THERE BE THIEVES IN TEXAS! Gatesville, Texas is a small community in central Texas, located in Coryell County, approximately 40 miles west of Waco. Gatesville is the largest municipality in Coryell County and functions as county seat. It is typical of most Texas communities of its size. It still has a reasonably thriving downtown area, a town square, one high school, and a strong sense of friendliness within the community. Like many Texas towns, football is king and most of the social activities center around the high school and local churches. In fact, very few things occur in Gatesville that everyone in the community does not know about. It seems as if everyone who lives in Gatesville knows everyone else who live in Gatesville. The largest employer in the Gatesville area is a branch facility of the Texas Department of Corrections (state prison system) for housing convicted adult felons. Therefore, people in Gatesville are not inexperienced in dealing with criminals. Yet, the community was stunned in the fall of 1993 when a long-time employee of the Coryell County Tax Assessor-Collector's office was arrested by the county sheriff and charged with the embezzlement of tax receipts. Then, just as the news of the arrest was beginning to sink in to residents, they were shocked by what happened a week later. The accused employee committed suicide.
FACTS OF THE CASE The Set-up Joan Wilson had worked in THE Coryell County Tax Assessor-Collector's (TAC) office for more than twenty years. During that time, she had performed a number of accounting functions for the Coryell County TAC office. In addition, she had worked closely with Joan Blanchard, who eventually was elected to be the county's TAC Director. As a result of the years that Blanchard and Wilson had worked together and known each other, Blanchard gained complete trust and confidence in Wilson and demonstrated this trust and confidence by appointing Wilson to the Chief Deputy position shortly after Blanchard took elected office. In fact, they became indirectly related in that Blanchard's son married Wilson's daughter. Blanchard's trust and confidence in Wilson was so strong that she believed that Wilson would carry out her duties on an ethical, honest and professional basis. As a result of this trust and confidence, Wilson was allowed by Blanchard to carry out her function as Chief Deputy with only a minimum of oversight. After all, if Blanchard could not trust Wilson in her doing her job, who could she trust? Blanchard would review reports as they were prepared by Wilson, but she rarely, if ever, reconciled any of the accounting data in the reports to supporting detail documentation. Being a relatively small tax assessor-collector's office, budget constraints and turnover would occur which would necessitate changes in job duties. Any time such changes occurred, Wilson was always willing, if not anxious, to take on the added responsibilities. Again, because of the trust Blanchard had in Wilson, she would usually allow Wilson to take on the added duties and responsibilities, Wilson appeared to be a willing, dedicated, hard-working employee who was not afraid to do whatever was necessary to see that the job got done! It was during one of these changes in job duties that Wilson was provided with opportunity to begin her embezzlement scheme. Sometime during 1987, a data entry clerk retired from the TAC's office. She had been responsible for the information from one of the tax receipt
forms that usually showed the amount of sales taxes collected from purchasers (Texas is one of the states that depends heavily on its sales tax revenues as a primary source of tax revenues). The clerk would enter the information from the tax form to the sales tax computer data base. Prior to her retirement, the data entry clerk often had been absent due to her husband's serious illness. As a result of these frequent absences and the importance of the sales tax information to the state, the data entry clerk taught Wilson how to input the tax receipt information. Therefore, when the clerk retired, Wilson told Blanchard that she could take over the responsibilities without impairing her current workload and thereby save the time and money that hiring and training a new clerk would incur. Naturally, given the relationship between Wilson and Blanchard, it was not surprising that Blanchard quickly agreed to Wilson's suggestion. In taking over the duty of entering the sales tax information into the computer, Wilson now had sole responsibility for reconciling the total daily receipts (including cash), preparing the daily cash sheet, preparing the daily bank deposit, and reconciling the tax receipts to the computer summary report (which was also prepared by her). Shortly thereafter, Wilson took over the motor vehicle sales tax reconciliation function. When she received the Form 31 tax receipts--again, the side which showed the amount collected from the motor vehicle purchaser. she began throwing away all of these tax receipts. Subsequently, Blanchard discovered that Wilson was throwing these forms away and questioned as to why. Wilson responded that she had been told by state Comptroller's office that the forms were not necessary if the county involved had a computer data base. To her credit, Blanchard told Wilson she was wrong and did indeed need these tax receipts forms. Therefore, Wilson began filing them again in May, 1993. Other unusual things began to happen in Wilson's performance of her tasks. Wilson appeared to be very jealous and overly protective of the various tasks she performed. For example, none of the other employees were ever allowed to input information from the motor vehicle sales tax receipts forms (Form 31) into the motor vehicle sales tax computer data base. Also, none of the other employees were allowed free access to the tax side of the Form 31 receipts. Whenever an employee needed to see one of these forms, Wilson would find the receipt, pull it out of the file, and then hand it to the employee. When the employee was