The 'Monday effect' is real—and it's impacting your Amazon package delivery

by Lehigh University

Credit: CC0 Public Domain

The "Monday Effect" is real—and it's impacting your Amazon package delivery.

So says researcher Oliver Yao, a professor of decision and technology analytics in Lehigh University's College of Business.

He's found that the "Monday Effect"—that letdown of returning to work after a weekend, which is documented to impact finance, productivity and psychology—also negatively affects supply chains.

Working with researchers at the University of Maryland and University of California, San Diego, Yao found that process interruptions that occur when operations are shut down over the weekend, along with human factors like the "Monday blues," hurt supply chain performance on Mondays. That means a longer time between when a purchase order is received and when it is shipped, as well as more errors in order fulfillment.

It's the first study to look at the impact of the "Monday Effect" on supply chains, the sequence of processes that move a product or service from creation to customer. The findings are published in a new article, "'Monday Effect' Performance Variations in Supply Chain Fulfillment: How IT-Enabled Procurement May Help," appearing in Information Systems Research. Co-authors are Martin Dresner of the Robert H. Smith School of Business at University of Maryland and Kevin Xiaoguo Zhu of the Rady School of Management at University of California, San Diego.

Significant shipping delays

Yao and colleagues used a dataset of more than 800,000 transaction records gathered during a 12-month period from the U.S. General Services Administration to look at variations in operations performance by days of the week. They also analyzed order and fulfillment data from one of the largest supermarket chains in China.

They found the "Monday Effect" was prevalent and significant. For example, time between receipt of a purchase order and shipping is 9.68 percent longer on Mondays than other weekdays, on average, said Yao, who holds the George N. Beckwith '32 Professorship. Mondays, it turns out, are subject to both process- and human-related impacts.

Weekends create bottlenecks at distribution centers that are tackled on Mondays as orders are processed, picked, staged and shipped to customers. Humans completing processing activities are impacted by adjusting to returning to work, more prone to errors and less efficient.

Most supply chain managers are unaware of this impact, Yao said. But they can take steps to counteract the "Monday Effect."

Combating the "Monday Effect"

Strategies include increased staffing on Mondays (or any day returning from a break, including holidays), fewer Monday meetings and non-fulfillment activities, better training, additional pay or mood-lifters such as free coffee or motivational talks, and double-checking Monday work.

The most effective way to reduce the Monday performance gap is integrating technology solutions, such as automated order processing systems, said Yao, who found using electronic markets can improve Monday performance by as much as 90 percent.

For example, technology reduces the Monday performance gap by 94 percent in order-to-shipping time, 71 percent in complete orders fulfilled, and 80 percent in the portion of shipments that have incorrect numbers of products.

Technology was most useful in orders of specialized, less frequently purchased or high-value products, about which employees might be less knowledgeable.

"Technology is more helpful in substituting for labor when humans are more prone to making mistakes," the researchers said. "Computer-to-computer links avoid potential human effects resulting from the weekend break."

After all, for computers and machines, Mondays are just another day.

'Meatless Mondays' on horizon for New York City schools

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More information: Yuliang Yao et al, "Monday Effect" on Performance Variations in Supply Chain Fulfillment: How Information Technology–Enabled Procurement May Help, Information Systems Research (2019). DOI: 10.1287/isre.2019.0870

POSTMODERN TAYLORISM

Biometric devices help pinpoint factory workers' emotions and productivity

by Hiroshima University

A time series of subjects' emotional status. Green indicates happiness, red indicates anger, and yellow indicates relaxation. The blue bar below shows the amount of time series conversation of the subject. The horizontal axis represents time series, and the vertical axis represents emotion and conversation volume in that time zone. The gray portions indicate neutral emotion or time periods where measurement could not be performed well due to poor contact with the device. Credit: Hiroshima University

Happiness, as measured by a wearable biometric device, was closely related to productivity among a group of factory workers in Laos, reveals a recent study.

The team of researchers from the School of Economics at Hiroshima University conducted a study to examine relationships between toy painters' productivity and on-the-job emotional states.

While employee productivity has already been linked to job conditions, mental health, and other demographic factors, this study adds to a deeper understanding of how emotional states affect productivity.

Professor Yoshihiko Kadoya, the lead researcher on the paper, said the findings have implications for both operational and human resources strategies.

