The Bierlien Billings Scheme

Written by:

Sharon B. Robinson

Accounting 7310

Summer 1999

Dr. D. Larry Crumbley

"Thank God it's Friday", Mona thought as she opened the door and headed off to work. Man, was it cold! It had to be 10 below. She stepped out onto the cold streets of Chicago, bundled up like her great aunt Missy and trudging through the snow. No wonder they call this place the Windy City, she thought. It would probably be better named the “Chilly City" because that 12-block walk to the bus stop was no joke.

Since Mona had made her way to Chicago from Baton Rouge, Louisiana, nothing had gone quite the way she had planned. She was living with her mother's second cousin Lucille until she could get on her feet. Mona had struggled to put herself through business school. She had worked days at the Waffle House to earn money for tuition and had gone to school at night. Mr. Brown, her accounting instructor, had told her she had lots of promise and that she had a “good head for figures”. She had done well in business school. Accounting principles just seemed to come to her naturally.

So, with his help, Mona landed an accounting job working in accounts payable at Bierlein Industries. She had been with the company for about six months now. She was responsible for maintaining the vendor database and for preparing requests to pay invoices. Preparing those payment requests kind of gave her a feeling of power and wealth. What are the odds that she would ever have to personally write a check for over $100,000? Some of those payments were to companies in places she only dreamed of visiting someday like Paris, London, and Rome. One day, she often said to herself.

Mona boarded the bus and made her way to her usual window seat--fourth row from the front. Out of the grungy bus window, she could see all of the beautiful BMW's, Lincolns, and Lexuses whizzing by. Someday, she thought. Someday. She thought about her boss, Ms. Leslie Watts. Ms. Watts drove a really shiny new black Lexus ES300. "Now that's a sexy car," thought Mona.

When Mona first met Ms. Watts, she knew something was not quite right about her. She was always edgy. Mona felt like she was under a microscope all of the time. Ms. Watts would stop by her cubicle many times during the day for no apparent reason.

As weird as she was, Ms. Watts was always very elegantly dressed. Liz Claiborne suits and beautiful gold jewelry were the norm for Ms. Watts. She also wore the best perfume, too. Such fragrances as Opium and White Diamonds often permeated the building. This was one of those few things that Mona really enjoyed about Ms. Watts' lurking over her as she worked in her cramped cubicle. Mona knew that salaries at Bierlien were only so-so, even for supervisors. Ms. Watts must have a rich husband or a rich boyfriend.

After her usual two transfers, Mona finally arrived at Bierlien Industries, one of the oldest makers of steel pipe in the country. She had heard that this company had been in existence over 150 years, but rumor had it that Bierlien was having some severe financial problems. Mona prayed that the company would at least hold up until she could find another (preferably a better) job.

"Ding! Seventh floor," the elevator's mechanical voice said. Another day, another dollar, Mona thought.

"Good morning, Mona,” said Ms. Watts hurriedly, as Mona entered the accounting department's double glass doors.

"Good morning, Ms. Watts", Mona replied, as she rounded the corner. Ms. Watts passed by like a flash of lightning. She went straight to her office and closed the door. Mona sensed tension in the air and wondered if something was wrong. It was very unusual for her to be in so early.

Mona's cubicle was near the window and the heating system. She unbundled herself and turned on her computer. On the computer screen, Mona noticed that the logon screen did not show her name, but Leslie Watts' name.

"What's going on?", she wondered. That was the third time in the last few weeks that had happened.

She picked up the phone and dialed Fred in IS. Surely, he would know why her computer didn't recognize her.

"Hello Fred, this is Mona Sterling in Accounting. I am having computer problems. I hope you can tell me why my computer thinks I'm somebody else."

"Well, occasionally, when I turn my computer on it shows ‘Leslie Watts’ on the logon screen and not Mona Sterling, which is me. What do you think the problem is?"

"I am not aware of any problems, Mona. The only way that could happen is if maybe Ms. Watts used your computer, but I am not aware of any problems that Ms. Watts has reported to the IS Department with her own computer. Hold on and I'll check my log."

Mona tapped her foot as she stood there waiting for Fred to explain this strange phenomenon to her. She was no computer genius--not by any stretch of the imagination. But, she was curious. Why would Ms. Watts use my computer? She has one of those really nice ones down in her office.

"Well, I checked my log. I don't show any service to Ms. Watts' computer or to anyone else in accounting for over two weeks. Even then, I only came into Ms. Watts' office to update her to Windows 97. Maybe you should just ask Ms. Watts why she used your computer."

