Financial Shenanigans: How to Detect

Accounting Gimmicks and Fraud in

Financial Reports Howard M. Schilit
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Copyright © 2018 by Howard M. Schilit. All rights reserved. Except
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 In loving memory of Rob Schilit, Howard’s dear brother,
who contributed enormously to prior editions of
Financial Shenanigans, and is an ongoing source of inspiration.
He is sorely missed.
 Contents
Preface: Reflections on My Last 25 Years

PART ONE
ESTABLISHING THE FOUNDATION
1 25 Years of Shenanigans
2 Just Touch Up the X-Rays

PART TWO
EARNINGS MANIPULATION SHENANIGANS
3 Earnings Manipulation Shenanigan No. 1: Recording Revenue
Too Soon
4 Earnings Manipulation Shenanigan No. 2: Recording Bogus
Revenue
5 Earnings Manipulation Shenanigan No. 3: Boosting Income
Using One-Time or Unsustainable Activities
6 Earnings Manipulation Shenanigan No. 4: Shifting Current
Expenses to a Later Period
7 Earnings Manipulation Shenanigan No. 5: Employing Other
Techniques to Hide Expenses or Losses
8 Earnings Manipulation Shenanigan No. 6: Shifting Current
Income to a Later Period
9 Earnings Manipulation Shenanigan No. 7: Shifting Future
Expenses to the Current Period

PART THREE
CASH FLOW SHENANIGANS
10 Cash Flow Shenanigan No. 1: Shifting Financing Cash Inflows to
the Operating Section
11 Cash Flow Shenanigan No. 2: Moving Operating Cash Outflows
to Other Sections
12 Cash Flow Shenanigan No. 3: Boosting Operating Cash Flow
Using Unsustainable Activities

PART FOUR
KEY METRIC SHENANIGANS
13 Key Metric Shenanigan No. 1: Showcasing Misleading Metrics
That Overstate Performance
14 Key Metric Shenanigan No. 2: Distorting Balance Sheet Metrics
to Avoid Showing Deterioration

PART FIVE
ACQUISITION ACCOUNTING SHENANIGANS
15 Acquisition Accounting Shenanigan No. 1: Artificially Boosting
Revenue and Earnings
16 Acquisition Accounting Shenanigan No. 2: Inflating Reported
Cash Flow
17 Acquisition Accounting Shenanigan No. 3: Manipulating Key
Metrics

PART SIX
PUTTING IT ALL TOGETHER
18 The Unraveling
19 The Forensic Mindset
Index
Acknowledgments
 Preface
Reflections on My Last 25 Years
Howard Schilit
Fall 2017

Dear Friends,
Having recently reached my sixty-fifth birthday, I began reflecting on
my life and the many changes over the last quarter century since
writing the first edition of Financial Shenanigans. In short, I feel very
blessed. On a personal level, my wife Diane and I love spending time
with our three young grandchildren, and are eagerly awaiting our
fourth. Professionally, I am enjoying building my second business, a
forensic accounting consultancy called Schilit Forensics, with my
fantastic partners and coauthors, Jeremy Perler and Yoni Engelhart.
In addition to the research engagements we work on for our
clients, we spend a fair amount of time teaching the trade of
forensic accounting—to investors, regulators, journalists, and
graduate students. After a recent presentation at Stanford’s
Graduate School of Business, my partners and I realized that seven
long years had passed since publication of the last edition of
Financial Shenanigans and that almost 25 years had passed since
the first edition. Over that time, more than 100,000 readers have
purchased the book around the globe, including translations in
Chinese, Japanese, and Korean. We’ve learned a lot in the
intervening years, and as such we felt it timely to share with you the
latest accounting tricks as well as a more considered account of the
most important lessons from the last quarter century.
But before turning the pages forward to begin this new edition of
Financial Shenanigans, let’s turn back the clock 25 years to share the
beginning of my search for “shenanigans” and the unexpected and
exciting journey since 1990.
The Beginning—the Early 1990s
As a professor of accounting at American University in Washington,
D.C., I began researching the most prominent accounting frauds
over the prior 40 years. Many have been documented in Accounting
and Auditing Enforcement Releases (AAER) at the U.S. Securities
and Exchange Commission (SEC). I began using many of those
interesting vignettes in teaching my Intermediate Accounting and
Auditing classes. As I saw that the students found those stories
fascinating, I started publishing articles on this subject to share with
a larger group. And, of course, the next logical step to reach an even
greater audience was to write a book.

