ra dt cin isin even ip neces ame grate hi oie a the as. ued 10 by two boots nd Row Ges 1 Tei al eo ix nl pn ca vi ames ne tl presi bec ane nan tne ce ees ae ‘git rein sensed we Scola re oanearly three decadss later Goodner Broter' annual sales approached $49 milion “The Goodner family dominated the company’ options. served asthe com pry chairman ol the boar and chi! executive ofcer (CBO), white Ros wes the ier operainyofTice (COO), Pour secand-gencratton Goodners aso eld ey Peston inte company. ‘Coodner purchased tes from seven lige manufacturers and then wholesaled those ites 10 auto supply stores and other reales thal ad auto supply dept ments. Goode esiomers included Sear, Wa Mart Kat and dozens of smaller ‘eal chains. The company also purchased dscontinse tes om manulctres lange retailers. and ther wholesales and hen resol those esa uate pices 0 ‘ool distri municipalities and companies with smal fees of stonobies ‘Goodne Brothers hired Woody to work a a sas representative fo its Hontington location. Woody sold ties to more than 80 customers In his sles region tha sSieiched trom the westside of Huntington int eastern Kentucky and north into Ohio. Woody wo worked sey on a commision bas, was an flee and sue esl salesman, Unforustey, » bad abt tht he acguied during hi college ‘ays gradually developed into a severe problem. By the mi-19%s 9 gambing com pubsion theatenedto wreck the youngslesmans carer an persona ie ‘Woody bet on avy and al types of sporting events, including bosebal and football ames, owe race and boxing matches He alan spent hundreds of dolas cach ‘month buying lata tikes apd est increasingly lage sims on frequent gambling ‘excursions with hishend Al By the summer of 1996 when Woody Ae their wes ‘ised Tunica, Misssippy, Moody’ nancial condition was desperate He owes move ‘than 50,00 tothe various bookies wih whom he placed bets ws aig behind ‘on his mortgage payments and had"maxed ou several ret carde Worst fal two bookies to whom Woody owed several thourand doiars were demanding payment ad had begun making menacing vera that alluded tos wil, Rachelle Woody Finds a Solution Upon returng to Huntington in ery July 196, Woody struck upon a ea to bail him out of his fnacial problems: he deeded to bein stealing from his employe, Goodner Brothers Other than afew tafe eats Woody had never been i tobe wh aw enforcement thors Yeti Woody’ nine had no other resonate Alternates Ar hispoint sorting 0 salingseeie te lese of to ers, ne reason Woody decided to steal om hs employer was the esse with which could be done. Afr several years with Goocner Wad) was very lair with the ‘companys sloppy cecouting practices and nx contol over Ks ventory a other cots Goodners executives preached one dominant theme to thr sles sta "Volume, volume, lume” Goodner achieved is ambitious sles goals by undercut ting competitor pices. The companys dominant marke share inthe geographical region served eam ata high pee. Gaodners goss prot marin averaged 174 per ent considerably below the mes gross pal mn of 24 percent fr compare tre wholesales To compensate forts ow gos poh margin, Godner crimped on ‘operating expenses including expencitres on internal contol measives he company stale i 1 sles oes with sltal crs of 1010 12 employees Asales manager sipervsed the other employes at each out an abo wore 2 Sales disc. The remaining sat! pial included two Salas representative. r= ‘eplonst whe dbled asa secretary a bookkcaper and five o seven employees ‘wo delered ties and. worked in the units inventory warehouse, Coodners office and a Tage storage area two mules away that had previous housedlscount grocery store. Otter than padlock, Goodner provided itl secur for is ‘ire investor which typical ranged trom $30 00 to $7000 foreach sles ute, Instead ofan eatenshe sytem of internal eons ast Ross Gooner alld lucy the honesty and imtegnty othe employees they hired, Cet to fe con anys employment policy was never to hire someone uns that india could Provide thee song references, pretably fom reputable individuals with some connection to Geriner Brats. Besides following upon employment erence, ‘Goode Broers obtained through background checks on prespeie employees from local detective agencies. For more than two decades, Goodners employment strategy bad served te company wel Fewer than 1D of several hundres adda ‘employe by the company Nad been termined for stealing o ther mise of cone Pry asses o facies, Fach Cooder sales