This project is a scenario based paper, using the facts presented and the questions that are presented in the scenario to formulate the investigation, case report, and materials you would present to the court to prove your case. Do not forget to answer the questions that are asked they are numbered and in BOLD print.
Your report should be done in Word, using Times New Roman 12 pt. type, double spaced with a cover sheet that includes your name, course number and date. You may cut and paste facts from this scenario into your document as you feel necessary. The final statement for this report presentation should be based on materials learned during the course.
Final Paper Scenario
Westerly Sails is a manufacturing plant in Newtown, CT. They produce wind sails and mini-sailboats for recreational businesses. Westerly employs 60 factory workers, 5 clerical and administrative people and the owner. They have been in business since 1992. The 2013 internal audit showed that the profit margin for Westerly had dropped about 3% even though sales have increased slightly for each year and the production costs have increased slightly. The profit margin has remained at the lower level since 2013. No discrepancies were found in any of the annual audits. The owner, William Winde, asks you on May 30, 2017 to check to see what might be causing the drop in profit margin.
The office workers are:
Dale Grimes, office manager and sales representative
Joe Jones, accounting
James Rodney, payroll and payroll tax preparation
Carol Inge and Sheila Dew are both clerical staff
Grimes and Drew have been with the company since it opened. Rodney has been with the company since he graduated from high school in 2015. Jones and Inge have been with the company for the past three years.
Analysis of the audit reports show that profits have dropped $50,000 to $60,000 per year for the past 4 years. There is no apparent reason for the drop that can be found in the records. Wages seem to be the cause for the drop.
Question #1
If there is theft or embezzlement from the company, which employees have the greatest opportunity to commit the theft?
You determine that interviews of the office staff are necessary and a review of their personnel files reveal the following:
Grimes was a friend of Winde for more than 30 years. When Winde decided to open the business, Grimes went to work for him. Grimes earning for the years 20102through 2016 were $45, 000, $45,000, $48,000, and $50,000; respectively. Grimes lives at 2000 Wildwood Rd. with his wife and two children. They purchased the home in 1987 when they were married. The mortgage was paid off 5 years ago. He drives a blue, 2015 Subaru and his wife drives a white, 2011 Chevy Malibu. One child is a senior at the State College and the other is a senior in high school. He banks with Hills Bank, Newtown CT. He has a checking account and a Roth IRA. He also has a brokerage account with Dell Investments. He provides waivers to allow you the investigator to review his financial records.
Jones was hired as the accountant/bookkeeper 3 years ago. He prepares the financial statements. Balances the company bank accounts and pays the bills as they become due. He has the authority to write checks on the company account. He works 12 hours a week (2 hours on Monday-Thursday, and 4 hours on Friday). He is salaried at $18,720 per year. He maintains an accounting office in the Craig Building downtown. He does tax contract bookkeeping for 6 other businesses. He banks with Hills Bank. He owns a Condominium, mortgaged through Hills Bank. Jones leases a new Chevy Impala for business use every other year from General Motors leasing and his wife has a 2013 Cadillac Escalade. He has a business and personal checking account and an IRA for himself and one for his wife. He provides waivers to allow you the investigator to review his financial records.
Rodney is 24 years old and single. He has worked at Westerly since the summer of 2014. He rents a home at 17214 Cherry Lane. Rodney handles the payroll for Westerly. He calculates the payroll from the employee time cards, computes the deductions, and prepares the payroll tax forms. His work is turned over to Jones for the issuance of paychecks and the deposit of payroll taxes. All of the employees have their pay direct deposited to their bank accounts. He banks with Hills Bank and owns a 2013 Ford Mustang. He provides a waiver to allow the investigator to review his financial records.
Carol Inge and Shelia Dew are clerical employees responsible for answering the phones, typing the sales invoices, collecting, sorting and sending out the mail.
A cursory review of Westerly’s books and records show the increase in production cost being attributable to the decrease in earnings. Production costs increased while sales remain the same. The increase occurred in two installments half in 2013 and half in 2014.
Question #2
What are you going to be looking for in the financial records of the office staff?
Questions #3
What other records will you obtain and check relating to these employees?
Information for Grimes:
Grimes’ personal bank records show that his net pay is deposited bi-weekly; $1,300 in 2011 and 2016, $1,380 in 2015 and $1,430 in 2016.
He pays monthly utilities of $300-400 a month, and has an automatic payment to State College of $550.00 per month for all four years.
His regular living expenses (food, clothing, gas, etc) averages $1,000 per month in 2011 and 2016, and $1,100 for 2015 and 2016.
He and his wife take two week vacation to Colorado each year (cost $3,500 yearly).
He took out a home equity loan of $20,000 in June, 2011. His payment of $450.00 per month is automatically deducted from his account.
Any money left over at the end of the year is deposited in equal portions to his and his wife’s IRA account.