"Organizations need to consider employees' emotionality when producing workflow designs that could help ensure a pleasant working environment," he said.

In the study, 15 workers answered a questionnaire and wore a device on their wrist with built-in sensors to detect movement, pulse waves, environmental ultraviolet light, body temperature, and sound through which it continuously recorded physical activity, beat-to-beat pulse intervals, skin temperature, and sleep. The device, Silmee W20, is produced by the TDK Corporation Tokyo, Japan.

Employees' emotional states were measured for three working days through a complex process of beat-to-beat pulse intervals via custom software developed by NEC Corporation Tokyo, Japan. The researchers followed a common model in the field—Russel's circumplex model—to measure employees' emotion in four states: happy, angry, relaxed, and sad.

Using a random effect panel regression model, they found people's happy emotional state was positively related to their productivity. Meanwhile, no other emotional states were found to be related to productivity.

"The use of wearable biometric devices, which can track employees' emotional states provides an opportunity to examine more objective components of the emotion-productivity link," Kadoya adds.

The study's limitations included the possibility of device errors, the number of observations throughout the day, and the gender distribution (14 out of 15 workers in this study identified as female), therefore the results should not be over-generalized. In the future, however, researchers hope to apply similar methods to explore the links between emotional states and different types of work.

Happy workers are 13% more productive

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More information: Yoshihiko Kadoya et al, Emotional Status and Productivity: Evidence from the Special Economic Zone in Laos, Sustainability (2020). DOI: 10.3390/su12041

Coronavirus time bomb: America's uninsured and brutal work culture

#MEDICAREFORALL

BIOPOLITICALECONOMY

Like many Americans, bartender Danjale Williams is worried about the growing threat of the novel coronavirus.

What makes the 22-year-old in Washington even more frightened: The thought of medical bills she just can't afford, as one of almost 27.5 million people in the United States who don't have health insurance.

"I definitely would second guess before going to the doctor, because the doctor's bill is crazy," she said. "If it did come down to that, I don't have enough savings to keep me healthy."

As the virus begins spreading in the west of the country, where the first death was reported Saturday, public health experts warned the US has several characteristics unique among wealthy nations that make it vulnerable.

These include a large and growing population without medical insurance, the 11 million or so undocumented migrants afraid to come into contact with authorities, and a culture of "powering through" when sick for fear of losing one's job.

"These are all things that can perpetuate the spread of a virus," said Brandon Brown, an epidemiologist at UC Riverside.

The number of Americans without health insurance began falling from a high of 46.7 million in 2010 following the passage of Obamacare (the Affordable Care Act), but has risen again over the past two years.

The current figure is about 8.5 percent of the population.

Getting through the door

Public health experts often worry about the destructive potential of a pandemic in poorer parts of the world like sub-Saharan Africa or South Asia.

These poverty-plagued regions have hospitals that are ill-equipped to stop the spread of infectious diseases, or to adequately care for patients needing breathing assistance, which the most severe cases of COVID-19 require.

By contrast, the US has some of the world's best hospitals and medical staff, but those not lucky enough to have good insurance through their employer, and not poor enough to qualify for state insurance, often opt out of the system entirely.

A routine doctor's visit can run into hundreds of dollars for those without coverage.

"I think that it's possible if this has the sustained spread, that might highlight some of those health care disparities that we already know about and are trying to work on, but haven't figured out a way to solve," said Brian Garibaldi, the medical director of Johns Hopkins Hospital's biocontainment unit.

That's not to say uninsured people have no recourse if they fall seriously ill.

US law requires that people who are truly sick get the care they need, regardless of ability to pay.

Abigail Hansmeyer, a Minnesota resident who along with her husband is uninsured, said that if she did fall ill, "we may seek out the emergency room for treatment."

But being treated doesn't mean the visit was free and the uninsured can be lumped with huge bills after.

"So we have to very carefully consider costs in every situation," the 29-year-old said.

Presentee-ism

One of the key messages the Centers for Disease Control and Prevention (CDC) has put out about the coronavirus is to stay home if you have mild respiratory symptoms, except to go to the doctor once you have called in and if they think you need to.

"But a lot of people, depending on their jobs, their position and their privilege, are not able to do that," said Brown.

