Return of the Tallahassee BeanCounters: A Case in Forensic

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ISSUES IN ACCOUNTING EDUCATION - TEACHING NOTES American Accounting AssociationVol. 25, No. 22010pp. 1–40

TEACHING NOTES

Return of the Tallahassee BeanCounters:A Case in Forensic Accounting

Carol Callaway Dee and Cindy Durtschi

Keywords: fraud detection; forensic accounting; auditing; problem-based learning.

Data Availability: The authors are willing to share any data as well as Excel versionsof all student and teacher handouts. �Please contact ProfessorDurtschi.�

PART III: TEACHING NOTES INTRODUCTIONhe Return of the Tallahassee BeanCounters �TBC II� uses the same basic setting as in theoriginal Tallahassee BeanCounters �TBC I� case; however, the frauds, perpetrators, oppor-tunities, and motivations are very different. This allows instructors to rotate versions of the

ase to avoid information transfer from one semester to the next. The two cases are independent;nowledge of TBC I is not necessary to use this case. The differences between the two cases areutlined in Appendix A. When using TBC II, instructors should assume that TBC has not been aictim of fraud previously—that is, assume that the events of TBC I have not occurred.

Statement on Auditing Standards �SAS� No. 99 �as amended by SAS No. 113� �AICPA 2002�iscusses three broad categories of fraud: asset misappropriation, financial statement fraud, andorruption. TBC II includes frauds of all three types: improper revenue recognition �financialtatement fraud�, bid rigging in a construction project �corruption�, stolen concession inventoryasset misappropriation�, and payments made to a related party for substandard maintenance workcorruption�. In particular, the revenue recognition fraud in TBC II should be useful to instructorsf auditing courses, given that �1� auditors are required to assume “improper revenue recognition”s a fraud risk area �SAS No. 99, ¶ 41, 54�, and �2� a high proportion of financial statement fraudsnvolve improper revenue recognition �Beasley et al. 1999�.

This case involves collusion between two employees—the company president, Phil Ackers,nd his assistant Julie Roper �who is also his niece�. Additionally, TBC has an incentive bonus

arol Callaway Dee is an Associate Professor at the University of Colorado Denver and Cindy Durtschi isn Associate Professor at DePaul University.

e thank Special Agent Joseph Cornwell, FBI �now retired�, and Anthony Carro, former Chief Investigator of theanhattan District Attorney’s office, for their input and review of the case. We also thank Robert Dosch �University oforth Dakota�, Thomas Buckhoff �Georgia Southern University�, William Hillison �Florida State University�, Kevan L.

ensen �University of Oklahoma�, Patricia Johnson �Canisius College�, Chih-Chen Lee �Northern Illinois University�,avid O’Brien �Pittsburg State University�, and Susan Swanger �Western Carolina University� for helpful comments and

ssistance in implementing early versions of this case. We also thank participants at the 2007 and 2009 Fraud and Forensicccounting Education Conferences held in Savannah and Atlanta, Georgia.

Published Online: May 2010

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lan in place that motivates Phil to manipulate the financial records in order to maximize hisonus. This provides students with an opportunity to discover the agency problems that can beelated to the structure of executive compensation plans.

As in TBC I, this case provides students with experience in detecting fraud in a company’snancial records. Initially, students are not provided with enough information to solve the case.hey must use the Student Handouts �SH� as a starting point for their investigation and then sendmail requests to their instructor for additional data needed to further their investigation. Thenstructor is responsible for answering the students’ inquiries and providing the additional dataequested. This additional data is contained in the Teacher Handouts �TH�.1

This section provides the solutions to the case, as well as examples of audit trails followed bytudents in solving the frauds.2 The frauds described below are the only ones in the case; however,s in most accounting records, students may find other fluctuations, errors, or unusual items thatre unrelated to fraud. Our experience is that when students themselves make an error, or have aisunderstanding of the data, they can be quite insistent that it is a fraud. When students believe

hey have found a fraud in some area other than those indicated in these solutions—accountseceivable, concessions, construction, and maintenance—you can respond to the students �role-laying as the appropriate TBC employee� that the account they are questioning is correct.

GENERAL INFORMATIONThere are many accounts that do not include fraud. However, to discover this, students have

o ask for verification of the numbers they have been provided by TBC contained in the Studentandouts. This verification can be supplied by the instructor with the following handouts:

H 1: Invoices provided by Sysco Inc., the concession supplierH 2: Invoices provided by Sports Chalet for equipment purchased by TBCH 3: Amounts billed by ADP Payroll Services for salariesH 4: Physical inventories of sports equipmentH 5: Physical inventories of parking and programsH 14: Sales tax computationsH 16: Financial statement reconciliationppendix B: Background information

TH 1, TH 2, and TH 3 can be provided to students who ask Sysco, Sports Chalet or ADP,espectively, for confirmation of purchase orders, invoices and amounts paid by TBC. TH 4 andH 5 are physical inventory counts for the sports equipment, parking, and programs. There are no

rauds in these accounts. TH 16 is provided to assist instructors in tracking transactions from theeneral Journal �SH 4� to the financial statements �SH 17�. These may be given to student teamsho ask for help reconciling to the financial statements, at the instructor’s discretion.

inancial PressureThe biographies in Appendix B show that Phil Ackers, the company president, was a major

eague ballplayer in his younger years. At that time, while he was making a high salary, several ofis wife’s siblings began to rely on him to take care of them financially. Giving financial assistanceas not a problem then, but when his playing days ended, Phil no longer had the financial

esources to support them. Phil Ackers and his wife Madelyn Harris Ackers have two children of

All handouts are available in electronic form �Excel spreadsheets� from Professor Durtschi.We recommend removing the Teacher Handout number at the top of each handout prior to releasing them to thestudents. This will ensure that students are focusing on whether they have enough information to prove their case ratherthan whether they have acquired all the handouts.

ssues in Accounting Education - Teaching Notes Volume 25, No. 2, 2010merican Accounting Association