finished with the document, it was returned to Wilson who then refiled the form. In addition, after the 3:00 PM reconciliation was completed and cash receipts had been placed into the bank deposit bag, no one except Wilson was allowed to make change for any taxpayers who had presented large bills. Wilson would routinely get to the office very early in the mornings, usually before any of the other employees had arrived. She also came into the office on Saturdays to enter the Form 31 information into the sales tax data base. One employee remarked that if another employee came in early, Wilson would become very nervous and agitated and would not enter the tax information into the computer whenever the employee was nearby. Wilson, as chief deputy for the offices was responsible for the handling of employee time sheets. She took this duty very seriously as employees would write onto the time sheet the hours that they had worked. If Wilson believed the employee had improperly recorded hours worked, she would change the time sheet to the hours she felt should have been recorded. Naturally, these changes to other employee time sheets caused numerous arguments between Wilson and the affected employees. Eventually, these disgruntled employees wondered if Wilson was as strict with her own time sheet. It was common knowledge in the office that Wilson would take numerous days off as well as taking off every Thursday afternoon and all day Friday. When
these employees managed to obtain copies of Wilson's time sheet from her desk one day when she was gone, they noted she never docked herself for the time she was away from her job. Employees also noted that Wilson would routinely steal; "little things" by using the postage meter for her personal mail, using the business phone to make personal long distance calls, etc. In addition to the changes in Wilson's behavior in the performance of her duties, employees began noting other changes m her personal life and behavior. For example, she always seemed to have large amounts of cash in her purse. Whenever co-workers went shopping with her, she always paid cash. Another time when the office personnel had to attend a seminar in Waco, Wilson pulled several twenties out of her purse and said she was going to "let the county pay for our meals" yet she never filed a voucher requesting reimbursement for the meal. Wilson and her husband, who was a local chiropractor, took a lot of trips to different locations during the year and during the summer, they would go to their beach-house nearly every weekend. Suspicions Aroused In September, 1993, Wilson's husband Charles became very ill which necessitated her being off work for a week so she could be at home with him. During this time, Wilson's work was performed by other employees within her department. Nothing unusual was noted with the cash sheets, deposits, or reconciliations. However, on Monday of the following week, employees began realizing something had occurred during the weekend. Upon arriving at work, employees noted the computer had a strange message on it like it had been turned on during the weekend and not turned off properly. Since Wilson was the only one who would come into the office on Saturdays to enter the tax receipt information into the computer, they realized that Wilson had been in the office on Saturday. Then, the clerk who had prepared the cash sheet on Friday noticed that changes had been made on the cash sheet. It seems the clerk's original numbers had been "whited-out" and changed to reflect lower balances. Although the clerk was curious about the changes, she had seen similar changes before on previous cash sheets that she had prepared. Normally, when she questioned Wilson about the changes (since it had been preached to her the cash sheet had to be 100% correct, with no changes showing), Wilson told the clerk that the clerk had made a mistake which was changed by Wilson and she should not worry about it. However, this time she was certain she had not made a mistake on Friday since her cash sheet and the cash receipts counted by another clerk had balanced. She was also disturbed by the fact that whoever had made the changes was trying very hard to make it appear that the handwriting in the changes looked just like the handwriting on the unchanged numbers. The clerk decided to ask Blanchard, the director, why the change was made. Blanchard indicated she had no idea why a change had been made over the weekend. Wilson was subsequently approached as to why the change was made? and as before, simply commented that a mistake had been made and she had changed the numbers. The second clerk informed Blanchard that everything had balanced on Friday and still balanced on Monday, except the numbers were different, showing the office had taken in less cash than had been shown on Friday. Blanchard became suspicious. She began checking tax receipts taken on auto transfers against the amounts shown on the computer printouts. On several of the tickets, Blanchard noted the amount on the receipt was $500 or $1,000 greater than what had been recorded on the printouts. Since Wilson was responsible for the data entries, Blanchard realized that her close friend was responsible for stealing a great deal of money. Finally, she contacted the Coryell County District Attorney (DA) who instructed her to tally as much of the losses that she could while the DA's office would initiate an investigate. When Blanchard
