Jenkins Professorship Enables Joe Brazel to Advance Fraud Research, Knowledge
Since joining Poole College’s Department of Accounting faculty in 2003, Jenkins Distinguished Professor of Accounting Joe Brazel, Ph.D., has focused his research on the area of fraud, an interest that grew following the collapse of Enron in 2001.
Brazel arrived at Poole College just prior to completing his dissertation which focused on auditing companies with complex IT systems. Soon after completion, he decided to focus his research on fraud and professional skepticism instead.
Over the past decade, Brazel has received nearly $1 million in research funding that has led to dozens of academic journal and practitioner articles and presentations. FINRA, the Financial Industry Regulatory Authority, large accounting firms and the Institute for Fraud Prevention are among his research funding sources.
In 2016, Brazel was named the college’s inaugural Jenkins Distinguished Professor of Accounting. He previously had been named an NC State University Scholar. The Jenkins Professorship, supported by an endowed gift from Benjamin Jenkins, NC State alumn and vice-chairman and president of the General Bank, Wachovia (retired), enables him to focus more on his research.
What has he learned?
“Everyone needs help in detecting fraud, from corporate managers to financial statement auditors to regulators to investors,” Brazel said. “All the stakeholders in the financial reporting process need help in different ways.”
His research focuses on providing some of that help. Most recently, he has focused on red flags that help determine “when things look funny,” he said.
“There’s a specific red flag that people had talked about generally, but no one had specifically studied,” Brazel said. That’s “when revenue and asset growth reported in the financial statements diverge from growth in important non-financial measures like employee headcount, patents and number of stores. My research demonstrates that there’s always noise because things diverge naturally, but at some point it’s too good to be true; it’s possible, but not likely,” Brazel said. His research focuses on identifying different kinds of red flags that may suggest fraud, and “how to use them (the red flags) better,” he said.
Most recently, Brazel has looked at how chief financial officers respond when they first see a potential reporting problem. “What happens when they start to see red flags creeping up in their financial reporting package? Who do they talk to? What if they talk internally and get push back?” he said.
“A red flag is simply an inconsistency that’s been shown to correlate with cooking the books,” Brazel said, but with the growing ability to gather financial and non-financial data automatically and apply data analytics, “it is much more feasible to identify and work with red flags. Before, the data had been hand-collected by people who were very motivated, such as short sellers, but the average investor did not have the ability to do this.”
Brazel’s research findings benefit chief financial officers, auditors, investors, and regulators, among others, and he has presented findings on professional skepticism to audiences such as the International Auditing Assurance Standards Board, to help them incorporate professional skepticism into standard setting. At a recent presentation, Brazel brought them up to date on several years’ of research on skepticism, identifying “things we know and things we don’t know.”
Fueling real world research, learning
Brazel brings what he learns through his research and that of others to his students, “using almost as many notes from my research as from the textbook,” he said. It’s a practice he started as a young professor, when questions from students in the classroom led him to do more research to find answers.
“So it’s a loop: Teaching feeds research and research feeds the teaching, and the students love it. I think they like the cutting-edge part,” he said, noting that the research that he discusses in class typically has come out within the last six months.
Maintaining that research-teaching loop is something that Brazel said he feels “very strongly about. When you’re at a research university and you’ve been given the time to do research, performing that research and disseminating it into the classroom should be a substantial portion of your work,” he said. The named professorship is enabling Brazel to focus more on the research and publication of his results, and he said he gives equal attention to practitioner and academic research publications.
It’s the practical research that he brings into the classroom as well as to presentations to business stakeholders and practitioners. “Over the last 10 years I have presented research studies to practitioners ‘in their language.’ I also enjoy getting their real world perspectives on my research. That’s one of the things that I love about NC State – that we value engagement with public stakeholders, practitioner groups, policy-makers and others,” he said.
Advancing new research, new talent
High quality, impactful research requires a lot of time to progress from initial research to writing results, completing the intensive academic review process and final publication, Brazel said. Similarly, following up on funding opportunities for new research projects takes time and requires multiple stages, including developing the research topic, drafting proposals, identifying co-authors and then doing the work.
This year, Brazel is working with a Master of Accounting student, Sadie Rockefeller, who is assisting him in this process. Most recently, she worked with Brazel in moving a new project from initial concept to the proposal stage, including presenting the proposal to the Institute of Fraud Prevention, which subsequently provided funding for the research.
“Without the Jenkins Chair and the time it affords, we couldn’t have done that,” Brazel said.
Rockefeller, whose assistantship is funded by the MAC program, had Brazel as an accounting professor while an undergraduate student at Poole College in spring 2016. She had heard about his research and it interested her, he said. “She’s very intellectually curious and has a special knack for research,” Brazel said, noting that while her chosen area now is tax, she wanted to help with his current research as a research assistant this year. Her contributions include complicated data collection, providing feedback on manuscripts and polishing Brazel’s presentations.
In spring 2017, she will be providing more teaching assistance, so “she will have experience with both research and teaching,” Brazel said. Then, if she decides to follow the same career path as Brazel – he began first in public accounting and then shifted to academic teaching and research – she will have had meaningful experiences to draw upon.
“She’s already networking with professors from Italy to the University of Texas to Villanova University on data collection. Those experiences, that networking, if she decides to go into academics, will be invaluable,” Brazel said.