doing the staff functions.” He pointed to conversations with Peter McCarroll of Fuel Accountants, who predicts every firm will need a technologist role.

But Blake offered a reality check. “Cowork crashes. Agents are slow. Building a reliable tech stack in a period of this much change is genuinely hard.” Firms don’t need to adopt every new tool. But they do need to understand their workflows well enough to know exactly where to point AI.

General-purpose AI platforms are building accounting capabilities faster than the profession anticipated. They’re not waiting for permission or partnerships. Listen to the full episode for more insight into figuring out where your real bottlenecks are and pointing AI at them, or watch as others (maybe even your clients) use these tools to work around you.