The US is alone among advanced countries in not offering any federally mandated paid sick leave.

Though private companies offer an average of eight days per year, only 30 percent of the lowest paid workers are able to earn sick days, according to the Economic Policy Institute.

For many of these people, missing even a day's work can make a painful financial dent.

An October 2019 nationwide survey of 2,800 workers by the accounting firm Robert Half found that 57 percent sometimes go to work while sick and 33 percent always go when sick.

Vaccine cost fears

As the global death toll from the virus approaches 3,000 and the US braces for a wider outbreak, the race is on to develop vaccines and treatments.

Current timeline estimates for the leading vaccine candidate are 12-18 months, but will it be affordable for all? That question was put to Health Secretary Alex Azar in Congress last week.

His response: "We would want to ensure that we work to make it affordable, but we can't control that price because we need the private sector to invest."

Ed Silverman, a columnist for industry news site Pharmalot, panned the comment as "outrageous."

"No one said profits are verboten," he wrote. "But should we let some Americans who may contract the coronavirus die because the price is out of reach?"

For Americans, flu remains a bigger threat than coronavirus

Coronavirus: A simple way to keep workers—and the economy—from getting sick

by Jay L. Zagorsky, The Conversation

BIOPOLITICALECONOMY

Credit: CC0 Public Domain

The COVID-19 outbreak appears headed for the U.S., and the Centers for Disease Control and Prevention are urging Americans to prepare now, such as by stocking up on food and prescription drugs.

But since the U.S. economy and its workforce are also at risk of getting sick—a concern you can see in the recent stock market rout – it's important to make preparations to ensure they stay healthy too.

While the Federal Reserve says it is carefully watching COVID-19's "evolving" impact and will cut interest rates if necessary, this would primarily help banks and businesses. It would do relatively little to aid workers who might be temporarily without an income, which would hurt not only their families but the economy as well.

Fortunately, there's a remedy: unemployment insurance—a topic I've written about in the past. Currently it's not designed to help in a pandemic. But with a few easy changes, it could make a big difference, not only in softening the blow for workers and the economy but also in preventing the spread of COVID-19.

Workers are vulnerable

More than three-quarters of U.S. workers live paycheck to paycheck, while a significant share of American households would struggle with an unexpected US$400 expense.

If you are living this way, you have a strong incentive to go to work even when sick, which makes it easier for a disease like coronavirus to spread and increases the odds of an outbreak.

In addition, during a pandemic, health officials put large numbers of people in quarantines in hopes of preventing the virus' spread. This temporarily shuts down businesses and puts hourly workers out of a job until it reopens.

How unemployment insurance works

Unemployment insurance is a part of the country's social safety net. It provides a temporary paycheck to workers who lose their jobs through no fault of their own or who are furloughed when a business temporarily shuts down.

Unemployment insurance is a federally mandated program run by individual states that partially protects workers' incomes when they lose their job. It covers both hourly and salaried workers and provides laid-off workers who sign up some protection by paying a portion of their wages for up to half a year. Workers who are self-employed and those fired are not eligible for the program.

The amount of each unemployment insurance payment depends on the worker's past salary and where she worked. Each state has slightly different rules. For example, when the federal government shut down in 2019, Virginia told federal workers they would get anywhere from a minimum of $60 to a maximum of $378 a week if they asked for benefits. Federal workers applying for unemployment insurance in Washington D.C., however, were eligible for a maximum benefit of $425 per week.

In place since the 1930s, the system works well during major economic shocks but can come up short during pandemics.

While other countries have recognized the shortcomings in their laws, the U.S. has done little to ensure the incomes of quarantined and other workers are adequately protected during an outbreak.

Fixing the system

Some small changes could make the system very effective in a pandemic.

First, there is currently a one-week waiting period for benefits in most states. The government does this because many people who are laid off quickly find new work. For people affected by a pandemic, which has a two-week quarantine period, this provision could be eliminated.

Second, most people getting unemployment insurance benefits need to certify they are actively searching for work. For example, Massachusetts requires three job searches per week, as does New York. During a pandemic, society wants less travel and less human contact—we don't want sick people going out for job interviews. People affected by a pandemic should be exempted from the job search requirement.