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heir own, and while they were able to wean several of Madelyn’s siblings from their financialupport, there were two who never got off the dole: Freddy Harris, Madelyn’s younger brother,nd Jerry Roper, Madelyn’s brother-in-law �married to her sister Sarah Harris Roper�.

pportunityFranklin Kennedy �the owner� lives in Boston and also owns the Boston Sox. Because he

onsiders TBC a farm team for the Sox, there is a close relationship between the two teams. Heersonally likes and trusts Phil, so is very “hands off” in his management style. Franklin rarelyomes to Florida; instead, Phil flies to Boston when needed. When Phil’s long-time assistant Terriughes leaves TBC to care for her ailing mother, Phil hires his niece, Julie Roper, who is theaughter of his wife’s sister �Sarah Harris Roper�. Now Phil has both the opportunity to overrideontrols and a willing assistant to perpetrate his schemes.

ationalizationPhil has been a good guy his entire life. He has supported his wife’s indolent relatives for

ears, and now that his kids are in college, he has large expenses and a salary that is much smallerhan that to which he is accustomed. He works hard for TBC. He is on the road a lot, travelingconomy class and feels he deserves the extra compensation—especially after Franklin gave himhe added responsibility of overseeing the construction of a new training facility without raisingis pay.

FRAUD SOLUTIONS AND ASSISTANCE IN ANSWERING STUDENT INQUIRIESevenue Recognition Fraud

Who committed the fraud: Phil Ackers, with the assistance of Julie Roper.How the fraud was committed: Julie Roper �Phil’s assistant� is in charge of the group ticket

ales and collections of related accounts receivable. All group sales are on account, paid subse-uent to the games. The fraud is conceived by Phil when the company begins construction of aew training facility. Phil �and, coincidently, Ben� receives a bonus based on the profit margin theompany can achieve during the construction phase of the training facility. �See TH 9 for detailsf the bonus structure and Appendix C for the gross profit calculation.� The bonus arises becausehe interest rate on the 30-year mortgage loan for the facility was based on a sliding scaleetermined by TBC’s performance. When Phil sees that the team cannot meet the required profitercentage, he and Julie add non-existent groups to her “will-call” list prior to each game. Allill-call tickets are on account and billed after the game. Phil records all accounts receivable

legitimate and not� as revenue and includes both real and false ticket sales in the accountseceivable ledger. Legitimate accounts receivable are collected by Julie in the weeks following theames. The false accounts receivable are, of course, not collected; thus, over time the accountseceivable balance continues to grow. Because only Phil and Julie maintain the accounts receiv-ble, and the owner �Franklin Kennedy� does not review the financial statements, the uncollectedfraudulent� accounts receivable go undiscovered.

Evidence of intent: This is not a onetime error, but a consistent pattern of false ticket sales thatscalates over time. In addition, the false revenue enables Phil to receive a large bonus from TBC.ulie is a willing accomplice because Phil offers to share his bonus with her if they can ensure heeceives it by showing the needed profit percentage.

Economic impact: The direct economic impact totals $110,448 from false revenue recorded.able 1 presents the solution to the revenue fraud including details of the fraudulent accountseceivable and the dates they were entered into the TBC books.

In addition, this false revenue leads TBC to pay out a combined total of $52,056 in bonuseso Phil and Ben for which they were not eligible. The overall economic impact is more difficult to

ssues in Accounting Education - Teaching Notes Volume 25, No. 2, 2010American Accounting Association

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TABLE 1

Solution to Revenue Recognition Fraud

raudulent A/RDate

Entered Amt. Fraudulent A/RDate

Entered Amt.

aines Street Church BoyScouts

1/13 $1,200 Boy Scout Troop 442 2/26 $1,500

radfordville Kiwanis 1/13 $600 Girl Scout Troop 224 2/26 $1,200homasville Masons 1/13 $600 Killearn First Church 2/26 $1,200oy Scouts Troops 243 & 255 1/14 $1,200 Leon County Firefighters 2/26 $2,400eridian Valley Church 1/14 $1,200 Girl Scout Troop 53 2/26 $2,400irl Scout Troop 199 1/14 $600 Crawfordville Little League 2/26 $2,400irl Scout Troops 413 & 414 1/15 $1,200 Wakulla Springs Junior

League2/26 $2,400

irl Scout Troop 19 1/15 $540 Girl Scout Troop 114 3/10 $600ub Scout Troop 24 1/15 $600 Mill Creek Senior Center 3/10 $600eon County Junior League 1/15 $600 Girl Scout Troop 229 3/10 $600akulla County Junior League 1/15 $1,200 Godby High School Baseball 3/10 $600palachicola Brownie Troops 2/5 $1,200 Bilby Revival Church 3/10 $1,200ub Scout Troop 294 2/5 $1,200 Girl Scout Troop 114 3/11 $1,200irl Scout Troop 13 2/5 $1,200 Jordan River Senior Center 3/11 $1,200rawfordville Little League 2/5 $1,200 Girl Scout Troop 229 3/11 $1,200rawfordville Harriers 2/5 $1,200 Cub Scout Troop 32 3/11 $1,200irl Scout Troop 243 2/6 $1,200 Buck Lake Elementary 4/7 $2,400irl Scout Troops 21 & 24 2/6 $1,200 Leon County Democrats 4/7 $2,400overnor’s Square Association 2/6 $1,200 Centerville Sewing Circle 4/7 $2,400all Street Little League 2/6 $1,200 Jefferson County Singles 4/7 $2,400palachee Pky ChristianChurch