"Thanks for your help, Fred. I appreciate it. Have a nice day." Mona hung up the phone. Now, what? Is she spying on me? Is she trying to see if I'm looking at porno sites on the Internet? Give me a break, Mona thought. Surely, Ms. Watts has more important things to do. But then a chill went up Mona's spine as she remembered what had happened to her cousin Genevieve down in Mississippi. Gen's boss had claimed to find all sorts of personal data on Gen's machine. She was fired the same day and replaced by the boss' niece. Was Ms. Watts trying to do the same thing to her?

"Everything alright, Mona?", Ms. Watts asked. Mona nearly jumped out of her skin.

"Oh yes, Ms. Watts. Everything is just fine. I was just about to log in and get to work. Was there something that you needed?"

"Well, as a matter of fact there is." This small statement sent more chills up Mona's spine. Oh Lord, did she find the letter that I had typed to Great Aunt Missy? Lord, if she didn't find it this time, I will never do it again, Mona prayed to herself.

"The auditors are here. They are doing a special examination of accounts payable. They may want to speak with you."

"They are in my office right now. They are reviewing the payables ledger and have asked for a list of all vendors including their names and addresses," Ms. Watts said as she stood wringing her hands.

"It's only November. I thought the auditors normally come in late January or early February to audit the accounting records for the previous calendar year."

"Good morning, are you Mona Sterling?" the auditor said as he interrupted Ms. Watts. Dudley Douxright had been an auditor with the Dewey, Cheatham, and Howe accounting firm for over 10 years. During his time at the firm, he had cracked many frauds. He had some definite instincts about this case. He had found a significant increase in expenditures from June to the present time period. When he had compared the same period of the three previous years, he noticed that monthly expenditures were pretty evenly distributed throughout the year. But this year, the expenditures for January through May ranged from $250,000 to about $500,000 monthly, which was comparable to the previous three years. But in June expenditures went over $500,000 and continued to climb for the rest of the year. The company's management could not explain it. Especially since Bierlien had not made any major changes in its materials usage or labor costs.

"Excuse me, Mona," Ms. Watts said. "I'm late for a meeting. This is Mr. Douxright, the auditor-in-charge. Please give him your full cooperation." With that brief introduction, Ms. Watts disappeared.

Mona sat down in her chair and eyed the man who had helped himself to the side chair in her cubicle.

“Liz Norton from down the hall? I know her in passing. I've only been here six months and I only know a few people here. I haven't seen her for a few days. I assume that she’s been out sick or for some other reason.”

“Well, Mona, Ms. Norton is not out sick. She is dead. The authorities found her body in an alley approximately six blocks from where she lives. The police think she may have been robbed. She’s probably been dead a day or two.”

“Well, Mona, the reason I need to speak with you is that Bierlien's management has some concerns about the profitability of the firm. Its earnings have been on a steady decline and expenditures on a steady increase for the past few months. They have hired our firm to come in and take a look at the financial operations in your area. We have come across some questionable transactions in which Ms. Norton may have been involved."

"We have reason to believe that Ms. Norton may have been embezzling money from the company. We have checked her computer, her desk, and traced certain transactions. It appears that she may have set up fictitious companies and made some very sizeable payments to those companies.“

"How can that be? It's my job to set up vendors in the computer system," Mona said before she realized that she may have spoken out of turn.

"Well, Mona, that's why I need to speak with you. I need you to tell me and to show me step-by-step how you do your job."

Mona looked over at the computer screen. It still showed 'Leslie Watts.' Mona worried whether she should point this out. She didn't want to say the wrong thing, but she had no earthly idea what the right thing was.

She must have looked nervous, because Mr. Douxright asked, "Is something the matter, Mona?" Then he, too, noticed that the computer screen said 'Leslie Watts.'

"No, not really, but it has happened a couple of times. I get to work and find that my computer logon screen shows Ms. Watts logon ID."

"Well, in the past, I would change the name and just begin work, but I just called the Information Systems Department to see if someone there could help me. They have not explanation other than that maybe Ms. Watts used my computer, but I don't know why she would do that."

Dudley scribbled something on the notepad that he was holding. Then he said, "Okay, Mona, under normal working conditions, show me what you do in a normal work day. Just pretend that I am not here."

She changed the logon ID to her own name, entered her password, and proceeded with the day's work. She showed him her in-basket, which was piled high with invoices. She started plodding through this heap of paper.

So many of the company names on the invoices in the stack, Mona had seen a thousand times. Each company had a vendor number and other related data in the database. Once she entered the first three characters of the vendor’s name or the vendor number, poof! All companies with names beginning with those three characters would appear on the screen. She simply had to match the name and all of the particulars on the screen to the information on the invoice. She explained all of this to Dudley.

