Is it possible to steal over $16 million from a bakery? You bet. Today I show you how large sums of money can be taken from a small business with one simple fraud scheme.
Sandy Jenkins, the controller of Collin Street Bakery in Corsicana, Texas, made off with more than just fruitcakes. He took over $16 million, so says the FBI. And what did Mr. Jenkins do with the money?
He used the funds in the following ways:
- $11 million on a Black American Express card
- $1.2 million at Neiman Marcus in Dallas
- 532 luxury items, including 41 bracelets, 15 pairs of cufflinks, 21 pairs of earrings, 16 furs, 61 handbags, 45 necklaces, 9 sets of pearls, 55 rings, and 98 watches (having an approximate value of $3.5 million)
- Wine collection (having an approximate value of $50,000)
- Steinway electronic piano (having a value of $58,500)
- 223 trips on private jets (primarily Santa Fe, New Mexico; Aspen, Colorado; and Napa, California, among other places), with a total cost that exceeded $3.3 million
- 38 vehicles, including many Lexus automobiles, a Mercedes Benz, a Bentley, and a Porsche
- And more…
How the money was stolen
You might think that stealing $16 million would require an elaborate scheme. But did it?
Here’s an example of his method: Jenkins would print a check to his personal credit card company, but he would void the check in the accounting system. (He still had the printed check.) Then, he would generate a second check for the same amount to a legitimate vendor, but the second check was never mailed. Next, Jenkins would send the first check to his credit card company.
The result: Jenkins’ credit card was paid, but the general ledger reflected a payment to an appropriate vendor.
The Weakness that Led to the Theft
No one was comparing the cleared check payees to the general ledger.
The Fix that Will Detect the Theft
Someone other than those who create checks should reconcile the bank statements to the general ledger. As they do, they should compare the cleared check payees to the vendor name in the accounting system. Some businesses have hundreds (or even thousands of checks) clearing monthly. Therefore, they may not desire to examine every cleared check.
Alternatively, the business could periodically sample the cleared checks, comparing the cleared checks to the vendor payments in the general ledger. The persons creating checks should know that this test work will be performed. Doing so creates the camera effect. When people know their actions (in this case, the creation of checks) will be examined, they act differently–they are much less likely to steal.
If you desire a preventive control, require a second-person review of canceled checks.
Additionally, someone should be reviewing the profit margins of the company, comparing the ratios with prior periods.
Lastly, when segregation of duties is not possible, have the bank statements mailed to someone outside the accounting department such as an owner. That person should review the cleared checks before providing them to the accounting department. Alternatively, provide online access to the reviewing person. The reviewer should examine the cleared checks and provide documentation of his or her examination to the accounting department.
What Happened to Sandy Jenkins?
Sandy Jenkins was sentenced by U.S. District Judge Ed Kinkeade to serve a total of 120 months in federal prison. His wife, Kay Jenkins also pleaded guilty to one count of conspiracy to commit money laundering. Ms. Jenkins was sentenced to five years of probation.