2/6 $2,400 Jefferson County Singers 4/7 $2,400

odby High School BaseballTeam

2/7 $1,200 Lake Iamonia Rowing Club 4/8 $1,200

une Street Senior Center 2/7 $1,200 Thomasville Baptist Church 4/8 $1,200oy Scout Troop 324 2/7 $1,200 Wakulla AME Church 4/8 $1,200ill City Square Dance Club 2/7 $1,200 Panama City VFW 4/8 $1,200eyer’s Park Horseman’s Club 2/7 $2,400 Shell Point Quilters 4/8 $1,200ilson Senior Center 2/24 $1,200 Wakulla County Running Club 4/8 $1,200

eon County Masons 2/24 $1,200 Leon Rowers Booster Club 4/8 $1,200ellevue Middle School 2/24 $1,200 Jefferson County Singers 4/8 $3,600illtown Regatta Club 2/24 $1,200 Gamble Street Quilters 4/22 $2,208akulla Sewing Circle 2/24 $2,400 Macomb Valley Car Club 4/22 $2,400

lizabeth Cobb Middle School 2/25 $1,200 Pensacola Church 4/22 $2,400lizabeth Cobb Middle School 2/25 $1,200 Wakulla County Women’s

Guild4/22 $2,400

lbert Elementary 2/25 $1,200 FAMU Boosters 4/22 $2,400homasville Boy Scouts 2/25 $1,200 FAMU Marching Band 4/22 $2,400rawfordville Kiwanis 2/25 $1,200 FAMU Student Council 4/22 $4,800homasville Junior Masons 2/25 $2,400

Total Fraud Amount $110,448


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etermine. Should the bank discover the fraud, they may escalate payment of the mortgage, and/orequire payment of additional interest and penalties. Further, from an ethical standpoint, the bank’sther customers suffered to the extent they paid interest rates higher than that paid by TBC.

Evidence Phil and Julie received and used the money from the fraud: Phil qualifies for theargest bonus. In addition, he withdraws $10,000 in cash from his personal bank account and givest to Julie. She deposits it in her checking account.

andouts Associated with Revenue Recognition Fraud

H 6: Bank records other than TBCH 7: Game attendance �from tickets collected at gates�, and arena rental calculationH 8: Accounts receivableH 9: Phil and Ben’s bonus scheduleH 4: General journalH 6: Recurring expenses and revenuesH 17: Monthly financial statementsppendix C: Calculation of gross profit percentage for bonuses paid to Phil and Ben

Evidence trail students typically follow and suggested responses: Students should notice fromnspection of the financial statements �SH 17� that accounts receivable grow over time at auspicious rate. They should request accounts receivable records �TH 8� and reconcile them to thenancial statement balance. The amounts will reconcile �because the false accounts receivableave not been written off�, but students should notice from TH 8 that many accounts are overdue.f they question Julie about the late accounts, Julie will say that Mr. Ackers does not like to troubleot-for-profit organizations with collection calls. Students should not be satisfied with that answer.f students send confirmation letters to the fraudulent accounts, the instructor can reply on behalff those groups that the group never attended a TBC game, nor made plans to do so. �Groupsdded by Phil and Julie and their supposed dates of attendance are shown in Table 1.�

Additionally, students may notice from SH 6 that TBC pays rent on the arena at 5 percent oficket sales based on attendance. If students ask Michelle how she calculates payment, respondith TH 7. Students will see that the attendance does not reconcile to the recorded revenue.

In the student introductory materials, Myrna brings up how tense things were around theffice while cutting expenses and raising revenues in order to qualify for the loan. She mentionshat Ben and Phil were thrilled about the bonuses. This should make the students curious about theonus structure. When they ask for the bonus structure, respond with TH 9. Initially students mayuspect Ben. However, he merely benefited from Phil’s malfeasance—not because Phil wantedim to, but because that is the way Frank Kennedy designed the bonus structure. Despite the facthat Ben has financial difficulties, he cannot be the person perpetrating the fraud because he �1�as no authorization over accounts receivable, �2� does not sign the maintenance reports, and �3�s not involved with concessions or construction of the training facility. Appendix C shows theomputation of the gross profit percentage and shows how the false revenue enabled Phil toualify for the highest bonus—and how no bonus would have been received without the falseales.3

hoddy Maintenance FraudWho committed the fraud: Phil Ackers and Julie Roper.How the fraud was committed: Freddy Harris is brother-in-law to Phil Ackers—i.e., brother to

To achieve the revenue goals, Phil also delays paying for some equipment and concession invoices and also delayspaying one of the visiting teams their share of the game revenue.


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hil’s wife. Freddy runs a repair shop out of an old barn near his home. He repairs lawnmowersnd other small machines, but cannot seem to make much of a living at it. When Phil was aallplayer, he sent Freddy a monthly check, mostly to keep Freddy in Florida rather than movingn with him. When Phil retired from playing ball, he opened a restaurant near Miami and was ableo continue sending Freddy the checks. However, when the restaurant burned to the ground, Phil’sife began agitating to return to her hometown of Tallahassee. That is when Phil took the job asresident of TBC.

While Phil loves his job, it is not as lucrative as his former jobs and Phil can no longer affordo pay Freddy out of his own pocket. He decides it is time to help Freddy stand on his own twoeet, so he begins to assign to Freddy any small jobs and repairs that arise around TBC’s facilities.reddy is a huge baseball fan and overjoyed by this arrangement. Unfortunately, Freddy is notuch of a repairman. He arrives �usually late� on days he has an assignment and tinkers at the job

or awhile. Then he takes his lawn chair down to the practice field, where eats his sandwich, drinksis soda and falls asleep in the afternoon to the crack of baseball bats. Despite the fact that hiserformance is very poor, either Phil or Julie signs off on each job �SH 14�. Julie pays himromptly with Phil’s signature on the checks.

Evidence of intent: Phil’s intent can be shown by the fact that there is a steady stream of jobsoing Freddy’s way that either Phil or Julie “sign off” as completed and satisfactory, when they arelearly unsatisfactory.

Economic impact: Table 2 shows that the total difference between the amounts paid by TBCor each maintenance order and the value of the services received was $46,160.

Evidence Phil or Julie benefited from the fraud: There is no evidence that either Phil or Julieersonally received any money from the fraud. However, Phil still benefited because he no longerad to pay Freddy directly for his support; rather, he used TBC to support his less-than-ambitiousrother-in-law. Phil previously paid Freddy $1,000 per month from his own pocket.