Information on Jones:
Jones has a net income from Westerly of $1,000 per month for each of the years 2014-2016. He has net income of $4,200 per month from his other 5 clients and $7,800 from his tax return preparation services.
Jones has a condominium, purchased in January 2006. The home is mortgaged for $148,000 through Hills Bank. His payments are $1,250 per month. His business office expenses are $1,500 per month.
His personal expenses range between $1,000 and $1,400 per month and average $1,200 per month for the three years he has worked for Westerly.
He deposits $5,000 to his and his wife’s IRA accounts each year.
He owns a 2011 Toyota Camry and a 2013 Ford Taurus. Bother vehicles are paid for and he has not other outstanding loans.
He has occasional unidentified deposits to his bank account in amounts of $20 to 50 dollars. These deposits do not exceed $500 per year. He also deposits a tax refund each year the amounts of the refunds were $678 in 2014, $544 in 2015 and $621 in 2016.
Information on Rodney:
Rodney lived at home after high school, until October 2010. His bank records show direct deposits of his pay from Westerly of $680 from 2008 through 2009, $810 for 2010, $940 for 2013 and 2014, and $970 for 2015 and 2016.
He spent most of his earnings from 2010 through 2013 on clothes, entertainment, and travel. His bank account balance when he moved into the apartment in October of 2013 was $1,153.
He owned a 2010 Chevy Cavalier from 2012 to January 2015, when he sold it for $800 and purchased a 2015 Dodge Charger SRT8. The Chevy was a gift from his parents for graduation.
His expenses from October 2012 until January 2014 were $550 for rent, and $250 for utilities, he also began a balance on his credit card.
He moved to a nicer apartment in January 2014 and his rent increased to $800 per month.
He paid off his credit card balance of $3400 in December 2016 and paid it in full each month since then. In January 2016 he began payments of $600 per month on the new car.
His reconciled bank balance was $543 for 12/31/13, ($3,095) for 12/31/14, $9,845 for 12/31/15 and $3,410 for 12/31/16
Question #4
Is Rodney’s financial lifestyle in line with his earnings or is he living beyond his means?
Question #5
What steps would you take to further review his financial activities and records?
Bank Account Information for James Rodney 2013-2016
Hills Bank Account # 1111223
2013
Deposits
26 $940.00 each (direct deposit net pay)
3 $800, $1,000, $1,200 (source unknown cash deposits)
Checks drawn
36 $3,000 (utilities, 12 months/$250 per month)
12 $550 rent
12 $8,200 2 week vacation with girlfriend Las Vegas
1 $4,250 gambling losses, Las Vegas
72 $7,200 Living expenses (food, clothing, gas, oil, etc)
28 $1,800 entertainment (bars, restaurants, movies)
1 $100 Cash
2014
Deposits
26 $940 Direct deposit of pay
2 $8,000 cash deposits each $4,000 (source unknown)
1 $13,500 from Oscar Madison 12/14/14
Checks drawn
12 $800 Rent
36 $3,600 utilities
78 $8,800 living expenses
30 $2,600 entertainment
1 $2,400 Airline tickets
1 $8,000 Purchase traveler’s checks
1 $3,443 Payoff Credit Card
1 $4,200 purchase motorcycle
1 $100 Cash
2015
Deposits
26 $970 Direct deposit of pay
2 $7,000 cash deposits $3,000 & $4,000 (source unknown)
1 $13,500 from Felix Unger 12/14/15
Checks drawn
12 $800 Rent
36 $3,600 utilities
68 $7,600 living expenses
35 $5,950 entertainment
4 $3,825 vacation
1 $25,000 down payment new car
1 $800 credit card payment
2016
Deposits
26 $970 direct deposit of pay
12 $12,000 cash deposits $1,000 each
Checks drawn
12 $800 Rent
10 $600 car payments
36 $3,600 utilities
88 $4,200 living expenses
32 $3,400 entertainment
6 $5,200 vacation
1 $5,000 Deposit IRA
1 $800 credit card payment
Question #6
Is Rodney’s financial lifestyle in line with his earnings? Provide examples to support your conclusion.
Question # 7
What items in the bank records do you feel need further investigation?
Personal Background History for Rodney
Date of Birth: June 15, 1993
SSN: 100-00-1001
Address 601 Maple Ave, Apt. 222
Cardiff, CT 00900
Marital Status: Single
Medical History: None
Military History: None
Criminal History: None
Employment History: Worked part time at Westerly during the summer of 2009.
Was employed full time after graduation from high school.
Promote to current position of payroll clerk in 2012.
Reputation: Rodney was described as a good student in high school. He graduated with a 3.06 GPA. He was a quiet student and did not participate in extracurricular activities.
Additional records
Rental records
1st. Apartment 65 Applegate Road Apt. 345, Newtown CT.
1 year lease beginning in October 1, 2012 and ending September 30, 2013 with a three month extension granted through December 31, 2011.