discovered that for 1993 alone, Wilson had taken over $100,000 from the Coryell County Tax Assessor-Collector's office, she had no choice but to swear out a complaint against Joan Wilson with the county sheriff's office. Finally, on the afternoon of November 8, 1993, before television cameras, Joan Wilson was arrested in her office. On November 15. 1993, she committed suicide. Results of the Investigation Even though the accused was now dead, the district attorney's office and the state Comptroller's office decided to conduct an investigation. The investigation turned up a great deal of evidence against Joan Wilson. For example, when Wilson would make the deposits for the county with the bank that handled both the county's account and her family's account, she would always make the deposits inside the bank lobby. However, when she made personal deposits, she went through the drive-in bank teller. The bank teller noted that when Wilson made these deposits, they were always either into the joint account or into her son's account. These deposits were mostly in cash, with very few checks being deposited. Wilson made these deposits on almost a daily basis and was almost always alone when she made the deposits. In addition to the behavioral aspects noted, withdrawals from the bank accounts of Mr. and Mrs. Wilson and their son as compared to total known sources of funds were as follows: Year Known Funds Withdrawals 1990 $ 92,767 $ 179,993 1991 76,473 191,644 1992 74,185 204,863 1993 56,970 142,153 Other evidence came to light. The bank records did not show any transfers of funds between the joint account and the chiropractic account. No funds generated by the chiropractic practice could be traced to the joint bank account, which was used to pa y the monthly obligations of the household. Yet, the only known source of funds being deposited into the joint account came from Joan Wilson's salary from the Tax Assessor-Collector's office. Both Wilsons (Joan and Charles) committed themselves to various obligations during these same periods. On the average, the recurring monthly payments for home mortgages, car payments, insurance, credit cards, etc., were $5,976 per month. Again, as noted, these expenditures were considered household obligations and were paid only from the joint account. In addition to the recurring payments, it was known that a $15,000 investment was paid in lump sum in 1991, a $4,000 lump sum loan made in 1991, and another large lump sum in 1993 was paid. Interestingly, the average net paycheck from the county for Joan Wilson was about $1,000. Early in 1993, the Guaranty Bank and Trust, which was the principal bank used by the Wilsons, asked Charles Wilson to prepare and file a personal financial statement showing personal income and cash flows for the year ended 1992 and projected income and cash flows for the year ended 1993. The statements filed showed incomes of $36,158 and $42,564 for 1992 and 1993, respectively. Personal expenses were reported at $23,964 and $26,163 for 1992 and 1993, respectively. It should be noted that deposits in cash to the son's account for 1992 and 1993 were more than the total personal expenses shown. Also, it is interesting to note Charles Wilson had monthly debt service payments on personal loans from 1989 until April, 1992 that averaged $1,473, which was more than the monthly net pay available to pay all of the living expenses of the household. Epilogue
Based on the results of the investigation, the Coryell County District Attorney's office decided to pursue the case since it appeared obvious that thefts over $100,000 had occurred, which is a first degree felony offense in the state of Texas. However, since Joan Wilson had committed suicide shortly after her arrest, the district attorney had to decide on who to prosecute. Since Dr. Wilson seemingly benefited from the appropriations of funds by his wife, it was decided that he would be prosecuted. Dr. Wilson's defense was that he had no knowledge of his wife's embezzlement and should not be held liable or as an accomplice to her scheme. This argument did not deter the district attorney nor the jury as Dr. Wilson was subsequently convicted and sentenced to a substantial prison term. However, due to his age and poor state of health, he is not expected to complete his term. In addition, the state of Texas has assessed the Wilson estate for the collection of funds in the amount of $1,226,424.45, the amount that it has determined that Joan Wilson had stolen since 1987.
Required: Assume you are a state auditor for the State of Texas and you are assigned to deal with this case (counties are subdivisions of the state). Complete the following: 1. Identify the internal control weaknesses that appear to be in the Tax Assessor-Collector's office. What types of recommendations would you make to improve the identified weaknesses. 2. What "red flags" could you note, based on the above information, that could arouse suspicions that some type of fraud or embezzlement could have been occurring? Why do you suppose that the employees within the county office failed to place much emphasis on these “red flags”? As a state auditor, what would you recommend to try to prevent future occurrences of this situation? 3. In conducting the audit of this county office, which of the auditing standards would be applicable in this situation (i.e., GAAS, GAO "Yellow Books' standards, IIA standards, etc.). What accounting standards, if any, would be applicable for this county office? 4. As a state auditor. what would be your audit objectives in an audit of a county tax collector's office? Based on these objectives, what procedures would you recommend using to achieve these objectives? What type of guides or other literature could you search to help you in determining the necessary procedures? 5. Prepare a graph (bar graphs x-y format, etc.) to compare the known funds claimed by the Wilsons versus the withdrawals made against the joint bank account. What does this graph suggest to you? (Note: If possible, it is recommended that you do the graph using appropriate computer software.) 6. Dr. Charles Wilson, in his defense, argued that he was unaware of the embezzlement being perpetrated by his wife. What information can you determine from the case to refute his argument? 7. It appears that this county office did not have an internal auditor on its staff. In fact, the state did not conduct any audit work until the embezzlement was discovered. Do you think that an internal auditor might have been able to uncover this fraud? If so, how do ou think that the internal auditor would handle the situation?