TABLE 2

Solution to Shoddy Maintenance Fraud

O Date PaidOpinion of Value

of Work Done

Difference betweenWhat Was Paid andValue of Work Done

ay 3 $700 $250 $450ay 15 $1,500 $0 $1,500

un 10 $2,000 $500 $1,500un 14 $33,500 $12,000 $21,500un 20 $250 $40 $210ul 3 $1,000 $200 $800ul 14 $1,200 $600 $600ug 5 $250 $50 $200ug 17 $1,950 $500 $1,450ep 2 $250 $50 $200ep 6 $10,000 $2,000 $8,000ep 13 $2,000 $250 $1,750ep 30 $8,000 $0 $8,000otal Fraud $46,160


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andouts Associated with Maintenance Fraud

H 6: Recurring expenses and revenuesH 14: Maintenance purchase orders and invoicesH 6: Bank records other than TBC �for Freddy’s Fix-it�H 10: Independent appraisal of Freddy’s workppendix B: Background information �on Phil, Julie and Freddy�

Evidence trail students typically follow and suggested responses: Students should note thatBC has a permanent contract with AIA Handymen for routine maintenance �SH 6�. Studentshould wonder why Freddy’s Fix-it is being used so frequently since TBC has a standing contractith AIA, and notice the relatively high price paid for the maintenance jobs performed.

Students have the purchase orders created by Julie Roper as well as the invoices provided byreddy’s Fix-it �SH 14�. They can see that it was either Julie or Phil who signed off on the jobs asompleted. However, if students ask anyone else in TBC about the quality of Freddy’s work, theyhould receive complaints. While none of the other TBC employees will know the amount paid forach job, all will be eager to report, if asked, that the work was done poorly. They will also reporthat Freddy works short hours and spends a lot of time in his lawn chair watching the playersractice.

Students have no way of knowing without investigation that Freddy is the brother-in-law ofhil Ackers, or the uncle of Julie Roper. However, SH 14 �invoices from Freddy’s Fix-it� show theroprietor is Freddy Harris. Therefore, at some point students should start making connections if,n answering inquiries, the instructor drops the fact that Phil’s wife’s name is Madelyn Harrisckers. Students might also discover the connection if they suspect Freddy’s Fix-it is a “shell”peration and ask to drive out to Bainbridge to determine if the shop actually exists. In that casehe instructor can respond that Freddy was sitting outside at his shop �in a lawn chair, of course�nd waved them in. The instructor’s response can include the information that a picture of Freddynd Phil is hanging on the wall. Alternatively, if students address inquiries to Freddy, he himselfan mention that Phil is his brother-in-law. The family relationship should induce the students toave an outside inspector come and examine Freddy’s work to determine if it was completed to aatisfactory level and provide an estimate of what should have been charged for completion ofimilar work. TH 10 provides that independent, outside appraisal of Freddy’s work.

oncession Theft FraudWho committed the fraud: Julie Roper with the knowledge of Phil Ackers.How the fraud was committed: Julie Roper, Phil Ackers’ niece, was recently hired to take the

lace of Terri Hughes, Phil’s long-time secretary, who left TBC when her elderly mother fell ill.ulie is a part-time student at Tallahassee Community College majoring in business while workingart-time at TBC. She is responsible for writing checks, collecting accounts receivable, and or-ering and maintaining the concession inventory. During games, she works in the storage roomnder the bleachers where she hands out the supplies to runners from up in the stands. The jobreviously belonged to Holly Hope, the concession supervisor. While Holly is relieved to noonger have the job, she nevertheless maintains an interest in the proper accounting of inventoryut of a strong sense of duty. She even has kept a running inventory of concessions �as of theorning after each game� as mentioned in SH 2.

Phil tells Julie that she can take the concession “leftovers” to her parent’s Stop N’ Shop store,here they can then resell the goods and earn pure profit �as there is no associated cost�. Phil

uggests the plan to Julie as a way to help her parents, who are struggling to make ends meet withhe earnings from their small convenience store. Julie agrees because she knows her parents needhe help and she rationalizes it as food that would probably go to waste anyway. Additionally, herncle, the president of the company, said it was okay to do so.


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To commit the fraud, Julie drives her parents’ pickup truck to the storeroom after each gamend takes a large portion of the remaining concessions to her parent’s Stop N’ Shop store wherehey are sold. She then reorders more concessions for TBC than would otherwise be needed.

Evidence of intent: This is done repeatedly throughout the five-month period for which thetudents have records.

Economic impact: Table 3 shows the solution for the concession theft fraud. A total of14,678 worth of inventory was stolen over the five months included in this case.

Evidence Julie or Phil received and used money from the fraud: While neither Julie nor Phileceives money directly from the fraud, Julie receives a paycheck from her parents’ Stop N’ Shop.er parents receive money by selling the stolen goods. The cost to TBC is $14,678; however,

hose same items are sold at the Stop N’ Shop for $38,800. TH 6 shows that in addition to thiselp, Phil writes a check to Julie’s father �Bud Roper� for $1,000 each month.

Phil has been helping the family for years. Before the concession arrangement, he used toend a monthly check for $2,000 to Julie’s parents; Julie or her parents can admit to this if asked.hil also pays Julie’s tuition each semester at Tallahassee Community College. Thus, once again,hil has taken the burden for supporting his wife’s relatives off of his own shoulders and onto theooks of TBC.

andouts Associated with Concession Theft Fraud

H 2: Observations of financial functionsH 13: ConcessionsH 6: Bank records other than TBC �Julie’s checking account�H 11: Stop N’ Shop sales recordsH 15: Holly’s count of the concessions after each gameppendix B: Background information �on Julie�

Evidence trail students typically follow and suggested responses: Students have in their hand-uts the purchase orders and physical inventory for concessions, as well as the quantity of con-essions sold at each game �SH 13�. They should note that the physical inventory does noteconcile easily to the perpetual inventory, as write-offs of inventory happen only once a month—hen Julie does her count and writes off the inventory she has taken to her parents’ convenience

tore. By looking at the General Journal, students can see that the spoilage account is very high,nd that some items assigned to spoilage do not normally spoil �such as condiments and soda pop�.his should compel them to investigate further.

