Your firm has been hired to conduct a forensic investigation of the Tallahassee BeanCounters (TBC), a minor league baseball team in Tallahassee, Florida. TBC has never before been au- dited. Franklin Kennedy, the team’s owner, has told employees that the audit is a requirement of the bank, which provided the mortgage loan for the recently completed tmining faCility.
However, Mr. Kennedy privately tells your audit team that he received an anonymous note (below) in the mail leading him to suspect that someone within the company is conullitting fraud. The envelope, addressed to Mr. Kennedy, had a Tallahassee postmark and no return address. Because Mr. Kennedy lives in Boston, he has entrusted the running of this fl’anchise to his long-time associate Phil Ackers, Mr, Kennedy had assumed that things were running efficiently until the note arrived. TBC has no formal procedures to accommodate whistle- blowers and the employees of TBe are unaware of the true nature of your engagement.
I think there is something funny going on here at TBe. Numbers that do not add up,lots of whispers in the hallways and dosed-door discussions have me suspicious. ITI were you I would check it out.
A long-time friend.
The owner has asked you to focus your investigation on the last five months (May through September). This is the time period during which the training facility was constructed. As you familiarize yourself with the company, you note that in addition to revenue from ticket sales, TEC generates funds from parking, fundraislng, and sales of concessions and game programs. Franklin Kennedy also gives TBe some start-up money at the beginning of the season to assist with expenses until the team starts earning revenue from games, He with- draws that money over the course of the season. Operating expenses consist primarily of payroll, equipment (bats, balls, etc.), team travel, programs, and concession inventory; Any fees due to the baseball league, such as franchise fees, are paid by the Boston Sox (Franklin Kennedy’s major league team) on behalf of TBe. Payroll is processed by an outside service company. Other office expenses are similar to those of most small businesses.
Student Handout (SH)l provides an organizational chart for TBe. Office manager Den Hill oversees daily operations of the organization. Michelle Shelton provides support for management and handles most of the bookkeeping. including accounts payable, cash receipts, and equipment purchase orders, Candace (Candie) Larson, receptionist, answers phones and compiles time sheets for processing. Julie Roper, assistant to the president, assists with donor relations and is also responsible for concessions ordering and inventory as well as accounts receivable collections. President Phil Ackers oversees fundraising activities and supervised the building of TBe’s newly completed training facility.
To familiarize yourself with TBC, you attend a night game and chat with some of the
employees. The three women who work in the ticket booth seem particularly eager to chat. Myrna Myers, their supervisor, tells you the three women have worked together in the booth for 20 yem’s. Their husbands come to every game, and the six often socialize together as well. Myrna is happy to talk to you about the other TBe employees, especially those in the front office, Below is a summary of Myrna’s opinions.
Forensic Accounting in Action 18-13
Company Overview: Things have changed a lot this last year. Mr. Ackers cut down on excess employees, particularly some of the game-day employees because it’s expensive to build a new training facility. I don’t mind because this new building is great It’s state-of-the-art and I hope it will help us recruit and keep our players in shape. We’ve had a great season this year, and all of the ladies here would love to see that continue; A lot of people complained during the building because of the mess and there was some tension because Mr. Ackers was on us to be efficient and cut expenses so we could qualify for
. a good rate on the mortgage loan, but we qualified and I think it was worth
- Phil brought in food and drinks for all of us the day we got the loan and everything was set. It was a lot of fun,
Phil Ackers Company President; Phil’s a nice guy; he oversees the fundraising, and seems to know everyone everywhere. That’s probably because he was a professional ballplayer years ago. He was pretty tense during the building of the new training facility, but now that it’s completed, he’s getting back to his old self. He’s really close to his family; in fact he even hired his niece Julie Roper to take the place of Terri Hughes who had been his assistant forever when she left to go take care of her mother.
Julie Roper Assistant to the President: She’s a great change from Terri Hughes, Mr. Acker’s former assistant. Terri guarded Mr. Ackers’ office to the pointit was impossible to get hold of Mr. Ackers to ask even the Simplest question. Anyway, Terri’s mother got sick and Terri left, then Mr. Ackers hired his niece, Julie. Like I said! she’s a welcome change. She works very hard, even has taken over some jobs that Terri wouldn’t touch, like the ordering for concessions and group ticket sales. She also took over accounts receivable collections from Michelle, who was thrilled to get rid of that job.
Tucker Johnson General Manager: TIle players love ‘Iucker, He has an interest- ing coaching philosophy-never raises his voice to ‘the players or uses foul language. We!ve sent many players up to the majors, so he still gets the job done even without the four-letter words. Tucker can’t stand paperwork, so he has Sam do most of the ordering as well as taking care of all the equipment.
Ben Hill Office Manager: Ben still thinks it’s 1979 and disco is king. He dresses like John Travolta in Saturday Night Pever and is always hitting on the women in the office, He has several ex-wives; most of whom he started dating while still married to a previous one. When TBC qualified for its bank loan, Ben got a nice bonus which he blew on a new Cal’. He calls it his “chick magnet. II He keeps things running smoothly inthe office though, so Mr. Ackers pretty much lets him run dey-to-day operations however he wants.