Publication of Financial Shenanigans and Early Years

as Entrepreneur
Shortly after my forty-first birthday, in early 1993 McGraw-Hill
published the first edition of Financial Shenanigans. The book
introduced readers to seven broad categories of earnings
misrepresentations, identified 20 discrete techniques that
management might employ, and sprinkled in many examples of
actual companies that had been sanctioned for tricking investors.
A few pleasant surprises emerged after the book was released.
First, lots of readers reached out to thank me for shedding light on
the steps that investors could take to safeguard their wealth.
Second, the book had made its way into the ranks of big institutional
investors, who sought to hire me to train their analysts on how to
spot companies playing accounting games. Eventually they began
asking me to examine the companies in their portfolios. Fortunately,
on several occasions, I was able to use these techniques to alert
them of major problems, and they were very thankful for keeping
them out of harm’s way.

Founding the Center for Financial Research &

Analysis (CFRA) in 1994
While 1993 was an eventful year with the publication of Financial
Shenanigans and my introduction to some influential investors, it
would have been impossible to predict the dramatic changes that
followed in 1994 as I launched the Center for Financial Research and
Analysis (CFRA). Out of the spare room in my house, I began
publishing a monthly newsletter highlighting companies I believed to
be struggling but that were using accounting tricks to hide the
problems. On the fifteenth of each month, I sent reports via
overnight mail to our subscribers. (Remember, we were still living in
the “dark ages” before the Internet and e-mail.) Thankfully, the
service was well received, and over 60 investment firms became
subscribers during our first year.

The Transition from Professor to Full-Time

Entrepreneur
In 1995 I resigned my tenured teaching position at American
University in order to devote myself fully to the growing business. I
leased office space and began hiring a team of analysts; CFRA was
off to the races. By 1999, we began posting our warnings for clients
online and sending out e-mails. (Yay, no more printing and collating
reports and sending them via overnight mail.) Our client count grew
substantially as we became a major player on Wall Street and
around the world, with clients on five continents and offices in
Washington, D.C., London, New York, and Boston.

The Later Years Running CFRA and the Sale

During the early 2000s, accounting scandals proliferated, with frauds
revealed at Enron, WorldCom, and Tyco. The Governmental Affairs
Committee of the U.S. Senate investigating the Enron fraud asked
me to testify in February 2002. I was regularly interviewed on TV
and in print about the growing usage of accounting tricks.
In April 2002, the second edition of Financial Shenanigans was
released, and sales spiked as the stock market was spooked by a
seemingly endless parade of companies using accounting tricks.
As you might imagine, those were golden times for CFRA. Over
200 new subscribers signed up for our research product in 2002
alone, and by the end of the year we were serving over 500 clients.
Investment firms needed more help in monitoring their portfolio
companies, and short sellers were on the prowl for the “next Enron.”
During this busy period at CFRA, we hired additional analysts, and
fortunately, both Jeremy and Yoni joined the firm and quickly
became leaders. Jeremy eventually became the global head of
research, and Yoni led our quantitative research team and headed
business strategy for the company.
In early 2003, several potential acquirers came knocking, and I
decided to sell a majority stake to the Boston-based private equity
firm TA Associates. Jeremy and Yoni remained at CFRA for several
more years, while I left the day-to-day job of running the business
and started my “years in hibernation,” adhering to a long
noncompete, which was in effect until late 2010. Yoni left for
Harvard Business School in 2008, and upon graduation, he worked
for an investment management firm in Boston. Jeremy remained at
CFRA until 2011 and then became a forensic accounting specialist at
a prominent hedge fund.

The Quiet Years and the Release of the Third Edition

of Financial Shenanigans
My retirement years involved a lot of traveling, still giving seminars
to investment groups and MBA students. By 2009, I was eager to
share some of my new ideas and I approached Jeremy about
partnering with me to coauthor a third edition of Financial
Shenanigans. We worked very closely on the book during the
summer and early fall of 2009, and the book was released the
following April. Knowing that my noncompete would end later that
year, I became much more active on the speaking circuit, giving
seminars and interviews and doing in-depth research on companies.
I was very excited about coming out of retirement and building a
new business from scratch.