During their observations of the concession process �SH 2�, students should note that Hollyakes a deep interest in what happens with concessions and mentions that she takes an inventoryount for her own peace of mind. If they ask Holly for more information, respond with TH 15Holly’s count of the concessions the morning after each game�.

At this point, students usually ask to observe the storage room after the game. If they do, thenstructor can respond that they observe Julie arriving in a pickup truck and loading boxes in theed of the truck. If they follow the truck, they will see Julie unloading the boxes into the back doorf a Stop N’ Shop on the far side of town. They will also observe Julie letting herself into therailer next door, then later driving away after waving good-bye to her mother standing on thetoop. If they go into the Stop N’ Shop, they will encounter Julie’s mother working behind theounter. She will confirm that Julie is her daughter and works there on weekends.

At this point, students often believe they have solved the case. However, students need torove that the boxes taken from the storage room contained TBC concessions, and were not filledith something else. For example, Julie could contend that the boxes taken contained not conces-

ions, but school books that she was storing at TBC until she could take them home. Further,


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No.Sold

No.Purch.

No.Sold

M 5000 2500 2900J 6000 2500 3200J 6000 2500 2700A 6000 2500 2700S 8000 1500 2850

DM 400J 700J 200A 200S 1350

T 2850

S $4.00

P $11,400

T $38,800

C $1.35L $3,848

T $14,678

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TABLE 3

Solution for Concession Theft Fraud

ate

Hamburgers Hotdogs Sodas Condimen

No.Purch.

No.Sold

No.Purch.

No.Sold

No.Purch.

No.Sold

No.Purch.

ay 1344 1744 350 950 1500 2100 3000un 1098 1898 400 1200 1500 2300 4000ul 1256 1556 500 800 1500 2000 5000ug 1098 1498 500 800 1500 2000 5000ep 456 1856 100 1300 1500 3700 2000

ifference �i.e., stolen�ay 400 600 600 2000

un 800 800 800 2000ul 300 300 500 1000ug 400 300 500 1000ep 1400 1200 2200 6000

otal No. 3300 3200 4600 12000

old for $4.00 $3.00 $1.00 $0.00

rofit for Stop N’ Shop $13,200 $9,600 $4,600 $0

otal Profit

ost to TBC $1.40 $1.25 $0.35 $0.05oss for TBC $4,620 $4,000 $1,610 $600

otal Loss

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tudents must also show the concessions taken were actually sold at the Stop N’ Shop. To do this,tudents can observe that the Stop N’ Shop uses the same brands as TBC, to which Julie couldeply that she orders the same items for both businesses. In the past, students have been quitelever at figuring out what was in the boxes, including secretly marking items at TBC and tracinghem to the Stop N’ Shop.

The best way to solve the fraud is to obtain the records of the Stop N’ Shop store and comparehe number of items purchased to the number of items sold �TH 11�. Obviously, in a true forensicnvestigation it could be difficult to obtain this information. However, we allow students who havenough evidence—i.e., have seen Julie take boxes from TBC and deliver them to the Stop N’hop—to “subpoena” these records.

onstruction Bid Rigging FraudWho committed the fraud: Phil Ackers.How the fraud was committed: Phil Ackers was assigned by Franklin Kennedy to oversee the

uilding of a new training facility. One of Phil’s old friends �Gerry Newbold�, who now works forarkin Construction, approached him with a bid rigging scheme that could net him over $60,000.he scheme goes as follows. As is normal practice for this type of contract, Phil puts the blueprintsnd specifications out for competitive bid. The bids arrive in sealed envelopes, and are �suppos-dly� locked in Phil’s office safe until the day they are opened in the presence of the contractorsnd the job awarded.

Unbeknownst to anyone, Phil secretly opens the bids and passes the information on to hisriend, Gerald Newbold at Larkin Construction. Larkin submits their bid at the last moment.arkin Construction gives Phil $10,000 cash on the day the contract is awarded. He deposits theoney in his wife’s account. Larkin achieves their low bid by underbidding or low-balling on

ome items while overbidding �over charging� on others. The agreement between Phil and Geraldas that after the contract was awarded, Phil would submit bogus construction change orders,

llowing Larkin to make up for the underbid items contained in their original proposal. The endesult is that TBC overpays for all aspects of the contract. Larkin Construction colludes witheveral of the subcontractors to enact this scheme. In the end, Larkin pays Phil half of thevercharges.

Evidence of intent: Phil opens the bids ahead of time.Economic impact: Larkin underbid on several items as shown in Table 4. With the exception

f toilet accessories, amounts for all items that were underbid by Larkin in the original biddingere later recouped through change orders. As a result, the total cost after change orders rose to820,781—an increase of $105,787 over the original Larkin bid of $714,994. The arrangementith Phil was for him to receive one-half of the difference �$52,893.50� as a kickback.

