Internal Control Lessons from an Epic Oscars Fail

“An ounce of prevention is worth a pound of cure.” This statement was from one of our founding fathers, Benjamin Franklin, who was speaking about fighting fires. But he could have been talking about the Oscars Sunday night and the internal controls that PwC had in place to ensure that the proper winners were announced. PwC has been behind the scenes of the Oscars almost since the very beginning. The firm usually has a brief moment in the Oscars' spotlight when two of its accountants enter the theatre with the briefcases containing the sealed award envelopes, but the 89^th annual awards show was a different story. A New York Times article, Oscars Mistake Casts Unwanted Spotlight on PwC, addresses some of the details surrounding the mistake that involved the firm. Through the years, PwC has developed internal controls to prevent the winners from being revealed prior to the opening of the envelopes, but did they have controls to prevent the wrong envelope from being handed to the presenters?

Internal controls, like segregation of duties, have multiple purposes. This blog, the Examiner, started with a series of posts related to preventing fraud with segregation of duties. A hidden benefit to segregation of duties is that it can help prevent errors from occurring. By involving more people in the process, the resulting system of checks and balances helps identify errors before they happen.

Now, let’s look back at the events that unfolded at the Oscars Sunday night as the presenters were announcing the winner of the Oscar for Best Picture. We know from photographic evidence that the two presenters, Warren Beatty and Faye Dunaway, were given the wrong envelope as they walked on to the stage to make the big reveal. We will probably never know what internal controls were missing or broken that allowed this to happen because it is unlikely that PwC will disclose this information to the general public.

However, we do know of one internal control that failed. This control—of having multiple people involved in a process to provide checks and balances—parallels the hidden benefit of segregation of duties that prevents errors. As soon as he opened the envelope and saw the card, Warren Beatty knew something wasn’t right and was so close to preventing the error. But, rather than asking someone for clarification, he looked in the envelope a second time as if looking for another card, paused, started to announce the winner, paused again, and finally handed the envelope to his co-presenter Faye Dunaway who immediately read the card and announced “La La Land!” as the winner for Best Picture, which we soon learned was incorrect. The card handed to Beatty and Dunaway, we now know, said “Emma Stone, La La Land,” the actress who won Best Actress for her role in that movie.

This was the mistake that created the significant turn of events. Imagine the range of emotions felt by all involved. The La La Land folks moved from sheer excitement to an unimaginable place worse than losing because many were holding Oscars in their hands that were soon going to be taken away. The people from Moonlight, the true Best Picture Oscar winner, were on a similar emotional roller coaster, but it was filled with unbelievable, dreamlike excitement because it probably didn’t seem as real the way it went down. Now, as for our PwC friends, I am sure they felt physically ill when it happened and probably still do.

We can learn several things from this event. If there is more than one person involved in a process, mistakes can be prevented. However, they can’t be prevented if the people don’t know their roles in the process. Let’s rewind and go to a “what if” world.

• What if PwC had better controls for handling the dual envelopes to prevent the wrong one from ending up on the stage? There could be a double, triple, or quadruple check involving multiple PwC employees before the envelope reaches the stage.
• What if PwC or the Academy provided training to the presenters to ensure they understood their roles in identifying possible errors with a card? If an error is identified, then they should also know how to handle it.
• What if Warren Beatty called for help rather than handing the card to his co-presenter? The emotional rollercoasters could have been relegated to the pony ride at the local fair.

Errors happen all the time, but we may not know about them. Most of them get caught before they are posted to the accounting system or read aloud at an awards show. Others may be caught through a management review or account reconciliation process. These internal controls are so valuable in the world we live in. Though we rarely see the benefit of them, this year’s Oscars mishap showed what can happen when a catastrophic error slips through the controls. Everyone is asking, “Why didn’t they catch this?” or “Why did they hand them the wrong envelope?”

“An ounce of prevention is worth a pound of cure.” Prevention is critical in the world of fighting fraud and mitigating errors. Segregation of duties, the act of involving multiple people, can save your organization. It only takes one significant fraud or error to wreak havoc.

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