Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

How Do You Not Notice $17 Million Missing?

$16,764,128.95 – let’s think about that for a minute. Almost $17 million gone over a 9 year period – a mere $1.86 million per year. Would you notice?

That’s how much the former controller for the Collin Street Bakery in Corsicana, Texas embezzled from the business. He used his ill-gotten gains to finance a lavish lifestyle of new cars, furs, frequent travel on private jets and a collection of watches and jewelry estimated to be worth over $3 million.

Sandy Jenkins started as a payroll and accounts payable clerk at the bakery in 1998. Collin Street Bakery was known for making ”the Cadillac of fruitcakes” and was owned by one of the wealthiest families in Corsicana. By 2000 he had been promoted to controller. Sandy had always admired the finer things in life but struggled to obtain them on his $50,000 salary. He and his wife were contributing members of the community and had raised a daughter. But it was never quite enough for Sandy. He always dreamed of having more.

In December 2003, as Sandy sat in his office at the bakery, he started thinking about how he worked so hard for the bakery. But was he really fairly compensated for all his hard work? He started by taking a little petty cash. Not a lot but definitely enough that someone might notice. He was a little nervous at first but then nobody seemed to care. And the little bit of petty cash wasn’t enough.

Sandy began writing checks to pay his credit cards from the bakery checking account. He would write the check which was electronically signed by the system, print the check and then void the check in the system. He mailed the first check to his credit card company and then wrote a check to a bakery vendor for the same amount as the first check. The second check was never mailed. He was careful to time his big payments to coincide with typical periods of heavy purchases.

The Company owners and executives couldn’t figure out why they weren’t more profitable. They seemed to chalk it up to their expansion and the economy. They had performed audited inventories of their ingredients and audited payroll. They looked at their expenses, although apparently not too closely.

Nobody at the business or in the small town seemed to question how Mr. and Mrs. Jenkins could suddenly afford new cars and expensive jewelry. They did not hide their spending; in fact, some might argue that they flaunted it. Sandy would tell his boss that his cousin let him use his private jet or that a friend gave him a new watch for helping him out. But no amount of family or generous friends really explained the sudden wealth of the Jenkins.

Sandy Jenkins’ scheme was discovered by accident by a fairly new accounting clerk who happened to notice a check written to Capital One. She knew the bakery didn’t have any dealings with Capital One. When she asked Sandy about the check he replied that he would “fix it”. She was suspicious and did a little more digging. She found over $400,000 in checks written to vendors not used by the bakery in a relatively short period of time. Sandy Jenkins was fired the next day. He is currently serving a 10 year prison sentence. The contents of his home were auctioned off to help pay restitution. His wife was sentenced to 5 years of probation.

Sandy was a long term trusted employee who obviously knew no one was checking up on him. There were no checks and balances in place to catch his scheme. But there was also no awareness or thought of the possibility of fraud amongst the employees. If any were suspicious of his lifestyle, they never spoke up, including management. He had been living a lavish lifestyle on the bakery’s dime for almost nine years before he was caught. Don’t you think somebody should have said something?

By Melissa E. Loughlin-Sines, CPA, CFE, CVA, CFF, ABV