"Goodner Brothers, Inc

An employee of this tire wholesaler found himself in serious financial trouble. To remedy this problem, the employee took advantage of his employers weak internal controls by stealing a large amount of inventory, which he then sold to other parties"

"Goodner Brothers, Inc

Woody owes $2,400. Okay? Thats clear?Yes, yes. Got you.By Friday?Al, did I promise to reimburse you by Friday?Borrowing may damage friendships. Woody Robinson and Al Hunt were playing blackjack in Tunica, Mississippi, when they gambled the borrowed money. Both couples vacationed again this summer. Woody asked his pal for money after three days at Mississippi River casinos 20 miles south of Memphis. Post-vacation, Woody owed Al $5,000. Woody and AlWoodrow Wilson Robinson and Albert Leroy Huntlived and worked in Huntington, West Virginia, a 60,000-person metropolis. Southern Ohio blue-collar city. Kentucky is 10 minutes west on I-64, whereas Ohio is one mile over the river. Woody and Al, born six days apart in a tiny eastern Kentucky hospital, were closest friends in childhood and high school and roommates for four years in college. Al worked for his future father-in-law's Curcio's Auto Supply in Huntington's western suburbs after graduating in business administration. Curcio sold most lawnmowers, bicycles, and automobile components like tires and batteries. Al got Woody a position with Curcio's main tire distributor after a few weeks. Goodner Brothers, Inc. provided different-sized tires from 14 plants in southern New York, northern South Carolina, central Ohio, and the Delaware coast. Goodner Brothers, T. J. and Ross Goodner, earned $40 million 30 years later. Goodners ran the corporation. T. J.'s legal opinion outlined the matter. Changed parties, places, and dates. "board and CEO," Ross was COO. Four second-generation Goodners stood out. Goodner sold tires from numerous major manufacturers to automobile supply shops and other vehicle supply companies. Goodner served Sears, Walmart, Kmart, and hundreds more. Woody sold used tires to school districts, municipalities, and small fleets in Huntington for Goodner Brothers. Woody sold 80 tires in west Huntington, eastern Kentucky, and Ohio. Commission-only salesperson Woody succeeded. Problematic college habit. Woody wagered baseball, football, horse racing, and boxing. Al and he gambled hundreds. Woody, Al, and their spouses visited Tunica, Mississippi, broke in 2006. He "maxed out" several credit cards, owed bookies $50,000, and was late on his mortgage. Woody stole from Goodner Brothers to fix his finances after returning to Huntington in early July 2006. Worse, two bookmakers Woody owed several thousand dollars were threatening his wife, Rachelle, and demanding payment. Woody received traffic tickets. Woody had no options. Woody robbed his boss because it was easy. Woody recognized Goodner's bad inventory, asset, and accounting after years. Goodner met its ambitious sales goals by undercutting rivals. Regionalism hurt the company. Goodner had 17.4% gross profit margin vs 24.1 percent for similar tire wholesalers. Goodner cut operating costs, including internal controls, to boost gross profit. 14 sales stations had 1012 personnel. Sales district managers oversaw site personnel. Two salesman, a receptionist/secretary, a bookkeeper, and five to seven tire delivery and inventory warehouse workers completed the team. Goodner's Huntington company included two warehouses: a small one near the sales office and a bigger one two miles distant that sold inexpensive food. Goodner's $300,000$700,000 tire stockpile per sales outlet was padlocked.T. J. and Ross Goodner relied on their employees' integrity instead of internal controls. Goodner Brothers personnel were preferred for references. For nearly 30 years, Goodner Brothers hired individuals by reviewing references and engaging local detective agencies for background checks. Only 10 of several hundred Goodner workers have been dismissed for stealing or abusing company property. Accounting was automated at each sales site. These systems employed "off-the-shelf" general ledger software for small retailers and other accounting documents. The accounting system was accessible to Huntington's accountant, sales manager, and two sales reps. Since the bookkeeper was swamped with sales and buy transactions, sales agents often entered transactions directly into the system. Salespeople updated customer accounts often. Salespeople scrawled transaction data on scrap paper instead of completing purchase orders, sales orders, credit notes, and other accounting documentation. Sales reps and managers sent these "source documents" to the bookkeeper or entered transaction data directly into the accounting system to handle credit for each Goodner sales outlet. Sales reps had direct inventory access and required sales manager approval to sell to new clients. During busy sales seasons, salespeople personally loaded and delivered customer orders. Each sales office completed a year-end physical inventory to match its permanent inventory data. T. agreed. J. and Ross Goodner's trust-in-employees policy includes one intra-year inventory count each sales office. The company's two-person internal audit team collected these inventories at each sales site to monitor inventory loss, which was far higher than industry average. The firm obtained tons of "seconds" from manufacturerstires with issues that couldn't be sold to bigger retailers. These batches' faulty tires were discarded. Woody visited the Huntington sales office's remote storage facility a few days after formulating his gambling debt repayment plan. These "throwaways" weren't included to the sales office's accounting until the year-end physical inventory. Woody probed its dark and congested innards for dusty tire lots. Woody recorded that condition's tire stacks. Woody predicted tire customers for each batch." Woody made his first "sale" later that day when a plumbing supply firm needed tires for his small fleet. Woody tricked Goodner into "moving" outdated stuff. Cash-sold item is below Goodner's cost. Owner bought two dozen tires. After delivering tires, Woody got $900. Woody stole for months. Woody took. He sold to a wide clientele. Woody liked that Huntington's accounting inventory fell. Woody apologized and restored customer account balances after unpurchased item complaints. Goodner's clients returned tires for different reasons, paying the illegal charges, reinforcing Woody's fraud. Woody issued credit notes for cancelled sales