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$16 million was stolen from a bakery. You read that right.
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:
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.
No one was comparing the cleared check payees to the general ledger.
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.
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.
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, it appears there will be a new movie about another: Sandy Jenkins.
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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.
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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
Good thought Peter. I fully agree. Thanks for the comment.
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.
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.
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.
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.
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.
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.
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.