ISSUES IN ACCOUNTING EDUCATION Vol. 25, No. 2 2010 pp.

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American Accounting Association DOI: 10.2308/iace.2010.25.2.279

Return of the Tallahassee BeanCounters: A Case in Forensic Accounting

Carol Callaway Dee and Cindy Durtschi
ABSTRACT: Your rm has been engaged to conduct a forensic investigation of the Tallahassee BeanCounters TBC, a privately owned minor league baseball team in Tallahassee, Florida. Team owner Franklin Kennedy has told employees that the audit is related to the mortgage TBC obtained for the recently constructed training facility. However, Mr. Kennedy tells you privately that the investigation is not due to loan requirements; rather, it is due to his concerns arising from an anonymous tip he received in the mail. The assignment requires you and your investigative team to 1 analyze the nancial and background data provided; 2 brainstorm the possible ways in which a fraud could be perpetrated and concealed within the organization; 3 determine the additional information you need to conrm or disprove your suspicions; and 4 request this information from the appropriate party at TBC. When your investigation is complete, you will present your written results to the owner, including 1 who committed the fraud, 2 how it was committed, 3 the economic impact of the fraud to TBC, and 4 the nancial benet your suspects received from committing the crime. Keywords: fraud detection; forensic accounting; auditing; problem-based learning. Data Availability: The authors are willing to share any data as well as Excel versions of all student and teacher handouts. Please contact Professor Durtschi.

PART I: CASE MATERIALS INTRODUCTION our rm 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 audited. Franklin Kennedy, the teams owner, has told employees that the audit is a requirement of the bank, which provided the mortgage loan for the recently completed training facility. However, Mr. Kennedy privately tells your audit team that he received an anony-

Carol Callaway Dee is an Associate Professor at University of Colorado Denver, and Cindy Durtschi is an Associate Professor at DePaul University
We thank Special Agent Joseph Cornwell, FBI now retired, and Anthony Carro, former Chief Investigator of the Manhattan District Attorneys ofce for their input and review of the case. We also thank Robert Dosch University of North Dakota, Thomas Buckhoff Georgia Southern University, William Hillison Florida State University, Kevan L. Jensen University of Oklahoma, Patricia Johnson Canisius College, Chih-Chen Lee Northern Illinois University, David OBrien Pittsburg State University, and Susan Swanger Western Carolina University for helpful comments and assistance in implementing early versions of this case. We also thank participants at the 2007 and 2009 Fraud and Forensic Accounting Education Conferences held in Savannah and Atlanta, Georgia.

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mous note below in the mail leading him to suspect that someone within the company is committing 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 franchise to his long-time associate Phil Ackers. Mr. Kennedy had assumed that things were running efciently until the note arrived. TBC has no formal procedures to accommodate whistleblowers and the employees of TBC are unaware of the true nature of your engagement.
Mr. Kennedy: I think there is something funny going on here at TBC. Numbers that do not add up, lots of whispers in the hallways and closed-door discussions have me suspicious. If I were you I would check it out. A long-time friend.

The owner has asked you to focus your investigation on the last ve 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, TBC generates funds from parking, fundraising, and sales of concessions and game programs. Franklin Kennedy also gives TBC some start-up money at the beginning of the season to assist with expenses until the team starts earning revenue from games. He withdraws 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 Kennedys major league team on behalf of TBC. Payroll is processed by an outside service company. Other ofce expenses are similar to those of most small businesses. Student Handout SH 1 provides an organizational chart for TBC. Ofce manager Ben 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 TBCs 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 years. Their husbands come to every game, and the six often socialize together as well. Myrna is happy to talk to you about the other TBC employees, especially those in the front ofce. Below is a summary of Myrnas opinions.
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 its expensive to build a new training facility. I dont mind because this new building is great. Its state-of-the-art and I hope it will help us recruit and keep our players in shape. Weve 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 efcient and cut expenses so we could qualify for a good rate on the mortgage loan, but we qualied and I think it was worth it. 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: Phils a nice guy; he oversees the fundraising, and seems to know everyone everywhere. Thats probably because he was a professional ballplayer years ago. He was pretty tense during the building of the new training facility, but now that its completed, hes getting back to his old self. Hes really close to his family; in fact, he even hired his niece Julie