outlet maintained a computerized accountng sytem, These systems ypically consisted of antes” general ledger package ittended fora ‘sll etal business and a hodgepodge of asta accounting doctments Besides te Hunington fai’ bookkeeper the unt sles manage and twa sales epeses {ates hed unesited access othe accounting sytem, Since the lange volume of sales and purchase ansactions often swamped the bookkeeper sales represent ‘ves equenly entered tansactons direct int te sytem. The sles eps uty accessed reviewed and updated their custnie’ accounts Rather than completing Purchase oder, ses orders. credit memos, and ter accounting documents og "ily ass. the sles eps often ted te etal ola ansacton ona pce fray Peper. The sles reps eventually pase these “source dcumens oto the ook -ecpe o used em to enter ansaction data cet to the accountng sytem Sales tps and the sles manager joint executed the credit function foreach (Sood sales ute. Ital sls to new castomers equired the spproval of the Sales manage while the creditworthiness of exiting cents was monitored bythe appropiate ses rep. Sales eps had ect acces fo the Inveniory storage areas, During heavy sles periods, sles rps often loede and dlr Customer orders themes. Each sles ofce tok a yearend piyscal inventory to brig ts perpetual inven tory recots iio agreement wih the ameunt of ivenory actually on hand, One ovcesen that Tan Ross Goodner made tothe poy of rej ot het em loves honesty was mandating one intayeariventary court foreach sles ofc Goons management used thse inventories, which were taken bythe company’s ‘wopersanintetal aud tf to monitor inventory skinkage at each sales oulet, Hisorial: Goodners inventory stvinkage significantly exceeded the indsty rom. The company occasionally purchased large shipments of “seconds fom ‘manufacturers; tha ses with defects that prevented them fom being sold to ‘major rallers. The ties in these los with major delects wer len om tie spl lacy A sals office's accounting records were notated for ese Neways” unt he yearend phys mentor wastaken Selling Tres on the Sly Within a ew days afer Woody hached his plan to payoff his gambling debs he vised the remote storage ste forthe Huntington sales offee Woody rummage rou ts dimly It an chtered interior searching for india oso eta ‘pparent had been collecting dust fr several montis, Aer finding several tacks of tes sting that requirement, Woody foted dawn thir specications in a Sinallnebnek For each tt Woody lsd Cosomers who couhd pote hed Sorte Useor ho gent,Late that sane day Woody made his fat ‘sale” A local plumbing supply dear needed ties fr his small Net of vehicles Wooly convinced he ane, ace that Gooner was atempting to "move" some ol itventary Ma inentong ner ‘sold on a cash basi and at prices significantly below Goudhers ces Te nee aged to prchase wo dozen of he ies Mer dlvering te ies in is We cup, Wotdy rece a cash payment of $900 direct fom the Gaara verte next several months, Wind retnay sole nventay ad tet the po ‘ees Woody concealed the thet in various ways In some casas ne Wael chs ‘merchandise that he had sold for his own benefit to the accounts of lnsescte ee ‘customers Woody refoned his technique since it alowed him lo reduce te arn ‘ory balance in the Hunton facilis account records Whe castor ‘lined to im for being charged for merchandlse they had nol purchased Wecey ‘imply apolaized and corrected thir account balances lf the cstomens goes, ‘improper charges they unknowingly helped Woody susan his haudulent atone Goodners customers tequenty rtumed tes for various ease, Woody se, let crditmemas or sales transactions voided by his ustomera Dat nerd oro {uring the ties 1 Goodnes invertor he offen sold them and ket te ees ‘Gooner ocesinaly consigned testo lage reales lor promotleal ae nes When the conigness returned the unsold testo Goodnet Woody would self avn othe ite disposal lity in nearby Shoals West Vain ak ocala tigted toa tales outlets delivery worker. Not surprising most of the tne Wen Woody carte off for dsposal wee at detective ‘The case with which he coud steal tes made Woody increasingly bold Io lte 1996, Woody ofred to sel Al Hunt es he had ellegely purchases ie LN fit reluctant, A eventually aged to purchase several doze tres from his 000 frend. No doub, the curate prices a which Woody was sling ene aes the decision much easier Ai those pices Alvelzeé be would eat sie ney, ‘the ties Ore the next 12 montis Woody continued to sell