Collin Street Bakery Fraud: $16 Million

By Charles Hall | Asset Misappropriation

Feb 20

Sandy Jenkins, a controller, stole $16 million from the Collin Street Bakery. You read that right. A bakery.

Today I show you how large sums of money can be taken from a small business with one simple fraud scheme.

The Collin Street Bakery Fraud

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 from Collin Street Bakery

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.

Collin Street Bakery

The Weakness that Led to the Collin Street Bakery Theft

No one was comparing the cleared check payees to the general ledger. (The Collin Street Bakery is not the only business that has suffered from this type of fraud; see my previous article titled Fraudsters Writing Checks to Themselves.)

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.

In March 2019, Sandy Jenkins passed away in a federal prison.

Fruitecake Movie

You may be familiar with the movie Catch Me If You Can which chronicled the exploits of Frank Abagnale, one of the most brilliant cons of all time. Now, there is a new movie about another: Sandy Jenkins. 

https://youtu.be/D_0f0O814co

 

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.

  • Another control would be to run analytics on disbursement so looking for an unusual number of voids then look into the reason for the voids

  • Charles Hall says:

    Good thought Peter. I fully agree. Thanks for the comment.

  • David Rothfeld says:

    Who was reconciling the checking account? Did they not notice (foolish me) that voided checks were clearing and outstanding checks for the same amount were still outstanding? Or was Jenkins also reconciling the bank accounts.

  • Betty Kirk says:

    What about check 21? As an auditor, we are lucky if there is even a blurry, tiny copy of a check to look at. Only the front, no back of the check for signature comparison or account numbers. You can’t rely solely on the bank reconciliation process to catch this kind of thing. Someone who knows the business should be looking at vendors, and wondering why they are getting paid so much. Bank Recs are always an easy recommendation, but there are other indicators to look at.

  • Charles Hall says:

    Betty, I so examined cleared checks, but, yes, I can’t see the back of the checks, though, on occasion, I have requested the backs of checks. Without seeing the payee on the cleared check, this type of fraud is always a possibility. I agree that “looking at vendors, and wondering why they are getting paid so much” is a good step.

  • Charles Hall says:

    David, good question. The articles I read about this theft did not disclose who was reconciling the account, but I got the impression Jenkins was reconciling. Otherwise, someone would have (should have) noticed the scheme earlier.

  • HARISH DUA says:

    Since its a brief article, it does not say how large a bakery it was or how long the fraud went undetected, but one basic question seems to hit me as follows: Where was the CFO or the Owners and how come they did not sense anything amiss? We dont need process level controls of cleared check payees, since hiding such a huge amount in the books is next to impossible. It would have to show up as a big distortion in the overall numbers or ratios and just a few simple analytics by a CFO or the Auditor should have got the alarm bells ringing.

  • Charles Hall says:

    The FBI article (https://www.fbi.gov/contact-us/field-offices/dallas/news/press-releases/former-collin-street-bakery-executive-and-wife-sentenced) says Mr. Jenkins become the controller in 1998. Usually, in these types of cases, the fraudster is taking money over a period of time, so the effect is less pronounced. I think of Rita Crundell who stole $53 million from a small city; she did so over a 20 year period. I had the same thought in reference to her fraud. How can someone steal that much money without notice?

    But, yes, I agree with your point.

  • Terri Hornberger says:

    Since Collin Street Bakery is a family owned business in a small-ish town, everyone trusted everyone. Mr. Jenkins was reconciling the bank accounts himself and had made up stories to tell his staff about missing checks (the “voided checks”). The money was taken over a long period of time. Mr. Jenkins also had stories about inheriting money so that explained how he went from living modestly to a higher standard of living. Agree that the CFO should have noticed. This was discovered when an employee decided to reconcile the bank account while Mr. Jenkins was out-of-town.

  • Charles Hall says:

    Terry. Sorry, I just saw your comment. Interesting it was detected while Mr. Jenkins was out of town. Requiring vacations is a great control.

  • Lynn says:

    Have you heard any more about the making of a movie?

  • Charles Hall says:

    Lynn, I have not. Not sure if the Covid turmoil temporarily delayed the filming, but I’ve seen nothing regarding the movie in months. Hoping they will get it done!

  • Rich says:

    Wouldn’t the legitimate vendors start asking for payments?

  • Jack Nixon says:

    Dear Mr. Hall,

    I cannot fathom how this crime went undetected for so long and the whole saga seems to be an essay in managerial incompetence, worthy of a Harvard Business School case study.

    I saw the recent movie and it shows (in contrast to the hypothesizing by some of your correspondents) that the fraud was not carried out in small amounts over time. Some $16.7m was embezzled in a nine-year period from 2004-13, and this was stupendous for a company with $30m in sales and $1-2m in net profit.

    Collin Street noticed at an early stage that its financial results were deteriorating, and in response it desperately attempted to restructure operations and also undertook lay-offs, hurting the community. This had no effect and management pronounced itself mystified as the erosion continued year after year, in stark contrast to previous performance.

    The executives’ misunderstanding of their own business was certainly remarkable. But meanwhile there was a senior person in the financial department who was maintaining an obscenely extravagant lifestyle, obviously beyond the means of his $50,000 salary, and he was taking pains to show it off to impress friends and colleagues. His talk of massive inherited wealth, while working as a clerk, ought to have beggared belief.

    The bakery’s good-ol’-boy management would appear to have been quite negligent in overlooking a scam of this magnitude and obviousness. And in the context of Southern culture, it is extremely ironic that the whole thing was uncovered by the African-American female accountant.

    Everyone mentions how delicious the fruitcakes are, but I am afraid I would choke to death with laughter if I ever tried to eat one.

    In order to avoid this risk, while still enjoying fruitcake from the Deep South, may I recommend the offerings of the Claxton Fruitcake Company, based in Claxton, GA. The reason why I took an interest in the movie was because I have been ordering Claxton’s five-star gourmet confections for many years. With full satisfaction every time, and no danger of dying from uncontrollable guffaws as I consume the product.

    Yours,
    Jack Nixon

  • Charles Hall says:

    Jack, I’m always amazed that these types of audits occur, especially when the amount is so large. One thing is for sure, the cash flows from operations had to have gone down. I’ve never seen any financial statements for the company, but the cash flow statements, if done correctly, should show declines in cash flows from operations over the time the thefts occurred.

  • Charles Hall says:

    Good question, Rich. The legitimate vendors were paid appropriately and timely, but the additional transactions (payments) went to the fraudster. In other words, the vendor payments were overstated by the amount the fraudster stole.

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