Building a Second Business: Schilit Forensics LLC

By late 2010, my noncompete had ended, sales of the third edition
of Financial Shenanigans were brisk, and the media took note of my
return from retirement. Barron’s published a piece entitled “A
Financial Sleuth Finds a World of Abuse.”
So in 2011 I founded Schilit Forensics LLC on a small scale, taking
on just a few clients to dip my toes in the water. I purposefully took
it slow, as going from a life of leisure to a full-time commitment
seemed daunting. Clients signed three-month agreements for my
help in unraveling complicated accounting-focused problems. In
contrast to my first business, Schilit Forensics operates as a
consultancy engaged to work on custom research projects, not as a
subscription service selling a newsletter.
I was really enjoying the nature of the work and close interactions
with a small group of wonderfully appreciative clients. In March
2013, Jeremy surprised me with an auspicious phone call. He was
still working at the same hedge fund, and while he was very happy
there, he was thinking about more entrepreneurial ways to deploy
his forensic accounting expertise. It quickly became clear to both of
us that we should team up to further build Schilit Forensics. That
weekend, he flew to my winter home in Florida, and we formalized
our partnership.
Just a couple of months later, Jeremy and I approached our close
friend and former colleague Yoni about joining us as a third partner.
He was enjoying great success at a prestigious investment firm but
harbored a strong desire to harness his entrepreneurial spirit. Yoni’s
enthusiasm mirrored ours, and he joined Schilit Forensics in July
2013. The three of us are now into our fifth year of working
together, and we have developed an impressive team of analysts and
diverse roster of clients. Each and every day we read through the
fine print of regulatory filings, investor presentations, and other
documents to identify signs of business problems before they
surface. In doing so we are able to help our clients make better
investment decisions.
My partners and I truly love teaching our clients and eager
students about spotting companies trying to hide operating problems
by using creative accounting games. And, with this same excitement,
we are thrilled to impart our quarter-century of learnings and
experiences with you, our readers and friends, in this special new
edition of Financial Shenanigans. Enjoy reading and feel free to be in
touch!
Howard M. Schilit
Founder and CEO
Schilit Forensics LLC
howard@schilit.com
 PART ONE
ESTABLISHING THE
FOUNDATION
 The chapters ahead provide a wide range of case studies covering
companies that have simply papered over their financial performance
and economic health problems in order to delay the inevitable bad
news, and the techniques to identify them in advance.

What Are Financial Shenanigans?

Financial shenanigans are actions taken by management that
mislead investors about a company’s financial performance or
economic health. As a result, investors are tricked into believing that
the company’s earnings are stronger, its cash flows more robust, and
its Balance Sheet position more secure than they really are.
Some shenanigans can be detected in the numbers presented by
carefully reading a company’s Balance Sheet (formally called the
Statement of Financial Position), Income Statement (Statement of
Operations), and Statement of Cash Flows. Signs of other
shenanigans might not be as easily seen in the numbers and instead
require scrutiny of the narratives contained in Footnotes, quarterly
Earnings Releases, and other representations by management. We
classify financial shenanigans into four broad groups (discussed in
Parts Two to Five in the book): Earnings Manipulation Shenanigans
(Part Two), Cash Flow Shenanigans (Part Three), Key Metric
Shenanigans (Part Four), and Acquisition Accounting Shenanigans
(Part Five).

Earnings Manipulation Shenanigans (Part Two)

Investors judge corporate executives harshly when they fail to meet
Wall Street’s earnings expectations. Not surprisingly, to steer the
share price (and often executives’ compensation packages) higher,
some companies engage in a variety of shenanigans to manipulate
earnings. We have identified the following seven categories of
Earnings Manipulation (EM) Shenanigans that result in
misrepresentations of a company’s sustainable earnings.

EM Shenanigan No. 1: Recording revenue too soon

EM Shenanigan No. 2: Recording bogus revenue
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Then he rubbed his eyes and looked at her wonderingly, and patted
her cheek, and said:

"You mean you will forgive me? You will, won't you? I truly didn't
mean to get wet and dirty."