Third, during disasters the Stafford Act gives the president the right to declare a "major disaster," which allows the president to provide unemployment benefits to any individuals who become unemployed as a direct result. Declaring a disaster allows the president to tap the Disaster Relief Fund, which contains billions of dollars.

While previous infectious disease outbreaks have been designated "emergencies" – which provides some federal assistance—none has been deemed a major disaster. Expanding the law to include pandemics as major disasters—as some lawmakers have urged – would make it possible for the president to make sure individuals affected by an outbreak have the support they need.

It would only take small changes like these to make the unemployment insurance program more useful to those sick, quarantined or temporarily idled during a pandemic.

While this will not solve all the economic problems caused by COVID-19, or the next pandemic disease, it would give American workers and the broader economy a lot more breathing room.

The coronavirus and our interconnected economy and biosphere

by Steve Cohen, Earth Institute, Columbia University MARCH 2, 2020

BIOPOLITICALECONOMY

Credit: CC0 Public Domain

When I think about the climate problem and the challenges it creates, I am reassured by the fact that we know what causes climate change, we understand its impact and we know how to mitigate it. The forces that are slowing the transition to renewable energy are economic, technological, political and cultural. These are intense forces, but they can and will be addressed. In contrast, threats to our interconnected ecosystems and to the human lives that depend on our living planet are less well understood. The coronavirus is the latest example of such a threat, but there are many others underway and more will come in the future. These are serious threats and they require study, analysis and both collective and individual action.

These dangers are complicated and not always well understood. The worst thing you can do about them is what President Trump managed to do in recent days. He has declared the virus a hoax exaggerated by his enemies for political purposes. He is claiming that the government is doing a great job in addressing the disease and simultaneously playing down the threat it poses. The U.S. government is in the beginning stages of response, and if the professionals are given the resources and left alone by the politicians, we will do better than we are now doing. While we do not know how bad this will get, we know that additional medical resources must be put in place to deal with this crisis. Requiring medical professionals to clear their statements through the vice president will slow down and distort communications that should come directly from medical experts.

Not only is the virus not a hoax, but it is a symptom of a global economy that we all depend on and benefit from. In other words, we will see more of these in the future. While we do not fully understand this particular virus, we have methods for analyzing its causes and effects and for reducing its transmission. Conducting the research needed and protecting public health requires resources, expertise and institutional capacity. America has the resources, expertise and the ability to develop the capacity to contain this disease, but to do so we need calm, determined leadership.

Some of the threats to ecosystems that we face are from invasive species that travel in our planes and ships to ecosystems that did not evolve with defenses against those threats. In addition to invasive species, some of the risks are posed by diseases transmitted directly by humans and animals. We live on a more crowded planet with far more animals bred for food than at any time in human history. This increases the probability that we will see diseases spread from a species with protection against a disease to a species that lacks protection. In addition to disease, some threats are human-made such as those caused by pesticides and other chemicals that we use on our farms and gardens. We introduce new chemicals into our economy at a ferocious rate and we do little to regulate them even when we know they harm animals, ecosystems and people.

While I believe we need to get used to the risks posed by our global lifestyle, I do not mean that we should simply permit risk and danger without seeking to understand them and manage them. When we see a risk like the coronavirus, where the impact is obvious and intense, we urgently seek to reduce that risk. That is an appropriate and sensible response. Politicizing the response is not. Minimizing the risk for the sake of political spin is a mistake. Maximizing the perception of risk for political gain is also a mistake. The president and his crew should stop spinning the crisis and their management of its impact. The government's response to the crisis is a work in progress. Congress should ignore the spin and focus on generating the resources that our experts and state and local governments need to respond to this emerging crisis. This is a time to work together rather than reinforce division.

I recognize that this won't be easy because the Trump Administration has worked over the past several years to reduce our capacity to deal with pandemics. As Sharon Lerner observed over this past weekend in The Intercept:

"President Trump has fired many of the people who actually know how to coordinate government responses to epidemics. As Laurie Garrett reported in January, the president shut down the National Security Council's global health security unit and cut $15 billion in national health spending, including funding for the management of infectious global diseases at the CDC, DHS, and HHS."

But we need to see those cuts as "history" and focus all of our attention on the current situation. We do not have the luxury of pointing fingers and assigning blame. Hopefully, this experience will make it clear that we need to invest substantial public funds into the capacity needed to protect the public from contagious diseases.

