I anxiously arrived at Deloitte for my first day of employment and met with my assigned mentor. He showed me the supply room and introduced me to some of the team members. I was so excited. The firm administrator, who everyone seemed to fear, delivered my business cards and gave me my first assignment. Throughout the interview process I knew I would be working on one of the largest engagements in the Tulsa office, however, it would not be starting for a couple of weeks so I got assigned to a special project working in the consulting group. I met with the consultant, Robert, to get started, and he outlined the project goals and indicated we would be working with a client located in Muskogee, Oklahoma.
The next morning we met at his house and drove to the client location. It was in January and very cold. During the 30 minute drive, Robert explained that the owner of the privately owned company, which manufactured and distributed toilet paper, was trying to understand why the manufacturing waste variance was at 27% when the industry standard was only 4%. Since we provided audit and tax services to the client, they decided to engage us to review the production records to determine the cause of the variance. Robert was certain it had to do with irregularities within upper management. Robert explained as we arrived that we were going to be disguised as the audit team starting the annual audit.
As we pulled up to the client, Robert explained things may get intense but not to worry if things get out of control. As he slid his Glock from under the seat, he reassured me that he would keep us safe if the situation became confrontational. I tried to recall from my college and CPA classes if this was something a CPA would normally encounter. I was very worried -but I was in Muskogee, Oklahoma with no car to run back to the office, so I decided to trust that it was going to be ok.
The receptionist led us to the conference room with the President and all the other officers of the client. They introduced us to our key contacts and we got started immediately. Our objective was simple: recreate ending inventory from production records. The process was tedious and the working conditions were difficult. It was 1992 and everyone that worked for the client smoked heavily so it felt like we were working in an ashtray.
As time progressed, the President and other officers became aware of our focus on inventory, so we told him that we rotated our testing and this was the year for us to focus on inventory. It was getting tense, but at the same time- we were making progress. The production manager fed us everything we needed to calculate what ending inventory should be based on production and shipments. Finally, we had the results.
We met with the owner and controller of the client to discuss our conclusions. It was obvious that inventory was being fraudulently removed from the warehouse. The owner wanted us to provide an opinion in writing that someone was stealing the inventory. We told him that under our CPA guidelines this was not possible. We could only give him the data we accumulated and he would have to handle it from there. He was furious and said he was not going to pay us and that he planned to contact his attorney to review his options of suing our firm for malpractice.
The next day we arrived at the client to gather our work papers and clear the field. It had been an exhausting 3 weeks and our efforts seemed to only make matters worse. As we were gathering our things, Robert asked me to fax his expense report to the office. The main fax machine was not working, so I asked the receptionist if there was another fax. She offered me the President’s fax machine and unlocked his office to allow me in to use it. I picked up a sheet that had been left on the President’s fax machine. It was a purchase order for toilet paper from a convenience store addressed to another company. I quickly realized the issues we had uncovered in ending inventory were directly connected to the President. He had been selling the inventory made by our client in the name of another company. I took it to Robert and by the next day they arrested the President. Robert and I went from goats to heroes, and the client was satisfied.
CPAs are called upon every day to help solve complex problems business owners face. We take both conventional and unconventional approaches to help business owners navigate seen and unforeseen challenges. We add value because our involvement provides our clients credibility in the financial markets.
I am now a partner at Cornwell Jackson with 23 years of experience. As CPAs and advisors, we work relentlessly to help our clients by going above and beyond to exceed our client’s expectations. Please contact us if you need a CPA that will provide solutions that help your business grow and prosper.
Blog post written by: Scott Bates, Audit Partner