How many kisses do you suppose he had then? As for Mrs. Sullivan,
she hasn't found enough yet to do for Rollo, though she keeps doing
nice little things all the time.
 NOBLE AND TRICKSY.

TWO dogs they were, and I am about to tell you a true story
concerning them. Tricksy belonged to little Robbie Parker, and was
one of the nicest dogs I ever knew. Robbie thought so; he came to
his mother almost every night with a fresh story of the fellow's
goodness.

"It is a pity he has such a dishonorable name," the mother said. "I
don't like tricky people."

"O, mamma!" would Robbie say. "He is only a dog; but then I know
he wouldn't do any thing mean."

In the course of time, Robbie's older brother Nelson, became the

owner of the wickedest looking little dog that over yelped. If you want
to know just how he looked, here is his picture.

What Nelson saw in the little wretch to please him, it would be hard
to say; and of all things, he was named Noble!

If the names could have been turned about, and "Tricksy" given to
him, I think it would have suited every one but Nelson.

He was a queer fellow, and certainly he had many tricks. Brave old
Tricksy took kindly to him, and used to frolic with him in a dignified
way, and whether it was that being with the little scamp so much he
learned some of his ways or not, I do not know, but certain it is that
the funny thing I am going to tell you, actually happened.

There was nothing that the little scamp named "Noble" liked better
than to have a race with old Tricksy around the great trees on the
lawn. Yes, perhaps there was one thing that he liked almost as well,
and that was, to curl himself on a certain cushion that before he
came, had been the large dog's special property.

So sure as the old dog left it for a minute to do an errand, or to

attend to any of his duties, up the little scamp would jump and be in
possession. Good old Tricksy stood it patiently a good many times,
but at last one day he evidently thought out a way to manage the
little new comer. It was just after a hearty dinner, and it was a chilly
day, and a cosy nap on the warm cushion, I suppose, looked most
inviting to both dogs. The little one was ahead, as usual, and the old
dog sat clown by the stove to think about it. At last he got up, moved
gravely towards the door leading to the lawn, then turned around to
the little dog and said as plainly as dog-language would admit:

"Come on, then, if you want a race."

 TRICKSY.

Down jumped the little dog in a perfect flutter of delight, and wagged
his tail, and barked his short, sharp barks that said "Oh, good, good!"
and ran to the door.

What did our grave old dog do but turn around very quickly, spring to
the bench behind the stove, curl himself on the cushion, and go to
sleep, leaving the disappointed younger one to bear the loss of his
frolic and his cushion, as best he might!

"He has earned his name!" somebody said, laughing. "O, Tricksy,
Tricksy! We can never say you ought to be called 'Noble' any more."

But what do you think Robbie did? Instead of being delighted with
the sharpness of his dear old dog, he burst into tears.

"Why, Robbie!" mamma said. "What is the matter?"

Then Robbie wailed forth his heart-breaking question:

"Was it wicked, mamma? Tricksy didn't know any better; he is only a

dog."

"Of course it was wicked!" Nelson declared in his most teasing tone.
"My good little Noble wouldn't think of doing such a cheating thing."

NOBLE.
Whether mamma wanted to comfort Robbie or whether she thought
Nelson needed the lesson; or whether it was a little of both reasons
that made her speak just then, I will not stop to tell you, but what she
said was:

"He may have been led astray by bad example. I wonder if it can be
possible that he saw a boy take his slate and book under his arm
yesterday and walk towards the stairs as if he were going to the
library to study, then dodge out at the side door, hide his books
under a rose-bush, and run off to play marbles with the boys?"

Not a word said Nelson; his cheeks grew red, and he looked down
and fumbled with his watch-chain. Do you think his mother could
have meant him?
 GIESSBACH.

THE two girls squealed with delight over the picture. "Just see! three
falls, one on top of the other!" declared Fannie. "Oh dear me! How I
should like to see them! You can't tell any thing by looking at a
picture."

Tom came and looked over their shoulders.

"Where is the thing?" he asked.

"Why, it is that wonderful Giessbach fall in Switzerland that Mr.