We are in an era where scientific expertise is increasingly at the center of our economic life, but scientific experts are challenged by populist politicians whose power is based on the propagation of ignorance and fear. Climate and disease denial are examples of this phenomenon and they pose a real and present danger to all of us. Our only real weapon to address the threats posed by the impact of science and technology is the human ingenuity required to develop additional science and technology. The global economy was created by scores of new technologies such as containerized shipping, air travel, motor vehicles, air conditioning, refrigeration, the internet, bar codes, cheap global communication and low-priced computing. That stuff is not going away. We will continue to see diseases and ecosystem threats carried from one part of the world to another. We are in a brain-based economy built on expertise and innovation. We benefit from that economy and the degree of interconnectedness of modern life will continue to grow despite xenophobia, disease and political posturing.

Many people have been concerned about President Trump's ability to deal with a real crisis, rather than one generated by his own policies. His tendency to personalize every issue and see his own welfare and reelection prospects as paramount is familiar to everyone. Still, we can't afford to make the administration's response to the coronavirus a test of their competence and ability to manage crises, because we can't afford for them to fail. It is essential that we work together as an American community and do everything we can to assure success.

It is really a moment for the experts and grownups to assume command. There were signs this past weekend that we are moving in that direction. The Food and Drug Administration authorized non-federal testing for the virus. As Thomas M. Burton reported in the Wall Street Journal:

"The Food and Drug Administration said Saturday that it will allow hundreds of U.S academic hospital labs to immediately begin testing for the novel coronavirus. The move by the federal agency means that the nation will become able virtually overnight to test thousands of patients rather than the few hundred tested so far for the virus, known as Covid-19… The FDA said the new policy is for certain laboratories that develop and begin to use validated Covid-19 diagnostics before the FDA has completed review of their Emergency Use Authorization requests. The FDA estimated that between 300 and 400 academic medical centers and a few large community hospitals can immediately begin testing. Until Saturday's announcement, the U.S. had been limited to a relatively few diagnostic tests done so far by the Centers for Disease Control and Prevention… The FDA's fast response to a rapidly evolving disease outbreak takes place even before it has been able to plow through the details of the hospitals' emergency applications. In doing so, the FDA is tapping into a vast reservoir of diagnostic capability at American hospitals."

This is an indication that the federal government is beginning to understand and act on the crisis. My hope is that in the days and weeks ahead, our healthcare resources will be fully deployed, and our medical experts will be permitted to take charge of the response to the disease. The risks we face are serious and it is important to understand that this type of crisis will become increasingly common. The volume of communication and the amount of information we all consume may result in increased awareness and understanding of the risks of the modern world. Or it could result in increased levels of panic and instability. It is up to all of us to resist panic and polarization and strive for understanding and community. This crisis is not simply a challenge for Donald Trump, but for our American community, indeed for all humanity.

Trump defends administration's coronavirus response (Update)

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Provided by Earth Institute, Columbia University

Opinion: Emotional support dogs make life harder for people who rely on service dogs

by Deni Elliott, The Conversation

The U.S. currently has no system to differentiate real service dogs from pets. Credit: Cheryl Paz/Shutterstock.com

In 2017, Marlin Jackson boarded a cross-country flight. When he got to his row, another passenger was already in the middle seat with an emotional support dog in his lap.

According to Mr. Jackson's attorney, "The approximately 50-pound dog growled at Mr. Jackson soon after he took his seat…and continued as Mr. Jackson attempted to buckle his seatbelt. The growling increased and the dog lunged for Mr. Jackson's face…who could not escape due to his position against the plane's window." Facial wounds requiring 28 stitches were the result.

Untrained emotional support dogs don't just attack people. They attack highly trained service dogs, as well, sometimes ending their working lives.

I can relate. I am a visually impaired person partnering with my fourth guide dog over a 20-year period. In the past decade, I have increasingly needed to cope with clueless handlers allowing their pets to interfere with my dog's work.

As a professor of ethics, I teach students to consider first the needs of the most vulnerable. I wish I could teach the same lesson to those who risk public safety with their ill-trained dogs, most of whom are emotional support animals, a category not recognized by the Americans with Disabilities Act.