iaceut aes or eal saben ‘The next tie Al spoke lo Wood he mentioned matterotfactly that he had contacted Woaiy’s primary supplier of closeout tes Athen tld he fone eg sales rp forte company ha indicated that such merchande wat ony stata Wwolesers “SawhalS the point, AP We just fait of strange hata. = ‘Cin, gt the point Ale Wel Wood! was js wondering where youre geting these tes that youre seling”Do you want to know Al? Do you relly want to know Buddy? antto know Woody pled anil, ‘Me eng pousAl susie his shoulders and told his rend 1st ore, ‘Despite his growing uneasiness regarding the source othe cheap ties, Alcon ted to by them and never agin sata! Woody where he war obtaing fa, {ntemol Auditors Discover Inventory Shortage 1» December 3,126 the employes of Goodne’s Hurtington location met to take 4 plyscal inventory Toe employees tated the annval ventas prude to eg New Years Eve par Counting peal begat arcind noon ad was Brisa wns ties hours, The emploees worked in team of three Two members of eal ioe mbed and crawled over the large sacks of ties and shouted tattle couse ‘eth member wio recorded them on reformat count sect Woody arranged to work wih wo delivery workers who were reltvelynamiior ih Goodne’s invent since they had been hited enya lew weeks eater Waa ‘made sue that his team was one ofthe two coun teams eaaigne tothe ene, ove eit. Most of inventory e had soln ver the previo sl none ed ‘ben ake rom that st Woody eximated that head stolen apprntmatey 46,000 ‘favor om the remote storage fact, which repsented about Id escent ot 'he sits book inventor By maintaining the count shee fr his toss Woo eat ‘ay nfl the quanties forthe ie fot tat he and his team members cers ‘Aer the counting was completed a the rettote sore lacy, Woody cere o tale the count shet fr both teams io the sles ofice where the tol mos ould be compile. On the way to the sales olfies he stopped i's vacant pasting lotto review the count sheets Woody qucky determined tha the apparent shen ‘emaining athe remote ste was approximately $2,000 He reduce tht shore "es than $1000 by altsing the count sets prepared bythe thee cone os ‘When the jearend inventory was tale or Goodaers Hutlagion lec the sliference between te physical inventory and the book inventors eas $1200 eg 2. percent That percenlage exceeded the historia silage ra of apres 1 percent for Goode sles offices. But Fe Gael, the sales mare te Huntington sales fe. cid not belive tht the 186 shrinkage was exer da tumed out, nether did te accounting personnel and internal auton st Gooden ‘omporate headquarters. Woody continue “apping off Goodner throughout 1857 By midyear Woody was seling mos ofthe ties he tole AI Hint On one occasion, Woody samen anak 'o sale ts too cheaply Woody had become concerned thar Cocos wees Prices and its increasing sles volume might spark the curony sid sty cote Hartington tre reales a October 1997, Gone internal audit team arved to count the Huntington cations inventory Alugh company poy diated that te interaal nod unt the inventory ofeach Gocder sales ctet shall the swore atonal be ween the internal audit inventory counts ypeally ranged from IS 2920 monte, The Internal aur ha ast counted the Hung locaton’ nventry Te May 1996,two months before Woody Robinson begah stalng ies, Woody was anatase ‘hal the internal auditors perisically counted the ett imeniony ofeoes Goseone ‘pert uk stead, he understood th he lea airs yas fs ae «counts during their intecuent visto the Huntinglon sales oftes, Ar completing their inventory count, he twa nteral ators ave at an etry value of $48.00 A quick check othe accountng cons reieg seat ‘ventory of $69.00. The audlors had never enciuntered sch lage diene tal you i youOO between the lnsical and book ivenory oak Unsure whal odo al hsp. the auctor evenly decided to ake the mater tno Fats Garces ene ton sales manager The sie of the inventory shortage shocked Gas he thatthe audiors must have oveiooked some inventory Garis te ies re auditors and tree delivery workers spent te folowing day recounting inventory The resting lysical inventory value was $196.00, $2000 les thane ign rae aed af bythe auton. Following the second physical nventons the two intemal auditors and Garcia met 2 local rest! to eiew the Huntngon sits menor cote Re saa ‘edt him ite tne to monitor is unis accounting records When pose eee {Ho to provide posible explanations lor the vento shorage Gata oink [Use ie est say jo spe My jb is seling