Warder told us about. He said it was just the loveliest view in all
Switzerland; and he promised aunt Kate a picture of it. But pictures
are the most unsatisfactory things! I want to see the color of the
rocks, and the little ferns and bushes growing about, and hear the
water dashing. But I don't suppose I ever shall see or hear any such
things. I expect to fly, just as much as I expect to go to Switzerland."

"You needn't go to Switzerland to see a grand waterfall," declared

Tom. "I don't believe Giessbach with its horrible name, is any finer
than Cheyenne Cañon fall, that I stood under only last week. I tell
you, Fannie, that was a sight! Three falls, distinct from each other,
yet all tumbling into one at the bottom, and making the grandest kind
of white foam. I stood as close to it as I do to you, and the spray
came all over my face. Then we went up the mountain and looked
down on it all. How many falls do you think we saw then? Seven of
them, all roaring down together. That was a sight to remember, and
we didn't have to go abroad for it, either. You can just make up your
mind, Fannie, that there are about as grand things to look at in our
own country as can be found anywhere."
But Fannie was in the mood to grumble:

"Oh, well, one might as well go abroad as to go to Colorado; I don't

expect ever to be able to go there, either."

"Humph!" said Tom. "Neither did I expect to; I could have imagined
myself in the moon as well as in Colorado, three weeks before I
went; yet I went, and so may you. People can't ever tell what may
happen to them. You just remember that when you do go, there is
one place to see; the falls of Cheyenne Cañon. People who have
seen both, say that there is nothing grander in Switzerland than they
get up in that cañon."

Cora, meantime, had been listening in silence, gazing with

thoughtful, far-away eyes at the picture. At last she spoke:

"Tom, what did you think of when you stood looking up at the
wonderful foamy water coming down from so high a place?"

Tom's face flushed a little.

"People think different things," he said, laughing. "As I stood there

looking at it, I said, 'What a grand place that would be for a shower
bath. I'd just like to go and stand under it, and take a good one.'
There was a little chap stood by me, a pale-faced fellow with blue
eyes, who had taken off his cap and stared up without speaking, for
ten minutes. Just then he turned to me and said:"

"'I've been thinking how easy it must be for God to make wonderful
things! Here he has made all this white water and tumbled it down
from away up in heaven—that is the way it looks—just for the sake
of giving these old still rocks something bright to play with.'"

"Wasn't that a poetical thought? Sounds like you, Cora. It made me

think of you at the time."
 A BIT OF LOGIC.

RUFUS lay at full length on the sofa, and puffed a cigar, back parlor
though it was; when Mr. Parker reminded him of it, he said there
were no ladies present, and puffed away. Between the puffs he
talked:

"There is one argument against foreign mission work which is

unanswerable; the country cannot afford it. Two millions and a half of
money taken out this year, and sent to the cannibals, or somewhere
else. No country can stand such a drain as that upon it, with
everything else it has to do. Foreign missions are ruinously
expensive."

The two young sisters of Rufus, Kate and Nannie, stood on the
piazza and laughed.

"O Rufus!" said Kate. "You won't take a prize in college for logic, I'm
sure."

"What do you mean, little monkey? And 'what do you know about
logic?"

"More than you do I should think. Just imagine the country not being
able to afford two millions and a half for missions, when just a few
years ago it paid over four millions for Havana cigars. Have you
thought of that, Rufus?"

"And I wonder how much champagne is a bottle?" chimed in Nannie.

"How much is it, Rufus? You know about ten million bottles are used
every year. And oh! why, Rufus, don't you know that we spend about
six millions for dogs! Something besides foreign missions might be
given up to save money, I should think."

"Where did you two grow so wise? Where did you get all those
absurd items?"

"We got them at the Mission Band; Kate is secretary, and I'm
treasurer, and these figures were all in the dialogue that Dr.
Stephens wrote for us to recite. If you choose to call what he says
absurd, I suppose you can; but he is a graduate from a college, and
a theological seminary, beside. I mean to tell him that you think two
millions and a half for foreign missions, will ruin the country; I want to
hear him laugh." And then the two girls laughed merrily.

"You needn't tell him anything about it," said Rufus sharply. After the
girls ran away, he added thoughtfully:

"How fast girls grow up! I thought those two were children; and here
they are with the Mission Bands, and their large words about
'secretaries and treasurers.'"

