Cooking the Books: The Twisted Business Ethics on “Breaking Bad”

This week, I just finished watching the entire series of Breaking Bad on Netflix. The subject (the ins and outs of making, selling and using drugs) has been explored time and time again in both movies and television. But the writing and character development in Breaking Bad is absolutely amazing, interesting, and believable. With most of the characters on the show, you get to see both their good sides and their bad sides. There are no clear-cut “good guys” and “bad guys”…even among the main characters.

**Spoiler alert** – What follows is an ongoing sub-story in the series, not the main one. With that being said, if you haven’t seen the series, and don’t want to know anything in the least about what goes on during the course of the show, stop reading here. 😉

Given that the series main topic is the drug trade, it wasn’t surprising that some unsavory business and accounting practices would be shown. However what’s interesting is that the unethical business practices highlighted are not from the Whites’ drug business, but from Skyler’s (the wife’s) outside accounting job.
So here’s the super-short background. The White family is feeling the financial pressure of the husband’s (Walt) medical expenses from his cancer diagnosis and the wife’s (Skyler) surprise pregnancy. Walt, a chemistry teacher, starts cooking crystal meth for extra money. In spite of the windfall of cash, he keeps his illegal activities a secret, and pays for medical costs on a cash basis. Skyler, thinking that money is still tight, re-enters the workforce at 7 months pregnant, at the company where she worked before.
Skyler’s boss, Ted Beneke, gives her a promotion over her previous position. She quickly notices that not only is the accounting department is disarray, but Mr. Beneke is not properly reporting his income, creating a growing mountain of back taxes.
Ted – The “Good Guy” Boss

When Skyler confronts Ted, his response sounds almost admirable. He admits to the shoddy accounting, but justifies it by saying that he doesn’t want to see his father’s business, his lifelong achievement, fail; he wants to make sure his employees don’t have to worry about their positions and their bills; he wants to be able to provide for his twin daughters.
He’s not a bad guy. He’s handsome, friendly, and caring. He’s not being malicious, just cooking his company’s books and misrepresenting his income. And it begins to snowball. Skyler goes along with it, most likely because she feels that she really needs the money, and is perhaps blinded by her crush on Ted. However her decision comes back to haunt her later.
I’m currently taking a Forensic Accounting Course on Coursera, and learned that Ted is what we would call and “accidental fraudster“. He isn’t deliberately trying to cause malice and injury to others through his fraud. Rather, he’s feeling the financial pressures from his failing business and maintaining the well-off lifestyle of himself and his family. He rationalizes his bad choices by saying they are necessary in order to achieve other, more noble causes.
Skyler – One Lie Leads To Another

Eventually Skyler learns about Walt’s side job and money. She quits working for Ted, and she and Walt buy a car wash for over $800K as a front to launder Walt’s drug money. Ted shows up to the car wash one day with a letter in hand from the IRS stating that his business books are going to be audited. The audit reveals that Ted owes over $600K in back taxes, penalties and fees. If he doesn’t pay, he could face prison time.
Walt & Skyler have been explaining their surprise nest egg of funds as gambling winnings. Skyler realizes that her name is attached to Ted financial documents, and in order to keep the IRS away from her business, makes up a lie about Ted inheriting money from a distant relative to give him the funds to pay off the IRS.
Crazy Logic #1 – It Doesn’t Matter How You Spend Your Cash Flow

Almost immediately upon receiving the money, Ted buys a new Mercedes-Benz. His next order of business is re-opening his offices (which had been recently shuttered). Paying the IRS is low on the priority list. Skyler flips and confronts him, and it comes out that the money came from her. So of course, she wants the money to be spent how she prefers (which is to pay the IRS).
Crazy Logic #2 – It Doesn’t Matter Where The Money Comes From

When Ted discovers that the money is from gambling winnings (which was a lie anyway), he then tries to return it to Skyler, saying that it “felt wrong” to use it. This selective financial morality almost seems laughable to the audience. But in real life, it happens all of the time. Some people are fine bankrolling and/or paying off illegal activities with other ill-received money (like Skyler), while others (like Ted) are not. Even if Ted knew the complete truth, that the money came from illegal drug sales, there are those who would question his choice to not use it to pay off his IRS debt. Heck, I’ll even admit that while watching the show, I personally believe that he should have just used Skyler’s money to pay the IRS. The threat of imprisionment from the IRS was concrete and immediate. Whereas the threat of something bad happening to Ted due to spending this money seemed to be small. It was guilt that got to Ted…and guilt is a very variable feeling from person to person.
Crazy Logic #3 – It Is Easy to Hide or Explain Piles and Piles of Cash

Throughout the series, people are constantly losing their piles of money either to the IRS or to law enforcement. Skyler realized that Walt’s income is too big to launder, so she resorts to stacking the bills up in a storage unit (I won’t say how much money they had….you’ll have to watch the show to find out! 😀 ). If it’s not taken by these legitimate means, then you have to pay off someone to protect it, keep it safe, or just run the risk of having it stolen or lost. It’s one thing to have a lot of money; but an entirely different thing to have a lot of money, which needs to be hidden.
Crazy Logic #4 – Money Doesn’t Change Things

It will probably come at no surprise that at the start, Walt had a figure in his mind regarding what he needed to make, and that would be it. However, that figure came and went. His personality also changed dramatically. Skyler, while trying to keep the moral high ground with Walt, ends up using thugs to strong arm Ted into paying the IRS…which ends up bad (of course). She also makes some questionable statements and suggestions later in the series, when she and Walt are in the thick of the drug business , that hint towards sabotage and murder.
Crazy Logic #5 – Not Fitting the Profile

When you think of someone cheating the IRS, or cooking their accounting books, or even selling drugs, you do not usually envision middle-aged, college degreed White males. And yet this is the most typical profile of people who cause business losses of $100K and higher. Breaking Bad does a great job of showing how people from all walks of life are involved in not only the drug business, but in questionable business dealings in general.
When it comes to forensic accounting and the application of business ethics, it can be hard to come in as an outsider, look at a few business decisions, and then try to rationalize what the thought process was. Usually, it is a fruitless excercise, in that there is usually no logic to be found (like when Ted goes out and buys a $50K car when he owes the IRS $600K). Also as tempting as it can be, do not try to fill in the blanks with scenarios that you cannot prove. You may be have to substiante them later on, and find yourself in one heck of a pickle when you can’t