Evidence Phil received and used the money from the fraud: TH 6 shows two cash deposits inbank account in the name of Madelyn Harris Ackers �Phil’s wife�. The first deposit for $10,000as made the day after the contract was awarded to Larkin. Larkin’s accounts show a cashithdrawal for $10,000 on the same day. The second cash deposit into Madelyn Ackers’ account

s on September 30th for $52.893.50—half the overcharged amount. Again, Larkin has a corre-ponding cash withdrawal on the same date.

andouts Associated with Construction Bid Rigging Fraud

H 12: Construction invoices received by TBCH 12: Completed bids and change ordersH 13: Independent construction appraiser’s assessment of change orders

Evidence trail students typically follow and suggested responses: SH 12 shows the construc-ion invoices received and paid by TBC. Students should note that there are change orders in July,


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S 2 Chg #3Total Chg

Orders

G .00 6,720.00D 0.00

S .00 3,184.00L 0.00C 0.00M 1,484.00S 0.00C .00 13,680.00T 1,454.00 2,022.00

D .00 13,323.00S 30,052.00

F 19,042.00 19,042.00P 0.00S 2,000.00

T 0.00S 400.00 400.00P 4,237.00H .00 3,100.00 6,100.00E 0.00S 3,543.00 3,543.00

.00 27,539.00 105,787.00

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TABLE 4

Solution to Bid Rigging Fraud

mount over Scheduled Value: $105,787

pecsAverage ofOther Bids

LarkinBid

AmtLarkin

Overbid

AmtLarkin

Underbid Chg #1 Chg #

eneral Conditions 167,996.61 177,404.70 9,408.09 5,586.00 1,134emolition of existingstructure

6,269.50 16,000.00 9,730.50

ite work 41,876.91 39,994.00 �1,882.91 1,184.00 2,000andscape, sod 4,515.00 4,600.00 85.00oncrete 45,307.02 54,487.00 9,179.98asonry �Brick 210/thousand� 25,900.00 25,000.00 �900.00 1,484.00

tructural steel, metal rails 141,856.00 152,147.00 10,291.00arpentry 25,000.00 18,000.00 �7,000.00 4,410.00 9,270hermal, moisture protection,insulation

8,734.75 8,319.00 �415.75 568.00

oors, windows, hardware 37,250.00 25,000.00 �12,250.00 11,323.00 2,000tucco, drywall, acousticceiling

47,326.21 28,500.00 �18,826.21 30,052.00

loor covering 12,090.21 6,400.00 �5,690.21ainting 8,685.00 10,000.00 1,315.00pecialties, statues, awardcases

8,645.65 7,270.00 �1,375.65 2,000.00

oilet, accessories, partitions 3,722.22 3,584.00 �138.22ign reconstruction 884.43 645.00 �239.43lumbing, water, sewer, gutters 14,076.55 13,237.00 �839.55 4,237.00eating, a/c 63,122.50 58,407.00 �4,715.50 1,000.00 2,000lectrical 59,558.75 62,000.00 2,441.25ound system 5,168.00 4,000.00 �1,168.00

727,985.32 714,994.70 42,450.81 �55,441.44 61,844.00 16,404

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ugust, and September, as well as many cost overruns. This should cause them to request all theriginal bids. The instructor responds to this request with TH 12 which shows not only the originalids, but also the dates the bids arrived. The fact that the Larkin bid was the last to arrive, and thatt arrived the night prior to the bids being opened should be a red flag.

A close comparison of the change orders to the bids should show students that the changerders are in the areas in which Larkin underbid the other competitors. This should be a very largeed flag. At this point students usually make inquiries to Phil as to why there are change orders.hil gives excuses such as Larkin had already won the contract when he �Phil� decided thehanges were necessary. In particular, Phil decided to “upgrade” certain specifications. To solvehe fraud, students must determine that the changes were phony. To do this they need to ask anppraiser to observe the improvements and determine whether the changes improved upon theriginal specifications. TH 13 is the result of the independent appraiser’s report and says that thepecifications on the change orders were not substantially different than the original materialspecified.

Students should also examine the bidding process to determine how Larkin won the contract.hey will be unable to prove that the bids were opened early, unless they can trap either Phil orerald Newbold �at Larkin� into confessing to the scheme at the end-of-project interrogations.ntil then, the students will have to rely on circumstantial evidence, such as the mysterious10,000 which was withdrawn from Larkin and �apparently� deposited into Madelyn Ackers’ccount right after the contract was awarded to Larkin. The ultimate proof will be that $52,893.50ash is withdrawn from the Larkin account and deposited in Madelyn Harris Acker’s account athe completion of construction �TH 6�. This amount is exactly half the extra compensation re-eived by Larkin and the subcontractors.

APPENDIX ADIFFERENCES BETWEEN TBC I AND TBC II

TBC I TBC II

rauds Cash stolen from ticket sales;Ghost employees;Kickbacks from equipmentpurchases.

Improper revenue recognition;Payments to related party forpoorly done repairs;Concession theft; bid rigging

BC Perpetrators Ben Hill, office manager Collusion between Phil Ackers,president and Julie Roper,his assistant �and niece�

utside accomplices Jessica Keller �opens bankaccount for Ben�; CharlieThurgood �SportsEquipment, Inc.�

Gerald Newbold �LarkinConstruction�; Freddy Harris�Phil’s brother-in-law�; JulieRoper’s parents �owners ofthe Stop N’ Shop�

pportunity Lack of internal controlsallows Ben to commit thefrauds

President Phil Ackers overridesinternal controls; Collusionbetween Phil Ackers andJulie Roper; FranklinKennedy is an absenteeowner.

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otivation Ben is motivated by desire tolive a more luxuriouslifestyle �personal greed�.

Phil has family members whoare financially dependentupon him; Phil receivesbonus based on TBCearnings; Julie is motivatedby personal greed and desireto help her parentsfinancially.

mportant TBCCharacters

Ben Hill, office manager;Candie Harris,receptionist; Myrna Myers,ticket taker; MichelleShelton, accounting clerk;Sam McCarty, equipmentmanager

Phil Ackers, president; JulieRoper, president’s assistant;Holly Hope, concessionssupervisor

ccountingprocesses andother differences

All ticket sales are for cash;Accounting records kepton cash basis; TBC has noreal property

Ticket sales are for cash andalso on account; Monthlyaccruals are recorded; TBCis constructing a trainingfacility

APPENDIX BBACKGROUND INFORMATION

The following can be used to answer student inquiries relating to personal facts about TBCmployees and other relevant characters.

