Her Passion for Fashion Bobbi Jean Donnelly was hardened by her humble beginnings in rural Mississippi. The fourth of six children in a blue-collar working-class family, she spent the early years of her life in hand-me-down clothes, living in the shadow of the siblings that came before her.As the result of public school zoning policies, Bobbi Jean attended class with some of Mississippi's most prominent families. At a young age her self-image plummeted as she endured the ridicule and torment inflicted upon her by the girls in designer clothes who would chant, "Poor, poor Bobbi Jean, she can't get her clothing clean!" Instead of submitting to her plight, the scrappy schoolgirl confronted her oppressors, frequently landing in the midst of large playground brawls. Eventually she learned to use her charm and wit instead of her fistsshe won over the critical in-crowd and gained some popularity in middle school and high school.Determined to rise above her roots, Bobbi Jean left Mississippi after high school to chase after her dream of becoming "somebody." Not sure what she would do for living, she headed to New York City and landed a job with a temp agency. Luck was on her side; Bobbi Jean's first assignment was temping for the design house of a major fashion retailer. This eventually led to a full-time job that lasted three years. Over the next eight years she continued to hold high-profile administrative support roles for fashion executives until finally landing her most lucrative position at Mod Fashions, Inc.When she joined Mod Fashions, Bobbi Jean was newly married and had recently moved with her husband into a very attractive home in a New Jersey suburb. The house was beautifully appointed with fine upscale furnishings. The property was sprawling, complete with a swimming pool.For Bobbi Jean, image was everything. She worked hard to project a family portrait of affluence, lying to coworkers about her "privileged" upbringing in Mississippi. Bobbi Jean's stories were so convincing that no one questioned the extent of her designer wardrobe. She was always decked out in the latest high-end clothes and accessories from head to toe. Herme s, Prada, Gucci, Chanel, and Louis Vuitton were some of her favorite designers. Bobbi Jean sported a brand-new outfit every day and was the envy of all of her coworkers. Her shoe collection could rival anyone's, containing hundreds of pairs from designers like Jimmy Choo and Manolo Blahnik. In the end, her passion for fashion would be her downfall.Mod Fashions, Inc. was a hip multibillion-dollar retailer based in Kansas City, Missouri. Launched in 1970 by a brother and sister team, Steven and Debra Cammamod, it rose from its humble beginningsa small mom-and-pop store on the outskirts of a big cityto a chain of over 2,000 stores across the country that carries every trendy must-have of the season.When Steven and Debra started the business, they surrounded themselves with a handful of trusted friends and advisors. For the first five years, Mod Fashions was run solely by the small posse they had assembled.As the business grew, so did the need to expand the team to help manage the day-to-day requirements of the company. After eight highly profitable years, the Cammamods built a crackerjack team from the retail industry's who's who in fashion. Two years later the company went public. Over the years the business became a multidivisional giant boasting over 75,000 employees worldwide.Ron Dawson joined the company to run its design division, the incredibly fast-paced place where fashion is created. He had a cadre of 40 designers and design contractors, supported by a team of 20 individuals with various back-office support expertise. The team was based out of New York, over 1,000 miles away from Mod Fashion's home office in Kansas City.When Ron joined the Mod team, he quickly began the search for an administrative assistant. He knew the importance of having a great assistantone he could trust. Ron placed an advertisement in the New York Times classified section and was inundated with re sume s from people clamoring to join the world of fashion. As he reviewed the applicants, one stood out from the crowd. Bobbi Jean Donnelly was a seasoned professional with several years of experience supporting senior executives in the industry. Ron was so impressed by her captivating personality during the interview that he immediately extended an offer, which she quickly accepted.The chemistry was there; Ron and Bobbi Jean hit it off right away. After working together for only a short while, their connection grew strong. Ron's trust in his new assistant was solidified. People throughout the company could not stop talking about her. "Bobbi Jean is amazing," they said. Ron didn't hesitate to take her with him to Kansas City, where she would interact with all of the senior executives' assistants and home office support personnel. From the Accounts Payable Department to the executive suite, she charmed them all.With the accolades pouring in, Ron quickly propelled Bobbi Jean from her position as his administrative assistant to office manager. That promotion entailed a significant increase in responsibility and authority. In addition to managing Ron's needs, Bobbi Jean also supervised the remaining support personnel and prepared and oversaw the Design Department's budget, a task that Ron despised. She was more than willing to shield him from mundane financial tasks. His least favorite was the review of expense reports submitted by his staff. Ron gave Bobbi Jean the responsibility of providing the first level ofreview; he relied on her to make sure that the expenses were valid before he signed them. On a few occasions, when Ron was traveling out of town or swamped with work, he asked Bobbi Jean to sign the expense reports on his behalf. DESIGN ON MORE THAN A DIMEI joined the Mod team three and a half years after Bobbi Jean was hired. As the business grew, management decided it was time to build a robust Internal Audit Department. That's where I came in. My internal audit team was conducting a routine and relatively straightforward travel and expense audit, which was not expected to reveal any major surprises.We developed a program designed to ensure that the corporate travel and expense policy was followed by employees and to confirm that adequate internal controls in the processing and payment of expense reports were operating effectively. The team scoped a sample of individuals and transactions to test. The people selected were from those employees who submitted the highest dollar amounts over the course of the year for reimbursement. Moreover, transactions were randomly selected across the total population of expenses submitted.The approach and criteria used to audit the transactions differed significantly from the approach used to audit the individuals. The transactions were reviewed for compliance with the policy, proper authorization and approval, and the legitimacy of the expense. That work yielded no major surprises. The more interesting results of the work were in the review of individuals. My team looked at all expense reports submitted by the selected employees