Candace LArson Receptionist: Candie is a sweet young girl. She’s good with the phones, and everyone likes her. She’s the reigning Queen of the Taylor County Crab Festival. We were all real proud when she won. She’s always at the practice field after work-sometimes I think she’s more interested in dating players than in doing her job, but overall she’s a good worker.
Michelle Shelton AlP Clerk: Michelle is really hard working. She handles all the bookkeeping and paperwork, like the purchase orders and stuff. She’s also going to school part time.
Forensic AND INVESTlGAiM’: ACCOU/llTlNG
To begin your audit, your team does a walk-through of each process at TBC. SH 2 describes your observations of those processes and how employees handle their responsibilities. You also collect a copy of the team game schedule (SH 3) and copies of the last five months of financial information (SH 4 through SH 17).
Your instructor will divide the class into teams. Working with your team, your assignment is to determine whether fraud has been committed at TBC, and, if so, to gather and pres. ent evidence sufficient to prove the guilt of the suspect(s). This is a competitive exercise.
It is essential that you keep the information that yOUl’ team has gathered private. Leaks
provide other teams with cheap information, and willput your team at a disadvantage at the time of grading,
The first step is to review the background and financial information provided. Then, working with your team, brainstorm.” Given the company, its employees, and processes, how could
a fraud be committed and concealed? Remember the “fraud triangle:” to commit fraud, a perpetrator must have pressure, opportunity, and a rationalization for his or her behavior (AICPA, para. 33). Are there weaknesses in controls that could be exploited by an unscru- pulous employee? Which employees have the incentive to do so? Review the given financial data. Do relationships between financial and non-financialfnformation seem reasonable? Are there any unusual trends, postings, or transactions about which your group is curious?
As in a real audit or forensic investigation, your group is not provided, initially, with all the information needed to solve the case. Once your group has reviewed the materials provided and completed your brainstorming session covering the questions listed above, compile a list of additional information you would like to receive, You will request this in- formation via your Instructor, To obtain the additional information you need, send an email
|the phone invoices for May.”
|As this is a forensic investigative
||exercise, you have greater latitude
||than in most audit
to your instructor, but address your request to the appropriate employee of TBC, or the ap- propriate outside party. POL’ example, “Michelle Shelton: Please provide us with copies of
situations to gather information in any legal manner you see fit. For example, you can ques- tion TBC employees, their friends, relatives, and business associates. If you have enough evidence to give probable cause, you can obtain a subpoena from a judge enabling YOlt to acquire private information (such as credit reports or bank accounts). If requesting evidence from outside of TBC, be clear inyour request, For example, “If I examine public records, what will Ilearn about cars owned by Sam McCarty?” or “If Iattend the TBe fundraislng event on April 3, what will Isee?” You can also conduct other information gathering exercises-for
example, surveillance of TBC employees. Interviewing Suspects
If time allows, your instructor may provide your team an opportunity to interrogate your suspectfs) near the end of your work on the case, The goal of the interrogation is to obtain a confession from your suspect(s). You can include any confessions you obtain as additional
Forensic Accounting in Action
evidence in ,your final fraud report. You will question any suspects as a team, so think of
ways you can use your team effectively. The interviews are generally short (10 to 20 minutes), so consider the following:
- Be prepared. The more information you have gathered toward solving the case, the higher the likelihood you can induce an admission of guilt from your suspect. For example, if you know who did it, how they did it, why they did it, and can show that they benefited from the crime, you can box your suspect(s) into a corner and obtain a confession.
- Have a plan. Organize your information and decide on a method of presentation that will best demonstrate to the perpetrator that denial of guilt is futile. However, do not treat your pre-planned questions as a script to which you must adhere. You wi1l want to modify your approach as the interview progresses based upo~ the responses of the suspect.
- Have a theme for your interview. How will you behave toward the suspect? Will you be
empathetic and understanding, allowing the suspect to rationalize his or her behavior? Or will you act as if resistance to questioning is fruitless, as you have all the information you need and are just letting the suspect state his or her side? Will you team up to play “good-cop, bad-cop”? Make certain that all members of your team are using the same line of reasoning.
Final Fraud Report
Your team will be graded based upon your written final fraud report, Your report should be convincing and include the following for each fraud your group uncovers:
- The name(s) of the perpetrator(s) of the crime. S. How the perpetrator(s) committed the fraud.
- The dollar magnitude of the fraud.
- The personal gain received by the perpetrator(s) from the fraud.
In your report, you should include evidence to back up your assertions in the four areas above. ‘This evidence might include documentation you have gathered from your emails, informatlon summarized from intervlews and other sources such as surveillance, and analysis
‘based on data from the student handouts. Finally, experience has shown that the most suc-
cessful teams are those that work together. Each team member’s point of view is valuable. Divide this case and work alone, at your own peril.
Documents for Analysis
Figures 18.1 through 18.28 provide the immediate information that is available for you to begin your investigation of fraud at the BeanCounters. These include an organizational chart and an analysis based on.interviews with the various employees regarding their backgrounds and job functions and how they conduct the company’s business on a regular basis. There is a copy of the game schedule and financial files (registers, ledgers, inventory- invoices, payroll records, revenue and expense accounting) for the period April through July where you are told to expect that fraudulent activity is most likely to have occurred.