hil Ackers, PresidentHome address: 4945 Bobbin Brook Court, Tallahassee, FL.Home description: The house sits in an exclusive older section of northeast Tallahassee.Vehicles: Nissan Sentra, this year’s model. Toyota Camry, three years old.Wife: Madelyn Harris Ackers.

nformation from personnel file:Age: 53.Length of employment by TBC: 10 years.Prior employment: Owner-manager, Pizzano’s Restaurant in Miami �10 years�, prior to that wasa major league ballplayer for 10 years.Education: MBA, University of Miami.

nformation that can be gleaned from Phil’s co-workers:“Phil is married with two grown children. His wife has her own catering company, at which shedoes very well.”

nformation from public and private sources:Criminal record: None.Court records: No bankruptcies, no criminal action pending.Property records: House on Bobbin Brook, Condo at Sandestin, two vehicles, a 35 foot sail-boat, two jet skis.IRS: Phil was audited extensively while at Pizzano’s, though no action was taken. If studentsspeak to anyone who knew Phil during those days, he or she will report that the IRS suspectedhim of tax evasion.Credit report: Phil has good credit, but a lot of debt, including debt to department stores,


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furniture stores, and loans on both vehicles. He also has student loans for his children’s edu-cation.

andie Larson, Secretary/ReceptionistHome address: 3232 Baragona Acres Road #45, Tallahassee, FL.Home description: Her home is in a medium range apartment complex.Vehicles: Honda Accord, eight years old; Yamaha V-Star 650 motorcycle, six months old.

nformation from personnel file:Age: 26.Length of employment by TBC: 3 years.Prior Employment: Red Carpet Realty, as a secretary for 5 years.Education: Financial Certificate from Lively Vocational School.

nformation that can be gleaned from Candie’s co-workers:“Candie has never been married. She is always dating at least one of the ball players, oftenmore. She was born and raised in Perry, Florida. Her father is a vice-president at Capital CityBank. She is the reigning Queen of the Crab Festival for Taylor County.

Candie dislikes Ben. She thinks he is a picky little man who does not trust her or believe shehas a brain in her head. She’s always complaining about being his dating service. Women arealways calling, including his ex-wife, asking for money. She spends a lot of her time outside ofwork down at the playing field flirting with the players.”

leaned from past employer:“Candie was a good worker, if a bit of a flirt. She left with good feelings all around.”

leaned from public and private sources:Criminal Record: Series of speeding tickets, most on her motorcycle.Court record: Three times in driving school to remove tickets.Property records: One car, one motorcycle.IRS: No action.Credit report: Three credit cards: Burdines, Dillards, and Goodys, all at credit limit.She owes $165 per month on her motorcycle.

en Hill, Office ManagerHome address: 1832 Jackson Bluff Road #25, Tallahassee, FL �Villa Cortez Apts�.Home description: It is an older apartment, situated in a less prosperous part of town.Vehicles: Mazda Miata MX-5 convertible, this year’s model, purchased after he received hisbonus from TBC.

nformation from personnel file:Age: 42 years old.Length of employment at TBC: 3 years.Prior Employment, past ten years beginning with his most recent employer:Three years at Tallahassee Doors, a small manufacturing firm.Four years at the Florida Department of Transportation in the Financial and Auditing Depart-ment.Two years at Holiday Construction, as an accountant.One year at Krispy Kreme Donut Corporation, as an accountant.Education: 4-year degree in accounting, no CPA.

nformation gleaned from co-workers:“Ben has been married twice �that we know of�. He had two kids with his first wife, but endedup leaving her for wife number two. The second wife left him a few months ago; I think he hadto give her his house. He’s always dating someone or other, women are always calling here.”

leaned from apartment manager:


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“Ben’s always late paying his rent, but then most of my tenants are. He always eventually paysit. Always in cash, but I give him a receipt.”

nformation from public and private sources:Criminal record: None.Court records: Two divorces. Divorce number one: his spouse was awarded $1,000 per monthin child support and alimony. Divorce number two: his spouse was awarded the family homeand car, but no alimony or child support.Property records: Owns one car.IRS: No actions.Credit report: Shows a bankruptcy four years ago, and a debt of $14,000 in past alimony andchild support.

nformation should students contact ex-wife #1:“Benny started out nice enough, we had two wonderful kids. He had a good job. Then thatDedrie came along. All the sudden it was lunches with her and dinners with her and then he upsand leaves. For years I had been begging him to take the kids to Disney World, but there wasnever enough money. We were saving for it, but then after the divorce, he suddenly has moneyto buy Dedrie a huge diamond ring and even took her on their honeymoon to Disney World, ofall places! Then she divorced him and took him for everything including the house. Providence,don’t you think?”

nformation should students contact ex-wife #2:“Benny just got boring. All he does is work, work, work. It was time for me to move on.”

ulie Roper, Assistant to the PresidentHome address: 1420 Seminole Drive #23, Tallahassee, FL.Home description: Julie lives in an apartment near Tallahassee Community College with 3roommates. It is a typical student apartment building. Not fancy.Vehicles: Honda Civic, ten years old.Parents: Jerry and Sarah Harris Roper. Niece to Phil Ackers as her mother is sister to PhilAcker’s wife �Madelyn Harris Ackers�. Her uncle is Freddy Harris, brother of Phil’s wife.

rom the personnel file:Julie is 23 years old. She’s a full-time student at TCC.She has been employed by TBC for just less than one year.She is the niece of Phil Ackers. Prior to this job she worked at a convenience store �owned byher parents�.

nformation gleaned from co-workers:“Julie is a very hard worker. Everyone likes her, but she’s not very social with anyone, so theyknow nothing about her personal life. Everyone thinks it is because she works here and goes toschool, so she always seems in a hurry. Part of her pressure may be that Phil had her take oversome things that Terri �the person who held this job previously� would never do, such asordering concessions and collecting accounts receivable.”

nformation from public and private sources:Criminal record: None.Court records: None.Property records: One vehicle.IRS: No action.Credit report: Julie has no credit cards. Her credit rating is good, if sparse.

ucker Johnson, General ManagerHome address: 8086 Baby Farm Road, Tallahassee, FL.Home description: Tucker’s house is firmly middle-class, in the country with several acres andtwo horses.