"And their embarrassing facts about money," interrupted Mr. Parker.

"Those girls had the best of the argument, Rufus;" and then he too
laughed.
 INTERLAKEN.

INTERLAKEN means between the lakes, and is the name of a

village in Switzerland. It is situated between two lakes called Thun
and Brienz. All you geography scholars will be able to turn to it in
your minds, or if not so, on your maps. The village is in a plain and
on the river Aare, and you have in the picture a view of the bridge
across the river. The people who live at Interlaken lead quite
uneventful lives, gaining the means of living by carving toys in all
sorts of quaint devices, which are sold in the shops which line the
principal streets. The wonderful scenery brings large numbers of
visitors to the place, and these visitors are the purchasers of the
curiosities of the shops.

Large quantities of Swiss lace and Swiss carving find its way to the
United States in the trunks of American travellers; and I have no
doubt that when you visit Europe you will bring away a quantity of
the work of these same Interlaken lace-makers and carvers.
However you may set your face against the folly, you will be sure to
find some things which you must have.
 INTERLAKEN.

The scenery in this valley is among the finest in Switzerland. From

the windows of some of the pensions or boarding-houses, you may
get a view of the celebrated "Jungfrau." Do you know that Jungfrau
means "the maiden?" There seems to be a dispute as to the origin of
the name. Some say it was given to this lofty peak because of the
spotless purity of appearance on account of the unsullied snow
which always covers its summit. The view which you get of the
Jungfrau at Interlaken is through an opening in the range of lower
mountains that lie at the base of the grand old mountain itself, which
is nearly fourteen thousand feet high. I believe that the first to reach
the top was a party of natives of the valley, in 1828.

Soon after a scientific expedition, accompanied by the renowned

Agassiz, made the ascent. You will find within a few miles of the
village of Interlaken many points of wild and picturesque beauty, and
you will want to visit the waterfall Staubbach, which means "sky
born," and is one of the highest in Europe.
 WHITE AND CLEAN.

"C-H-E-S-T-E-R!" It was his mother's voice, and it rang out from her
room in the second story. "Only half an hour until school-time."

"Yes'm," shouted Chester. "I'll be there." But he bent over the tub and
rubbed Sport so fiercely that he howled.

"Keep still, sir," said Chester. "A dog who can't stand being washed
shouldn't have white feet and a white nose; I'm not going to have you
trotting around looking so horrid dirty as you have for a week. Look
here, sir; don't you try to bite me. If you do, you'll get a whipping. I'm
in a hurry."

Rub, rub, souse, souse!

Poor Sport shivered, and howled, and struggled, and looked as

though he would never feel equal to his name again: but Chester
splashed away.

His mother opened her window again.

"My son, you shouldn't have begun with the dogs this morning; you
knew it was late. Let Sport go at once, and leave Beauty until to-
night."
 THE CAUSE OF A POOR ARITHMETIC LESSON.

"O, mamma! I cannot possibly leave Beauty. He looks worse than

Sport did."

"Can't help it, my boy. You will be late to school, and have a poor
lesson."

"I'm coming, mamma, right away."

Out went Sport to the piece of carpet with which he was rubbed; glad
was he to get out of that horrible tub at any cost. But in went Beauty,
and the soaping, and howling, and splashing, and scolding went on
again. Chester worked fast, no doubt—although I suppose Beauty
did not think so—but before his work was half done, the window of
his mother's room went up with a click that meant business.

"Chester, put that dog on the ground and come here immediately."
Which Chester immediately did, shaking the soapy drops from him
as he went.

I suppose you are not surprised to hear that half an hour afterwards,
in the arithmetic class, he said that seven times eight was ninety-
four, and insisted that such was the case, even after half the girls in
the class were laughing over it. This is about a specimen of the way
in which he knew his entire lesson. Of course he sat gloomily in his
seat during recess, with his arithmetic upside down.

"Chester," his teacher asked, "how is it that you failed on your lesson
this morning?"

"I didn't have time to study it, sir."

"Is that so?" said Mr. Pierson. He thought a great deal of Chester,
who, to tell you the truth, generally had his lesson. His mother often
had trouble about it, but the teacher rarely had. "I think I'll have to
excuse you," his teacher said kindly, "if you really had not the time to
learn it. You may make it up to-morrow."

