The Tallahassee Bean Counters (TBC) is a minor league baseball team that is based in Tallahassee, Florida. It is an organization that was never audited until an anonymous whistleblower’s letter reported fraudulent activities within the company to Franklin Kennedy, the organization’s owner. Furthermore, the audit of the company’s accounts revealed that there was an authorization of a mortgage to the company for the construction of a new training facility. The following investigative report seeks to confirm whether allegations made by the whistleblower are true or false, by scrutinizing the company accounts, employees, materials and the organizational chart.
Potential Fraud Cases
It is worth noting that the organization is run by a former baseball player, who is an associate and long time friend. Seemingly, he does not have an academic background in business administration, which sets the stage for flaws in management. From the interviews with employees, it is observed that there is no whistle blowing structure in the organization, coupled with the absence of an internal auditor, thereby providing conduits for the siphoning of funds illegally from the company. In this case, Mr. Phil is the likely suspect individual of perpetrating fraud within the company. He has been in the firm for a period of ten years and has not been able to establish an organizational behaviour and conduct to be followed by all employees. As the case is, he has established the culture of employing and dealing with his relatives and friends in the firm.
One of the indicators of fraud within the organization as allowed by Mr. Phil is the lack of proper specialization and division of labour. For example, Tucker Johnson, who is the head coach, delegates some of his duties to Sam McCarty the equipment manager, because of his phobia of paper work, and does not counter check orders made on new equipment by Sam, who can easily inflate the quantities required.
Furthermore, in the build up to the construction of the new training facility, he was the one who handled the bidding process, and kept the bids in sealed envelopes in a safe in his office. Ordinarily, the bidding process should have been handled by a hired independent body, or by the company’s owner, Franklin. The process being handled solely by Phil, raises a red flag as to whether the bidding process was free and fair, and if the contractor, Larkin Construction, was indeed the lowest bidder as purported.
Fraud could have been committed by the president being in a position to establish a good culture of transparency and accountability but he failed to do so. Although he does not let his intention known, he hires his niece Julie Roper to be his assistant. Moreover, he allows his old friend and former playmate to broker a deal of giving a tender to Larkin Construction Company, even though it is not the lowest bidder. These are pure evidences of intent for Mr. Phil as they point to ratification of all activities that took place in the organization.
This is the firm that secured a construction contract with TBC. The firm has been in business since 1982 and secured large contracts in the last decade. This firm is owned by Randall Larkin. The manner in which the firm has been able to secure contracts is questionable especially with the contract that it secured with TBC. The company began by hiring an old friend to Mr. Phil Ackers, the President of TBC in order to revive old time friendship and in the course of friendship, secure a contract for Larkin Construction.
In this case, person to have committed fraud is Larkin Construction Company. The intention of the fraudster is revealed as the company hires Gerry Newbold, an old time friend and playmate of Phil Ackers to help the company secure a contract with TBC. The evidence of the case is provided by the time that Phil and Gerry spent together. They wanted to reconnect and they were seen going for drinks and dinner in the course of construction of the new training facility for TBC. Therefore, it can be seen that were it not for Gerry, Larking could not have secured a contract with TBC. Therefore, Larkin constructions secured a contract not on qualification but rather on friendship and other undisclosed relationship between Gerry and Phil and between Mr. Phil and Larkin.
The economic impact of this fraud is that well qualified construction companies were denied a chance to construct a new training facility for TBC. Moreover, it is not clear whether Larkin construction is the lowest bidder. This means that the company is being fleeced of its money as not all the money is going to the company but to individuals’ accounts, suspects being Mr. Phil and Gerry.
This is the head coach of the company and is on the payroll of the company. As indicated earlier, the company has not clear cut rules on performing of individual roles. In this case, Mr Tucker is the fraudster as he has the intention of stealing from the company through payment of his salary for responsibilities not executed. The intention is revealed when Mr. Tucker delegates his responsibilities to the equipment manager Sammy McCarthy mainly due to his phobia of the paper work involved in his duties. On the contrary, Mr. McCarty has accepted the new responsibilities and could also worsen the fraud case in this scenario as he could also inflate the required quantities of games equipment.
The economic impacts of this fraud case is that the company (TBC) is likely to lose a lot of money that is lost through purchase of games equipment that do not exist. The evidence of conversion of conversion is the acceptance of responsibilities by Sammy.
Jullie Roper (deputy President)
There is overlapping of roles within the organization that is seen where Julie Roper, who is the assistant to the President, also assumes the role a concessions manager. Julie’s ineptitude at work, is shown where she fails to do her job at times as required. Her job description warrants the counting of condiments at the end of every game, but she views this as a laborious task and so does so sporadically. On May 13th for instance, she counts the condiments but fails to do so on 14th and 15th, creating loopholes for fraud by altering the concessions figure. Phil has a charming personality, which enables him to create a rapport with everyone in the organization. From the evidence gathered, he is seen to be very unpredictable, when he decides to cut down on employee expenses, by instituting job cuts. In a move that raises eyebrows, he fires his assistant, Terry Hughes, for taking a trip to see her mother, and replaces her with his niece, a clear indication of nepotism. He also takes deposits to the bank, a duty that should be undertaken by junior staff.