but sold tires and pocketed the money. Goodner sold tires for large shops. Woody sold Goodner's returned tires to other clients for payment. Finally, Woody offered to take trash to the Shoals, West Virginia tire disposal plant, which sales outlet delivery personnel regularly do. Woody's tire-stealing made him bolder. Late 2006, Woody gave Curcio's Tires owner Al Hunt tires. Woody informed Al he bought manufacturer-discontinued tires. Woody said, Its none of their business what I do in my spare time, when Al queried whether such "self-dealing" violated Goodner company policy. Why share?Woody reluctantly sold Al dozens of tires. Woody's inexpensive tires simplified it. Next year, Woody offered his pal "closeout" tires at those costs. Al anticipated big profits. Al contacted Woody's tiremaker. Woody's closeouts and low tire pricing disturbed Al. A salesman informed Al that the plant only had one closeout sale every year. Al discovered that his firm exclusively sells closeouts to wholesalers. Al said he phoned Woody's major closeout tire supplier the following time they talked. Al informed his acquaintance that a corporate salesman said wholesalers exclusively sold such things.Whats the point, Al?That's unusual. "Woody, where are you getting these tires you're selling?" Al, curious? Buddy, care? Al shrugged and said, "Just forget it." Al kept buying the cheap tires without consulting Woody, despite his growing unease. Internal Auditors Find Inventory Shortage Goodner's Huntington crew did a physical inventory on December 31, 2006. Workers celebrated New Year's Eve following the customary celebration. Midday counting took three hours. Triads worked. Two team members screeched their numbers to the third, who recorded them on preformatted count sheets. Woody handled two new delivery workers who didn't know Goodner's inventory. He chose a two-count remote storage team. He stole most of his stuff there six months ago. Woody thought he took $45,00010% of the faraway storage facility's book collection. Woody offered to take the count papers for both teams to the sales office to assemble the inventory after counting the tire lots at the remote storage facility. He checked the count sheets before entering sales. Woody projected distant facility's $20,000 shortfall. Changing the other count team's count sheets lowered the gap to $10,000. Goodner's Huntington location's year-end physical and book inventory varied by $12,000, or 2.1%. That topped Goodner's 1.6% sales office loss rate. Huntington sales manager Felix Garcia disagreed. Goodner's internal auditors and accountants didn't either. Woody "ripped off" Goodner throughout 2007. Woody sold Al Hunt most of his stolen tires midyear. Woody cautioned Al about underselling tires. Goodner's internal auditors counted Huntington's inventory in late October 2007. Curcio's low pricing and high sales frightened Woody. Despite business rules, internal auditors assessed Goodner sales outlets' inventories every 1520 months. In May 2006, Huntington's inventory was tallied by internal auditors. Woody didn't realize Goodner's internal auditors counted operational unit inventory routinely. He discovered the internal auditors seldom completed test counts when visiting the Huntington sales office." Inventory counted $498,000. Bookstock was $639,000. Auditors had never observed such a large difference between real and book inventory. The inventory deficit shocked Felix Garcia, Huntington's sales manager. The auditors missed inventory. Next day, Garcia, two internal auditors, and three delivery people tallied the stuff. After the second physical inventory, the two internal auditors and Garcia reviewed the Huntington unit's inventory data at a nearby restaurant. Garcia and auditors found no trends in the materials. Garcia informed the auditors that "just to keep the tires coming and going" consumed his time. Garcia raged when auditors questioned about inventory deficits. Listen. I work simply. Sell tires. Fast tire sales. Next day, the senior internal auditor called Goodner's CFO, his immediate employer. Inventory shortages worried the CFO. The CFO quickly linked the inventory imbalance to Huntington's two-year sales drop. Huntington was Goodner's second or third most profitable sales office until 2005. The unit's profit margin sank to the lowest third of the company's sales outlets in the last 18 months. The inventory shortage made Goodner's Huntington sales office the least profitable over the last year and a half, according to T. J. CFO Ross Goodner contacted the independent audit firm to investigate the inventory shortfall. The CFO and Goodners agreed to suspend Felix Garcia with pay throughout the investigation. Four auditors from Goodner's independent audit company came at the Huntington sales office within days to examine Garcia's lack of an explanation for the missing merchandise and his fury at the internal auditors. Goodner's six-office Ohio CPA company audited. Goodner's New York bank requires yearly audits. Goodner's independent auditors seldom reviewed the client's sales offices' internal controls. They verified Goodner's year-end assets and liabilities using a "balance sheet" audit. Auditor shocked with Huntington unit's inadequate and sometimes nonexistent controls when probing missing products. Control issues impeded their inventory shortfall search. After days, the auditors suspected Woody Robinson. Felix Garcia's desk file of client complaints indicated Woody had an unusually high amount of complaints last year. 14 consumers disputed monthly costs. Garcia informed the auditors that he had not addressed customer concerns with Woody or the other sales person and was unaware that Woody had received a disproportionate amount of complaints. Only two clients of the other sales associate had made identical concerns. Garcia directed customer concerns to the correct salespeople. Independent auditors met with Woody after accumulating further evidence against him. His former sales boss advised him to keep a client complaint file. Garcia and Goodner's CFO attended. Woody denied knowing about the inventory deficiency when the auditors provided proof. Woody's denial enraged Goodner's CFO. Robinson, you tricked your colleagues, but not me. Woody fled, saying he was hiring an attorney.

Address these points

1. Incorporate common themes from the cases related to the weeks topic, including some background on each case.
2. Identify lessons learned from the cases collectively.
3. Offer recommendations to prevent future occurrences.