And Chester went to the playground with a hurrah on his lips. He

seemed to be very happy the rest of the day. When he went home,
he was full of play, and greeted the dogs with words of praise for
keeping themselves looking so well.

"Your nose is almost as clean as it was this morning, when you

fought so hard against my washing it, you ungrateful fellow!" he said
to Sport.

A very happy boy he was all the evening. He went to bed happy. He
knelt down in his white night-suit and said "Our Father," and then
hopped into bed with a whistle, and the next minute was asleep.

Poor Chester! Why? Oh, to be a boy who disobeyed his mother, and
told two falsehoods, and yet to think so little of it all that he could go
to bed whistling, without even having asked to be forgiven, is to be a
boy who needs pity.
Two falsehoods? Yes, indeed! Didn't he say to his mother, "I'm
coming right away," and go on with his work that she had directed
him to leave? Didn't he tell the teacher he "hadn't time," when the
truth would have been that he chose to take the time which belonged
to the arithmetic for something else?

White and clean! Oh, yes, that is what the dogs were; clean as to
their consciences for that matter, if they had any; for I believe they
acted as well as they knew how all that day. But how was it with
Chester's heart?
 "BOY WANTED."

PEOPLE laughed when they saw the sign again. It seemed to be

always in Mr. Peters' window. For a day or two, sometimes for only
an hour or two, it would be missing, and passers-by would wonder
whether Mr. Peters had at last found a boy to suit him; but sooner or
later, it was sure to appear again.

"What sort of a boy does he want, anyway?" one and another would
ask. And then they would say to each other, that they supposed he
was looking for a perfect boy, and in their opinion, he would look a
good while before he found one. Not that there were not plenty of
boys—as many as a dozen used sometimes to appear in the course
of a morning, trying for the situation. Mr. Peters was said to be rich
and boys were very anxious to try to suit him. "All he wants is a
fellow to run of errands; it must be easy work and sure pay." This
was the way they talked to each other. But Mr. Peters wanted more
than a boy to run of errands. John Simmons found that out, and this
was the way he did it. He had been engaged that very morning, and
had been kept busy all the forenoon, at pleasant enough work, and
although he was a lazy fellow, he rather enjoyed the place.

It was towards the middle of the afternoon that he was sent up to the
attic, a dark, dingy place, inhabited by mice and cobwebs.

"You will find a long deep box there," said Mr. Peters, "that I want to
have put in order. It stands right in the middle of the room, you can't
miss it."

John looked doleful. "A long deep box, I should think it was!" he told
himself, as the attic door closed after him. "It would weigh most a
ton, I guess; and what is there in it? Nothing in the world but old
nails, and screws, and pieces of iron, and broken keys and things;
rubbish, the whole of it! Nothing worth touching, and it is as dark as a
pocket up here, and cold, besides; how the wind blows in through
those knotholes! There's a mouse! If there is any thing that I hate, it's
mice! I'll tell you what it is, if old Peters thinks I'm going to stay up
here and tumble over his rusty nails, he's much mistaken. I wasn't
hired for that kind of work."

Whereupon John bounced down the attic stairs, three at a time, and
was found lounging in the show window, half an hour afterwards,
when Mr. Peters appeared.

"Have you put that box in order already?" was the gentleman's
question.

"I didn't find any thing to put in order; there was nothing in it but nails
and things."

"Exactly; it was the 'nails and things' that I wanted put in order; did
you do it?"

"No, sir, it was dark up there, and cold; and I didn't see any thing
worth doing; besides, I thought I was hired to run of errands."

"Oh," said Mr. Peters, "I thought you were hired to do as you were
told." But he smiled pleasantly enough, and at once gave John an
errand to do down town, and the boy went off chuckling, declaring to
himself that he knew how to manage the old fellow; all it needed was
a little standing up for your rights.

Precisely at six o'clock John was called and paid the sum promised
him for a day's work, and then, to his dismay, he was told that his
services would not be needed any more. He asked no questions;
indeed he had time for none, as Mr. Peters immediately closed the
door.

The next morning the old sign "Boy Wanted" appeared in its usual
place.