Dogs, dogs, dogs

Over the past decade, purported emotional support animals have increasingly appeared in stores, restaurants and airports. While peacocks, pigs and kangaroos make the headlines, almost all the animals found in no-pet zones are dogs. Dog biting, barking, growling, urinating and defecating are top complaints, with one airline reporting an 84% increase in dog-related incidents from 2016-2018.

The influx of inappropriate dogs has also generated unwarranted suspicion toward the approximately 10,000 Americans who, like me, partner with legitimate, trained guide dogs.

Animal public access in the U.S. is currently governed by a patchwork system of inconsistent laws, creating confusion for people with disabilities, citizens and, particularly, gatekeepers—the store managers, restaurant owners and building supervisors tasked with deciding which dogs should be allowed in their no-pet spaces.

In other countries, IDs are issued only to professionally trained service dogs who have demonstrated ability to behave in public. In the U.S., there is no such validation. As a result, pet owners have become increasingly brazen in fraudulently claiming their animals warrant legal public access.

Service dogs versus emotional support animals

The Department of Justice, which enforces the Americans with Disabilities Act, allows people with physical, sensory, psychiatric, intellectual or mental impairments to have public access with service dogs who have been individually trained to perform tasks that mitigate their owners' disabilities.

The Department of Transportation and Department of Housing and Urban Development allow service dogs on public transportation and in housing, respectively, but also grant access to people with mental and emotional disorders accompanied by emotional support animals—untrained animals who need only to contribute to their owners' emotional well being, as any good pet would.

Technically, the individual seeking access with an emotional support animal must have certification of a mental or emotional disorder, which is a much lower standard than the disability requirement of DOJ.

Some mental health professionals have been willing to attest to an individual's "need" for an emotional support animal without having a professional relationship with them. And none vouches for the appropriateness of specific animals.

ADA service dogs may legally accompany their handlers almost anywhere. Emotional support animals may not. For example, emotional support animals currently allowed in aircraft cabins are not legally permitted in airport shops and restaurants. Emotional support animals allowed to live in college dorms may not go with their owners to class or the cafeteria.

Online purveyors of official-looking letters, vests and patches guaranteed to get dogs access in pet-free zones take advantage of the confusion between service dogs and emotional support animals, liberally mixing the classifications. They also fail to mention that the individual seeking such accommodation must have proof of a mental disorder. This omission, itself, is an ethical problem.

A predicament for gatekeepers

Gatekeepers have to weigh the consequences of confronting an individual accompanied by a dog. Denial of access to a disabled handler with a legitimate service dog can result in a US$10,000 fine by the DOJ. The fine for a handler who falsely portrays a pet as a service dog or emotional support animal ranges from $100 to $1,000 and happens only if the handler supplies identification or waits for the police.

It is cheaper and easier for gatekeepers to just hope that questionable dogs don't put patrons at risk. Airline attendants face a unenviable dilemma, as passengers cannot escape aggressive or stressed dogs in the tight confines of an airplane.

Change on the horizon?

There are recent signs that DOT and HUD are moving toward DOJ's more stringent regulations. On Feb. 5, 2020, DOT opened a 60-day public comment period for a plan that would reclassify emotional support animals as pets and restrict free aircraft cabin access only to service dogs. HUD recently posted new guidelines to help housing providers better determine animal access.

In my view, more federal intervention is needed. Medical documentation of disability should be the entry point for service dog access, just as it is for handicapped parking permits. Offering a nationally recognizable ID for service dog owners who voluntarily provide documentation would eliminate some fraud.

Ideally, a dog's ability to behave appropriately in public should be proven prior to access and affirmed annually by testers, who use a public access test to verify a dog's manners and handling of disability-specific tasks, such as that developed by Assistance Dogs International or those performed by all U.S. guide dog schools.

Some argue documentation and testing is burdensome or a violation of disabled people's civil rights. But physicians, who diagnose ADA-defined disabilities, already provide their patients verification for state and federal benefits. Behavior tests assure handlers their dogs can work in stressful situations. And ensuring public safety protects the civil rights of all people.

Public retains positive attitudes toward service and support animals

Predicting intentional accounting misreporting

by Alvin Lee, Singapore Managment University

Credit: Alvin Lee

In the U.S. Securities and Exchange Commission (SEC) 10-K annual report filing for its financial year ending July 31, 2008, American jewellery retailer Zale Corporation ('Zales') mentioned the words 'advertising' or 'advertisement' 17 times. A year later, those same words showed up more than twice as often at 41 times.