Mona came to one invoice in the stack for the LEW Manufacturing Company. That one was unfamiliar to her. The invoice was approved for payment, but it wasn't folded like the other invoices. It didn’t' have a date received stamp on it either. Mona entered L-E-W. Up it popped. The screen showed:

However, the screen did not list the company's contact person, no phone number, no fax number, no nothing else. Just a name and an address. The screen even showed that Mona had set this vendor up. Two weeks ago? Hmm? Now, that's odd, she said under her breath.

"Well, I just noticed that this screen shows a vendor who was recently entered into our system. It shows that I did it, but a lot of data are missing. Look here. There should be a phone number, a fax number, a contact person, and other data. Furthermore, the amount of the invoice--$25,000 even? No tax? It's quite unusual to get invoices that round off to the whole dollar that way."

As Mona entered the invoice's data into the computer, Dudley scribbled more notes on his pad. He asked Mona for a look at the invoice. He then got up and went across the hall to make a copy of it.

"Thank you, Mona" Dudley said as he handed her the invoice. "Is there anything else that you do related to paying vendors?"

"Good, please do that and bring it to be in the conference room. Thank you, Mona." With that, Dudley got up and walked toward the conference room.

When he arrived in the conference room, Dudley sat and thought a minute about all of the information that Mona had given him and all that he had seen. Many questions went through his mind. How odd that Liz Norton may be involved with whatever is going on here and then end up dead. Is this a situation that may be over his head?

He then thought about getting the vendor data electronically. That way he could do all sorts of analysis on the database. He could even compare the addresses in the vendor database to accounting staff personnel data. He decided that's where he would start.

Dudley called Fred in IS. He asked Fred to download the vendor database to a diskette. He also asked Fred to download the personnel data file to a diskette. Dudley said that he would pick both diskettes up personally when they are ready.

Dudley arrived in IS a little after lunch. Fred had left the diskettes at the front desk in a brown envelope with Dudley's name on it. Inside the envelope were two diskettes, which were marked with the database names, and two forms that gave the database layout configurations.

When Dudley got back to the conference room, he noticed that printout of vendors that Mona must have left on the table. He turned on his laptop. It had been loaded with special software that could compare two databases and look for similarities and differences. He loaded both databases and designed the queries that would compare the addresses in the two databases.

After he ran a few sorts, he found a match!! Not only a match, but the same company that Mona had seemed puzzled about--LEW Manufacturing. The address for LEW matched Leslie Watts' address!!!! One thing that struck Dudley as odd was that the printout showed that the vendor account was established about two weeks ago. But, the database from Fred tracked all changes to vendor data and there was a date of over seven months ago in the initial creation field!! This field does not appear on the computer screen. To top it off, the initial creation showed who created it--it was Liz Norton!!

All of these circumstances led Dudley's mind in a million different directions. What did Bierlien purchase from LEW? How was Liz Norton tied to Leslie Watts? How did Mona figure into this? Was Mona even involved? Could Liz Norton's death be anyway related to this? How could he possibly tie it all together? Is there really an LEW Manufacturing Company? Were there other companies?

Dudley collected this information, put it into his briefcase, and headed for his car. First, he had to visit the site of what was supposed to be LEW Manufacturing. Second, he would visit Liz Norton's home. Third, he'd have to determine how much had been paid to LEW.

Willow Springs Road was well outside of the Chicago city limits, and it would take him at least 45 minutes to get there. As he neared what was supposed to be LEW Manufacturing, he noticed that he was in a relatively new residential area. Nice houses, Dudley thought, real nice. Then he spotted 12354 Willow Springs Road. Oh no, Dudley thought. There on the mailbox was 'Leslie E. Watts.' And she seems like such a nice lady, he thought.

Dudley just happened to have a camera in his trunk. He stopped and took pictures of the mailbox and of the beautiful house, the pool, and the custom landscaping. This was step 1.

Next, Dudley headed back into town. He checked his list of employee addresses and found Liz Norton's address. She lived in a very nice townhouse. Not bad for a lowly clerk, Dudley thought. There was police tape around the door. Dudley assumed that no one else lived there. He managed to peep through the living room window. Very nice furniture, Dudley thought. The pieces were starting to come together.

As Dudley headed to his car, Detective Matt Dillon pulled up and got out of his car. He approached Dudley. "Can I help you?"

"No, my name is Dudley Douxright. I am an auditor for the company that Ms. Norton worked for. Can you tell me what happened to Ms. Norton?"

"All I can tell you is we found her not far from here. She died from multiple gunshot wounds. So far we have no suspects. Her house had been broken into. What can you tell me about Liz Norton?"

Dudley responded, "I never met her. I was called in to audit at the company where she works. There may have been some financial wrongdoing and the company suspects that Ms. Norton may have been involved."