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Vehicles: Ford Excursion, this year’s model; Honda Accord, three years old.rom personnel file:

Age: 55.Length of employment by TBC: 6 years.Prior Employment: St. Louis Cardinals assistant pitching coach, 11 years. He played majorleague ball in his twenties and early thirties.Education: Degree in Sports Management.

nformation gleaned from co-workers:“Tucker is married, and has seven children. Only two kids are still at home. He drives a new carevery year, as payment for an advertising campaign he stars in for a local car dealership.”

nformation gleaned from public and private sources:Criminal record: One bar fight, 15 years prior.Court Records: No bankruptcy or divorces. Assault charges dropped from fight.Property records: One house, two cars, one powerboat, and three jet skis.Credit report: Seven credit cards, only two with small balances.

ichelle Shelton, Accounting ClerkHome address: 4571 Gautier Drive, Tallahassee, FL.Home description: Michelle shares a nice townhouse with two roommates.Vehicle: An eight-year old Toyota.

nformation from personnel file:Age: 21 years old.Length of time at TBC: 2 years. She works part-time.Prior employment: Chick-fil-A in Tampa for three years.Education: Michelle is a student at FAMU, seeking a business degree. She transferred twoyears ago from Tampa Bay Community College.

nformation gleaned from co-workers:“Michelle is trying to save up enough money to buy a new car. She’s a hard worker, andeveryone likes her. Michelle is going to school and sometimes studies at her desk when thereisn’t much work to do.”

nformation from public and private sources:Criminal record: None.Court records: None.Property records: One vehicle.IRS: No action.Credit report: Michelle has three credit cards, JCPenney, Burdines, and Victoria’s Secret. Eachcarries a balance close to $200.

arkin ConstructionEstablished 1982Randall Larkin, owner1432 Main StreetTallahassee, FLBusiness License #3675841Well-established commercial construction firm, has had many large contracts, especially in thelast 10 years. They recently hired Gerry Newbold, a former teammate of Phil Ackers, to act asliaison between Larkin Construction and the Tallahassee BeanCounters. Phil and Gerry playedball together and Phil was thrilled to reconnect with his old friend. They often went for drinksor dinner together during the construction of the training facility.

reddy HarrisHome address: 1414 Old Bainbridge Road, Bainbridge, FL.


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Phone: 235–7890Business License #143201, Issued from Tallahassee, FL.Freddy has been in business since 1972.Freddy Harris is the brother to Madelyn Harris Ackers, Phil’s wife.Freddy is also the uncle to Julie Roper.

nformation from public and private sources:Criminal record: None.Court records: None.Property records: He owns the property with the small clapboard house and barn from whichhe runs his business. He purchased it in 1972 for $25,000 cash. He also has a 1997 Ford truck,which he purchased used.IRS: No action.Credit report: Freddy has no credit cards.

ther Information:Freddy works from a run-down old barn located on the same property as his home. If you wereto drive by you would see that the yard was cluttered with broken down lawnmowers andfour-wheelers. Freddy himself will usually be sitting out in the front yard on his lawn chair. Hewill wave at you as you drive by. You will most likely decide to stop and chat with him. Heinvites you into his shop, which is little more than a work bench cluttered with tools. However,a small old desk in the corner piled with papers reveals a signed picture of him with Phil. Bothmen are much younger, and Phil is wearing his baseball uniform. Phil gave him the $25,000 topurchase the property he lives on. In prior years he wrote Freddy a $1,000 check each month.That ended when Phil took the job at TBC.


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APPENDIX CCALCULATION OF GROSS PROFIT PERCENTAGE FOR BONUSES PAID TO PHIL

AND BEN

ross Profit Percent Calculations Used by Bank for Mortgage Loanevenue 31-May 30-Jun 31-Jul 30-Aug 30-Sep

ame Revenue 152,130.08 314,995.35 134,804.88 260,521.77 281,026.58undraising Revenue 18,582.00 4,175.00 22,550.00 12,975.00 13,025.00eague Revenue Sharing 19,513.00 7,400.00 25,000.00 18,300.00 20,000.00otal Revenue 190,225.08 326,570.35 182,354.88 291,796.77 314,051.58

xpensesost of Goods Sold 20,386.10 38,723.15 17,201.40 29,298.05 49,099.95ayments to visiting Teams 0.00 13,500.00 0.00 8,000.00 38,500.00undraising Expenses 4,628.00 2,342.11 4,004.25 5,009.38 4,757.88way Game Expenses 16,387.00 6,756.00 19,313.00 14,192.00 13,308.00perating Expenses 138,751.24 180,014.72 137,947.47 140,561.95 220,276.91ame Equipment Expenses 7,716.39 4,119.34 0.00 2,394.78 10,870.79otal Expenses 187,868.73 245,455.32 178,466.12 199,456.16 336,813.52

ross Profit Percent with:ake Accounts Receivable 1.24% 24.84% 2.13% 31.65% �7.25%ake Accounts Receivable 9,540.00 49,500.00 8,400.00 43,008.00 0.00ross Profit Percent withoutake Accounts Receivable �3.98% 11.41% �2.59% 19.83% �7.25%

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REFERENCES

merican Institute of Certified Public Accountants �AICPA�. 2002. Consideration of Fraud in a FinancialStatement Audit. Statement on Auditing Standards No. 99. New York, NY: AICPA.

easley, M., J. Carcello, and D. Hermanson. 1999. Fraudulent Financial Reporting: 1987–1997. Studycommissioned by the Committee of Sponsoring Organizations of the Treadway Commission. Availableat: http://www.coso.org/publications/FFR_1987_1997.PDF


http://www.coso.org/publications/FFR_1987_1997.PDF

Documents

Return of the Tallahassee BeanCounters: A Case in Forensic