By then, the SEC had begun investigations after the company delayed posting fourth-quarter results. Zales was subsequently found to have improperly capitalised television advertising costs from 2004 to 2009 although few had noticed what was going on.

In a method featured in new research by SMU Assistant Professor of Accounting Richard Crowley, this intentional misreporting would have sent alarm bells ringing well before the SEC started asking questions.

"They're 97th percentile or higher in our model in every single year from the second year of misreporting onwards," says Professor Crowley, referring to the machine learning technique featured in the paper "What are You Saying? Using Topic to Detect Financial Misreporting". "97th percentile here means that their score on our misreporting detection model was higher than 97 percent of U.S. public companies."

He adds: "The model is run yearly, so that means that for each year of 2005, 2006, ... 2009, Zales scored a higher misreporting detection score than 97 percent of public companies that year."

What's the word?

Professor Crowley explains that the research completely ignores the numbers—"If managers are going to misreport the numbers, they're going to do it in a believable fashion"—and instead looks at what is written instead, which the research refers to as the 'topic'.

Together with Professors Nerissa Brown and Brooke Elliott from Gies College of Business at the University of Illinois Urbana-Champaign, Professor Crowley analysed over 3 billion words in 10-K filings from 1994-2012 to see how reliably certain topics predicted intentional misreporting. In certain samples, the research improved prediction of intentional misreporting by 59 percent.

"The one key difference when you're discussing things when you're lying is that you're very intentional on the topics you pick to discuss," he elaborates, pointing to the example of Enron.

"They just talk about increases in income and they have an enormous amount of discussion about that," Professor Crowley observes. Enron's 1999 annual report serves as a prime example, citing "acceleration of Enron's staggering pace of commercial innovation" for a 28 percent revenue increase to US$40 billion from a year ago, as well as a 37 percent jump in net income before non-recurring items to US$957 million.

Professor Crowley singles out a phrase that Enron used often in their 10-K's: "compared with". He explains:

"Companies are always saying things like, 'This is our income in 2011 compared with income in 2010,' and they're always giving forecasts about income, gross margins etc.

"But then you have income taxes, non-interest income, profit, those are just the general phrases that show up. When we picked out the most representative sentences for each of these topics, we found phrases such as 'operating profit was $122.1 million in 2011 compared with $113.9 million to 2010, an increase of 7.8 percent.' This is an extremely common structure to see in these documents.

"So when we talk about Enron, they have sentences like that, but they have a lot more of them than anybody else has ever done, both in 1999 and across the entire history of our sample."

Given the purported number of deals Enron had that generated all that revenue, it might make more sense to read in its annual reports things such as acquiring sources for its energy contracts, Professor Crowley notes. Instead, it largely "talked about revenue figures and income figures", he observes.

So is there a tipping point of the number of times a topic appears that is a red flag? Or the kinds of words used?

"There is no constant sort of barometer for this," Professor Crowley tells the Office of Research and Tech Transfer. "I can't just say if they talked about it X percent of the time, we got them. It depends on a lot of factors. And a lot of these factors are industry-specific, and some are firm-specific.

"[It also depends on whether] you're in a recession versus if you're not in a recession. Likewise, if you're a financial company versus a healthcare company, or a phone company versus a steel manufacturer, [the topics to look for] should all be different."

You can't game what you don't know

Professor Crowley and his collaborators employed over 20 different text-based variables in their predictive model, including the use of the Fog Index for readability.

While intuition would suggest an easy to read 10-K to be transparent, Professor Crowley counters by saying "it could be because they left out all the details". Similarly, positive sentiments like those expressed by Enron could be signals of intentional misreporting, although it is impossible to be 100 percent sure.

"It takes just six seconds to run through a 10-K with our model," Professor Crowley says while noting that the SEC has adopted parts of his model to uncover intentional misreporting. But the question must be asked: Can firms looking to mislead the market study the algorithm to beat the SEC at its own game?

"The one nice thing about this algorithm is that it changes every year," he elaborates, pointing to the combination of words that make up the topics that the algorithm works on. "Companies don't know what the regulator's target would be, even if they're using our algorithm."