"Financial wrongdoing? What's that? Auditor doublespeak for 'fraud?'" the detective asked. "I plan to visit Bierlien later today. Do you know who her supervisor was?"

The next morning, he headed to Bierlien. In the tiny conference room, he began to collect his evidence and build his case. He went to the loading dock where all merchandise is received into Bierlien. He spoke to personnel there. None of them had ever heard of LEW Manufacturing. Dudley went to see the Vice President of Finance--Ms. Frances Lilley. Dudley laid out all that he had found so far to Ms. Lilley. Ms. Lilley told Dudley that Detective Dillon had also been by to see her and that the detective would drop by later to see Dudley.

"How could this happen?" Ms. Lilley asked rhetorically. "I trusted Leslie Watts implicitly. She and I were sorority sisters. I've known her for years both personally and professionally. She probably resents the fact that I am now her boss. How does Mona Singleton figure in to this?"

"Mona sets up vendors on your system. She has the ability to set up not only real vendors, but also false ones. Why do you ask?"

"Well, Leslie just fired her. Mona was here in tears. There was nothing that I could do. Leslie provided lots of evidence that Mona had violated many of the policies that we have for computer usage. Mona was just a smoke screen. I had to go along with it until we got all of the facts straight."

"Poor internal controls," Dudley explained. "This is an area where Bierlien is weak. When you design internal controls, you have to have all players, including your IS department involved. Unfortunately, trust is just not enough. You have to be sure that your controls protect your company's assets. What I need now , Ms. Lilley, is a printout of all payments to LEW Manufacturing."

Ms. Lilley picked up the phone and called the IS department. She asked that a printout of all payments to LEW Manufacturing be prepared immediately and brought to her office. Within 30 minutes, a runner delivered the report to her office.

The report showed monthly $25,000 payments to this company that dated back seven months. She couldn't believe her eyes---$175,000 in seven months!!! She handed the report to Dudley and slumped into her seat.

By the time Dudley had finished interviewing all of the staff in other areas, the accounting office was deserted. The lights had been turned off, and he could not see how to turn on the light switch. A faint light down the hallway was just enough for him to see how to reach the conference room. As he neared the conference room door, he noticed the faint light was coming from Ms. Watts' office. He could barely hear one side of a heated telephone conversation--

"I don't know what the auditor knows…he questioned Mona a few days ago, but she's new and oblivious to what's going on, but just to be safe I fired her….I'm really scared…remember, the address for the LEW Company is my house! It's just a matter of time before they figure that out."

Was it Ms. Watts, Dudley wondered to himself. He tiptoed down the hall to get closer. BANG! He'd kicked a metal trash can that was sitting in the hallway.

Dudley froze. He backed up to the conference room and eased the door open. He slipped inside and managed to turn on the light. Just as he made his way around the table, in walked Ms. Watts.

"So far so good", Dudley replied. He then realized that this was probably the wrong answer.

"I understand from Mona and the guys down at the loading dock that you have some questions about one of our vendors."

"Well, as a matter of fact, I do. Can you tell me why the vendor's address is the same as yours?"

Immediately, Leslie whipped the gun out of her pocket. "I'm very sorry, Mr. Douxright. But, I have worked for this company for too long. I should have been the VP of Finance, not Frances Lilley", she shouted.

"You'll never get away with this, Leslie. I've already given all of the information to Ms. Lilley. Let's just call the police and we can settle this without anyone getting hurt."

"No one get hurt? I've come too far to let you stop me. Liz Norton and I worked a long time to pull off this scheme. She got greedy and wanted a larger cut."

Dudley realized that he could not reason with Leslie, but he had no idea what he was going to do. Just then, the door opened slowly. It was Detective Dillon.

Leslie turned around. It was Detective Dillon. He had his gun drawn and a very stern look on his face. Slowly, she placed the gun on the table and sat down.

"Yes", Dudley replied. "Just a little shaky. Thank God you got here when you did." Slowly, Dudley lowered his shaking body into a chair. Standing behind the detective were Frances Lilley and Mona Sterling.

"We've been checking bank accounts all day on Liz Norton and Ms. Watts. Ms. Lilley called me and gave me the information that you had given to her. It looks like Ms. Watts and Ms. Norton have been real busy with this little scheme. This goes much farther than LEW Manufacturing. In less than a year, these two ladies have skimmed more than a half million dollars from this company."

Mona was furious. She glared at Ms. Watts and said, "I hope they make these designer suits in broad stripes!"

Frances turned to Mona and asked, "Do you think you're up to moving into the office down the hall?"

"Sure, Mona. With your help, we were able to collect enough information from the accounting system to catch Leslie. Perhaps you and I can work together to put in controls that will assure that these kinds of things don't happen again."