Fraud intent in this case is the ineptitude of Jullie at work where she fails to execute her duties exceptionally thereby providing a loophole for other employee in the organization to steal condiments from the organization. The economic impacts of this fraud case are that workers could steal condiments from the firm thereby forcing it to purchase new ones for every game. The impact is that money that could be used for other duties would be used to purchase condiments while employees benefit where they do not qualify from theft of condiments. Fraud conversion is where the Jullie leaves a loophole for theft of condiments by workers.
Parking Lot Fraud Case
There is some likelihood of fraud taking place in the parking lot, because we can read malice from the issuance of tickets to the various categories of cars. Strangely enough, there is no way of telling the difference between tickets sold to big vehicles and small vehicles, because after payment the tickets are just placed under the wipers of vehicles windshields, while the spectators are watching the game.
Outsourcing of Payroll Services
The organization in question seems to be outsourcing payroll services, from the ADC payroll company, who merely distribute money to the accounts of the employees. The process of filling out a consolidated timesheet is done by Candie, and the calculation of salaries owed is done by Michelle, who writes a check to the ADC payroll company to disburse the funds. This begs the question for the need to outsource payroll, which just pays out money which could have easily be handled by Michelle, after compilation of the necessary bi-weekly data by the various departments. Michele, who is also a part time student, can easily be tempted to launder money for her tuition, an event that proves the intent of fraud in the organization.
The economic impact of this fraud case is that the firm is losing funds that are paid to the hired company that does not execute its duties but delegates its duties to unqualified staff such as Candie and Michelle. In addition, in the likely event that employee salaries are tampered with to pay nonexistent employees, the firm could still lose more funds that could cripple its activities.
There is a loophole for fraud in the ticketing department as Myrna and the other workers at the ticketing booth have worked together for 20 years with their husbands attending every game and the six have a personal relationship. With the intent of committing being evidenced by the closeness of the workers and the ease of colluding, fraud is inevitable. For instance, we do not know whether their husbands pay for the tickets. The period is also long enough for the ladies to come up a way to swindle the ticket payments. It is of importance to note that the other ladies leave when Ben Hill and the armed security guard arrive without confirming the amount of money they have and leave the duty solely to Ben Hill and Myrna Myers. The economic impact is that the exemption of payment for matches from their husbands could deny the firm a lot of money. Similarly,
It is evident from the attendance to one of the games and interviews with the employees, Ben Hill is the one who calls all the shots and has the final word on collection of all funds. He is the last person who confirms the collections and reconciliations, keeps the money and even does the bank deposits. He, in fact, has an open check to do anything as he wishes. It is also noted that he has a larger than life personality, always at night clubs, advancing on every woman who comes close to him. These are possible forces towards unprofessional allocation of funds, given that he has the opportunity to do so.
Other Fraud Cases
For this fraud case, Ben is the fraudster and his intent to steal from the company could be revealed by lack of checks from the company. While the economic impact is loss of funds that could be transferred to Ben’s account. The conversion is where Ben reveals his financial well being through lavish ways of life where he engages in constant drinking and giving out money to women.
The accounts receivables have been increasing exponentially from May all the way to September, due to either a very weak collection system or unaccounted figures. For example, the increase from $14,338, $71,602, $89,912, $132,134, to $112,932 respectively for each month, which can lead to liquidity issues. The figures for concessions in September are given as $3,671, which is an understatement, since we see that the condiments were not counted on 27th September, the last day inventory was taken in the storeroom. This implies that there are some inventories, whose figures might not have been given correctly; therefore, the balance sheet does not give a true and fair view of the financial status of the organization.
Although the organization gave impressive profit margins for the period when the construction was going on, we doubt whether that was the true position, given the ambiguity we have in the final financial accounts. We would like to ask for the cash flow statement for the current period, a balance sheet and financial statements of the same period for the previous year. There is also a need for a bank statement to help in the preparation of a bank reconciliation statement.
Fraudsters in this case are the financial clerks and accountants including Michelle and Candie that are responsible for collecting cash for the organization, balancing the accounts and reporting the financial performance of the firm. The intent to steal is evidenced by the financial reports that provide untrustworthy information such as receivables accounts. The intent is indicated by the financial reports while the economic impacts of the fraud case are theft of funds from the firm and use of the funds of the firm for unintended personal gains.
Ultimately, the TBC organization is a business enterprise like any other, which should be run by professionals, starting from the senior manager to junior staff. A human resources office should be instituted, to recruit qualified personnel for the various duties that are required to run the organization efficiently. This is a measure to ensure that there is perfect division and specialization of labor. A whistle blowing channel should be enacted, where a phone line is open for employees to tip off the organization, in case there is an impending crime. The office of an internal auditor should be put in place to ensure that all the monthly activities are vetted to detect any unscrupulous activities that may present themselves.