"The benefit of that is that if you're a company trying to manipulate, you don't know what the target is either."

New research pinpoints intentional financial misreporting

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More information: Nerissa C. Brown et al. What are You Saying? Using Topic to Detect Financial Misreporting, SSRN Electronic Journal (2016). DOI: 10.2139/ssrn.2803733

Brazilian communities fight floods together – with memories and an app

by University of Warwick

Flooded community in Brazil where the researchers are working. Credit: University of Warwick

Brazilian communities that are vulnerable to devastating floods are being united and empowered to defend themselves, using 'citizen science' and a specially developed mobile app, thanks to two research projects led by the University of Warwick.


Led by Professor João Porto de Albuquerque, researchers are forming a network of citizens of all ages across the country who, together, are collecting and recording data on rainfall and flooding in different regions—leading to more effective flood risk governance at local and at national levels.

In one project, the research team is mobilising 81 schools in Brazil, training students to gauge rainfall levels using the traditional method of measuring rain in bottles. The students will record this data from all their various locations into an app that is being developed by the researchers to collate and centralise the information digitally.

Combining and sharing all this information from local communities will create an effective data tool, which can be used to support and supplement current flood monitoring practices in different regions effectively and in real-time, boosting resilience against weather events throughout the country.

As well as working with schoolchildren, the researchers are also engaging with older people in communities, encouraging them to share their stories of past floods—their memories becoming crucial data that will inform future flood defence, bringing neighbours of different ages together.

Urban flooding is one of the biggest challenges for contemporary Brazilian cities. Its catastrophic impact was shown on the 10th February 2020 in the metropolitan area of São Paulo, when intense, torrential rain paralysed the city.

Professor João Porto de Albuquerque, who is the director of the Institute for Global Sustainable Development at the University of Warwick, said:

"Our research is about transforming the everyday experience and knowledge of individuals into a powerful collection of data—a comprehensive, accurate, up-to-date evidence base about how weather is affecting communities throughout Brazil, which can be used to strengthen local and national flood defence planning.

Credit: University of Warwick

"Each one of us has the power to gather and use data that can save lives, but that information is only effective when it is collated and shared in the correct way, and with the right people."

Professor Porto de Albuquerque's team is collaborating with Brazil's National Centre for Natural Disaster Monitoring and Early Warning (CEMADEN) and international partners at Fundacao Getulio Vargas (Brazil) and Heidelberg University (Germany), connecting local communities to centralised authorities, and informing national disaster management processes with the data collected by ordinary people.


"I am delighted that our partners at CEMADEN are using the citizen data to inform their policies," said Professor Porto de Albuquerque. "This gives a voice to the most affected people in major national processes of environmental planning, benefitting the country as a whole, and the individuals who now have agency to protect their own communities."

The project is not just about collecting data to save lives. A principal focus for the researchers is spreading awareness of the most effective and simple ways in which communities can work together to make themselves less vulnerable to social and environmental menaces—using the abilities and the knowledge that each citizen already possesses.

Guidelines and materials for creating local awareness and building flood resilience will be developed by the researchers and circulated amongst schools, citizens, and stakeholders.

Professor Porto de Albuquerque commented: "Establishing a more robust defence against flooding is hugely important, and equally crucial to this project is raising awareness of how neighbours can come together, listen to each other's experiences, share information effectively, and collaborate to make their communities more resilient against any natural threats."

Dr. Liana Anderson, from Cemaden, a federal research unit from the Ministry of Science and Technology, commented: "In the process of co-collecting and sharing data with citizens, we advance the scientific knowledge and the technical development for societal benefits in three distinct pathways. First, we can better understand how the citizens perceive the risk they are exposed to and the short and long term impacts that these events causes to their lives.

"Secondly, together with citizens and local institutions we can better think about best practices on how we, as a federal institution responsible for monitoring and issuing warnings of disasters, can communicate the risk and the potential impacts to the society.

"Finally, with a robust technological product, the app, we can gain scale and reach other regions of Brazil, strengthening the network and communication among scientists, communities and local and regional institutions. Moreover, this project will contribute to the understanding of the multi-dimensions of the societal vulnerabilities from the communities that live in flood prone areas, which is useful for subsidizing Cemaden´s decision making process for improving our warnings."


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Provided by University of Warwick