Rent was $550 per month payable in advance
Payment history – all payment were received timely
Deposit waived parents cosigned lease agreement.
2nd. Apartment 601 Maple Ave, Apt. 222, Newtown, CT
1 year lease beginning in January 1, 2014 and ending December 31, 2014. The lease has been renewed annually through December 31, 2015.
Rent of $800 per month payable in advance.
Payment history – all payments made on time
$800 deposit made January 1, 2014, applied to December rent at time of renewal. References received from prior lease.
Vehicles:
Parents stated in interview that they cosigned for their son’s first apartment and gave him a 2007 Chevy Cavalier for his high school graduation in June of 2008.
Department of Motor Vehicles has the following information on vehicles owned by James Rodney as follows:
2015 Dodge Challenger SR/T, Hell Cat purchased December 2014 (factory order delivered in January 2015) Purchase price of $65,800 trade in amount (Cavalier) of $800, down payment of $25,000 made December 15, 2015 with order. Balance of $40,000 was financed through Carlton City Bank, Carlton, New York. Vehicle identification number of the Dodge is 2C3CDYBT8EH310671.
2015 Honda motorcycle purchased for $4,200 on August 23, 2016, paid in full at time of purchase.
Question #8
What new leads does the vehicle information give you?
Question #9
How would you follow up on these new facts?
Credit Card Transaction Information:
Rodney’s credit card company provided the last six months of his account activity and payments received on his account for the past 4 years. He made minimum payments on his account in 2013 for a total of $640. He paid the balance in full on January 21, 2014 and has not used the card for transactions since.
Vacation Expenses:
The Try UR Luck casino in Las Vegas, Nevada provided records that Rodney and a guest stayed for two weeks, from November 1 through November 15, 2013. They rented a luxury suite for $200 a day, hired a limousine service for $500 per week, booked their round trip airfare (1st. Class) through the hotel for $500 each way to New York City and had meal and room charges of $3,400 on the trip. In addition the couple lost $4,250 gambling during their stay.
Lucky Airlines verified that Rodney purchased two round trip first class tickets from New York City to Paris France on October 2, 2014. The flight departed on October 15, 2014 and returned on October 23, 2014. The tickets were $1,200 each.
On December 15, 2015 Rodney took a Caribbean cruise for eight days. The vacation package was for a swinging singles cruise and the cost was $3,825.
On March 15, 2016, Rodney took a new girlfriend on a ski trip to Colorado. The ski resort verified Rodney’s stay and said his total cost for the trip was $5,200.
Investments
On December 28, 2016, Rodney opened a conventional IRA account with Hills Bank, Newtown CT, in the amount of $5,000.
Question #10
Given the vacation travel expenses what questions would you pose to the cruise line about Rodney’s Trip?
Question #11
What information would you try to get from the Colorado Ski resort?
Questions #12
At this point in the investigation what leads do you see that need further investigation?
Carlton City Bank of New York Bank Information:
2015 Dodge Challenger SR/T, Hell Cat purchased December 2014 (factory order delivered in January 2015) Purchase price of $65,800 trade in amount (Cavalier) of $800, down payment of $25,000 made December 15, 2015 with order. Balance of $40,000 was financed through Carlton City Bank, Carlton, New York.
He obtained a loan for $40,000, loan #3133123. The terms of the loan were that an $800 credit was applied for his trade in and Rodney wrote a personal check for $25, 000 for the down payment on the vehicle. The payments of $600.00 per month began in March 2016. He has made the payments in a timely manner.
While at the bank you as the manager to search their customer cards and found that an account was opened by Oscar Madison on July 1, 2011 account #987888825. The account is still active. The bank statements are mailed to a PO box in Newtown CT.
Additionally, Felix Unger, has opened an account in November 15, 2016, account # 849388932 which is also active and has the same PO box in Newtown CT.
The bank manager requests a court order or subpoena to release any more information about the accounts.
Question #13
Do you have enough information to get a subpoena or court order to release the bank records in question? If so why if not why not? What other documents might you want to get copies of for this request?
Additionally the bank records deposit information shows that the direct deposits being made were from Westerly Sails, of Newtown CT, payroll accounts.
The cash withdrawals were made by James Rodney who had power of attorney over both accounts to act on behalf of the account holders.
The cashier checks issued in 2016 were made payable to cash, endorsed by Madison and Unger and used for the down payment on the purchase of a four plex in Puerto Rico.
Finally you go to the Westerly Sails Company and attempt to interview Oscar and Felix but no one knows or has ever met either of the individuals.
Question #14
What additional evidence will be needed to prove the apparent scheme “beyond a reasonable doubt”?
Question #15
Based on the evidence you have how do you show that there is sufficient proof and harm against Westerly Sails to support charges against Rodney?
Question #16
The choice of which method to use is at the discretion of the investigator. Which method will you use to submit this case against Rodney?
Final Statement
Now present your case against Rodney using your choice of methods from question 16.