ties, Tse x many os os {sana quickly 2s can. It ou guys and hue other sls po Yoon nace the numbers “Te folowing da the senior nema autor calle his inet superiog Goo et chit Finacial offcer (CFO). The size ofthe inventory shortage olan ae ( (FO. leds the CFO suspected thatthe imenoryshetage we a Huntogton wns downward tend in montiy profs ever fe past hes en ‘rough 1995, the Huntington sls offce had consistently take ac ia oa cl oth mc rofiabe ales ute. Over th pa 18 ont hese nrg Profs had caused ito fal othe bottom onethit ofthe compaapater en Previous year ard oneal, Aterdacsing the mater with and Ross Goode the CFO contacted the company independent ut frm and arranged lorie fs Wo nveoign he toy shonage Te Goodners aged wih the CPO tha Fay Cares Seah se bended wit po unt the investigation was concladed Gara nck chee ‘xPlanaton fo fe missing inventory and the anger he had directed the autor caused Goodnersexectvs wo conclude tha he wat tel aerate the inventory shortage Within afew dys our autos rom Goodner independent audi fem antved at the Huntington aes office. Goodners aust frm wass reiotal GA fer During thee retain ofthe missing vento the aon were sprit the Huntington wits lax and often nonestem conte The eee ee ‘sles re ho file similar cman dri hal Ue fe When questioned bythe autos, Gaeia conceded tha he had not discussed the alomer complains with Woody or te ther sles opin lack Ces es ee‘hala dspropentionae wumber of the ‘When Gaeta received a eum com Prat sais rep and alowes that nd Aico the customer ecmpsint ony bec ‘ussales manager whe ha replaced [Aer the independent alors collec Woody they arranged lor a mecting wit Soodiers CFO and Felix Garcia, When evidence, Woody dselsimed any knowl shortage. Woody's desial provoked ni ‘Soodners CPO,"Listes, Reblnson, you complaints had hon id againet Woody pant. he simply pamed i of the ap ual fo deal wth he mater le maintines see had been ol odo so bythe pe ve yeas ether ted other incriminating evidence against h him. Also attending that mesiing were the auditors produced the incriminating sige of, oF respons for the inventory immediate and indignant response tom may have fooled the people youve been working with but youre not fling me. You beter pil the beans taht nee ‘ket this point, Woody stood, announced tat He wat reining us eter walked out ot the meeting Goode Brothers fled a rininal complaint sgnnst Woody Robinson two weeks ar he refused to discuss the invenony sovtage. ‘he Huntingon sales tice A lew weeks ter | —__ Wood storey reached ple bomin agree, meat wih he local dist stoney Wood cehed a feyear sentence kr grand larceny four years of which were suspeved He event ally served shen montis of th sentence 2 Inininumsecurity prison. contin of the lea bargin agreement equa Woy 0 po ide a fill and candid writen summoay of te fraudulent scheme tha he hae perprrated hisempioyer ‘Woody confession imple’ Al Hunt in his thet Scheme, Over the 15 mons that Woy Chad stolen rom Gocdner ne hed once nce ‘tthe sioien inventory trough Cacios Tes, Although the dstctattomey questoned Al Hunt extensively ne decided tt to le eto nal chanmes agaist him? Eiencay oodner Brothers le a $185,000 ins ance claim to recoup the losses impose! op them by Woody Robinson. The company’s insurer eventual paid Coodner $130 000, Which equated the thet lomes that Goode could document Afr teting the est, the insurance company sued Cucio$ Ties and Al Hunt to recover the 496000: windal That Curcios allegedly realized due to Al Hunts involvement inthe theft sing The caso went to federal district court where a juge ordre Hunt to pay 864,00 to Goodners insures A Hunt then sued Woody Robinson to recewer that judgment The judge who prsided over the eater case quleky dismissed Al Hons Tawsuit Acconling tthe judge, Al Hunts complicity In the fraudulent schetne voided hist to recover the $4,000 judaent lon his forme fiend, int i ea ce antes ‘ache mcare re on Me) nd heme a ws han ey Ge ie Nowe: Hedy waned ar canna i ecene Spin ae -A Arp aca eg ney Sc ee‘Questions 1. st wnt you belive should have been the thee to fv ey ilenal contol objeties of Gocdner Huntington sales othee st he ky internal contol weaknesses tha we evident in the Huntington ‘its eperations. 3. Develop one or more conto polices or procedures to levi th weaknesses you dented in Question 2 4. esides Woody Robinson, wha ther pares were at least partial responsible lorie inventory loses Godner ier? Defend your amer