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Return of the Tallahassee BeanCounters: A Case in Forensic Accounting 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: Shes a great change from Terri Hughes, Mr. Ackers former assistant. Terri guarded Mr. Ackers ofce to the point it was impossible to get hold of Mr. Ackers to ask even the simplest question. Anyway, Terris mother got sick and Terri left, then Mr. Ackers hired his niece, Julie. Like I said, shes a welcome change. She works very hard, even has taken over some jobs that Terri wouldnt 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: The players love Tucker. He has an interesting coaching philosophynever raises his voice to the players or uses foul language. Weve sent many players up to the majors, so he still gets the job done even without the four-letter words. Tucker cant stand paperwork, so he has Sam do most of the ordering as well as taking care of all the equipment. Ben Hill Ofce Manager: Ben still thinks its 1979 and disco is king. He dresses like John Travolta in Saturday Night Fever and is always hitting on the women in the ofce. He has several ex-wives; most of whom he started dating while still married to a previous one. When TBC qualied for its bank loan, Ben got a nice bonus which he blew on a new car. He calls it his chick magnet. He keeps things running smoothly in the ofce though, so Mr. Ackers pretty much lets him run day-to-day operations however he wants. Candace Larson Receptionist: Candie is a sweet young girl. Shes good with the phones, and everyone likes her. Shes the reigning Queen of the Taylor County Crab Festival. We were all real proud when she won. Shes always at the practice eld after worksometimes I think shes more interested in dating players than in doing her job, but overall shes a good worker. Michelle Shelton A/P Clerk: Michelle is really hard working. She handles all the bookkeeping and paperwork, like the purchase orders and stuff. Shes also going to school part time.

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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 ve months of nancial information SH 4 through SH 17. ASSIGNMENT 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 present evidence sufcient to prove the guilt of the suspects. This is a competitive exercise. It is essential that you keep the information that your team has gathered private. Leaks provide other teams with cheap information, and will put your team at a disadvantage at the time of grading. Procedure The rst step is to review the background and nancial information provided. Then, working with your team, brainstorm.1 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 unscrupulous employee? Which em-

Statement on Auditing Standards SAS No. 99 requires the audit team to brainstorm about how and where they believe the entitys nancial statements might be susceptible to material misstatement due to fraud, how management could perpetrate and conceal fraudulent nancial reporting, and how assets of the entity could be misappropriated AICPA 2002, para. 14. Generally SAS No. 99 does not apply to forensic investigators unless they are certied public accountants engaged to render an opinion on nancial statements.

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ployees have the incentive to do so? Review the given nancial data. Do relationships between nancial and non-nancial information 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 information via your instructor. To obtain the additional information you need, send an email to your instructor, but address your request to the appropriate employee of TBC, or the appropriate outside party. For example, Michelle Shelton: Please provide us with copies of the phone invoices for May. As this is a forensic investigative exercise, you have greater latitude than in most audit situations to gather information in any legal manner you see t. For example, you can question 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 you to acquire private information such as credit reports or bank accounts. If requesting evidence from outside of TBC, be clear in your request. For example, If I examine public records, what will I learn about cars owned by Sam McCarty? or If I attend the TBC fundraising event on April 3, what will I see? You can also conduct other information gathering exercisesfor example, surveillance of TBC employees. Interviewing Suspects If time allows, your instructor may provide your team an opportunity to interrogate your suspects near the end of your work on the case. The goal of the interrogation is to obtain a confession from your suspects. You can include any confessions you obtain as additional evidence in your nal 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: 1. 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 beneted from the crime, you can box your suspects 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 will want to modify your approach as the interview progresses based upon 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.

2.

3.

Final Fraud Report Your team will be graded based upon your written nal fraud report. Your report should be convincing and include the following for each fraud your group uncovers: 1. 2. 3. The names of the perpetrators of the crime. How the perpetrators committed the fraud. The dollar magnitude of the fraud.

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4. The personal gain received by the perpetrators 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, information summarized from interviews and other sources such as surveillance, and analysis based on data from the student handouts. Finally, experience has shown that the most successful teams are those that work together. Each team members point of view is valuable. Divide this case and work alone, at your own peril.

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