over a one-year period. We were looking at the expenses based on the employee's role in the company and for any patterns of activity that seemed unusual. It didn't take long for us to identify a pattern from one area of the businessthe Design Department. There were several individuals who devised very inventive ways of submitting expenses on more than one occasion for reimbursement, demonstrating that their creativity was not limited to fashion.My lead auditor, Mike Stuart, entered my office with piles of paper spilling over his arms. He was animated as he shared the details of the expense reports he reviewed."You have to see this," he said. "There are at least six people that are submitting their American Express bills for reimbursement instead of the detailed receipts for individual expenses. On most of them, I can't tell if the charges are even for a legitimate business purpose; some of them definitely look odd."As Mike took me through the documents, the bills began to show a pattern: one month of charges, plus the next month a late fee with the old and new charges combined. In essence, at least three employees were submitting the same charges twice, one of which included a seemingly fake late fee.Mike indicated that the three people were part of the design team in New York. So I asked him to bring in all of the expense reports for the employees in that department. As Mike and I flipped through those documents, we began to uncover more red flags.everal of the employees submitted New York City taxi receipts for reimbursement, a legitimate business expense when conducting business in different locations in Manhattan. Upon examination of the actual taxi receipts, Mike and I noticed multiple receipts that appeared to come from the same taxi on the same day.I am a born and raised New Yorker. Hailing a taxi in New York City is quite a feat getting the same taxi twice, let alone several times in one day, is virtually impossible. New York City taxis are regulated, and all have electronic meters that print receipts. The receipts all show the taxi medallion number, which is how we were able to identify that they came from the same taxi. Below the medallion number is the trip number. I became very suspicious when the multiple receipts had sequential trip numbers on the same day. The time stamps on the receipts had small gaps between the end time of the receipt first in sequence and the begin time of the next one. In some cases there were five or six sequential taxi receipts. Upon further inspection, the tear pattern of the bottom of the earlier receipt in the sequence was an exact match for the tear pattern at the top of the one following it.Mike and I also found several cases of meal receipts being submitted twice. The detailed bill usually presented at the end of the meal was separated from the credit card receipt for the same meal, and each was submitted separately for reimbursement. On a few occasions the person submitting the receipt would put different tip amounts and totals on each of the documents to make the duplication less obvious."Who had the most expenses this year on the design team?" I asked Mike, after a quick scan of the reports."The office manager, Bobbi Jean Donnelly; she charged about $115,000 worth of expenses this past year," he responded.I asked Mike how much her boss, Ron Dawson, submitted. "About $40,000," he replied. It seemed strange that Bobbi Jean's expenses would be so much higher than Ron's. Italso disturbed me that her name came up in all of the schemes we had identified at this point.I went to meet with our general counsel, Fred Jackson, and informed him of what we had identified in the audit. He agreed that we needed to conduct a thorough investigation of the design team's expenses. As we'd begin the broader investigation, I would make sure that we thoroughly reviewed the activities of Bobbi Jean. THE FRAUDULENT FIVEMike and I sat down to develop an investigation strategy. The volume of expense reports submitted by the design team was daunting. It would be impossible to effectively review every one of them in detail. We decided first to acquire a solid understanding of the organizational structure and normal business activities of the design team. Then we would do a high-level review of the expense reports submitted by each individual. Based on that review, we would be able to identify any individuals who had expenses or patterns ofactivity that were inconsistent with normal business expenses. We would put those aside to conduct a deeper analysis.Mike and I went to meet with the director who was responsible for communicating with the design team on their budget, Jack Stevens. Jack had spent quite a bit of time in New York with Ron, Bobbi Jean, and the team to learn about their functions in the business and understand in depth how they operated."You have to understand that what the design team does is art, not science. A lot of the expenses that you will see in their budget will look unusual." This is the first thing that Jack said to us. Formally trained as an accountant and finance person, he admitted to having a hard time wrapping his mind around the types of expenses that came through the department.As Jack took us through the organizational structure and budget of the design team, he explained that the group's role was to create new products for the company. The team traveled extensively around the world to be influenced and inspired by fashions and lifestyle trends. On those trips, team members would immerse themselves in local culture, entertainment, and shopping experiences. People would frequently buy things on the trips to serve as reminders of inspiration when they returned to the office. They call those purchases "samples." In New York, the team would create presentation projects, often incorporating their samples, to present to various merchants around the company. Jack showed us books of photographs that captured some of the presentationsthey were awe-inspiring. Out of these, new ideas would be born and new products created.The meeting with Jack provided just the right amount of context for our investigation. Mike and I sifted through the piles of expense reports and set aside approximately six individuals whom we would review in detail, in addition to the three we were already planning to look at.We decided that the best approach would be to use our audit software, Interactive Data Extraction & Analysis (IDEATM). The expense reports were manual, which would make that difficult. In fact, submissions from these individuals were recorded in such a sloppy fashion that it was hard to truly analyze the patterns of data effectively. In all nine cases the expenses were submitted over many months, making it difficult to piece together all of the elements of the alleged business activities. Mike and I agreed that it would be worthwhile to invest the time of some members of our team to help build a database of the expense detail to facilitate the review. That investment paid off. The data read like tea leaves, giving us insight into the potential fates of each of the individuals. In four cases, expenses appeared reasonable and appropriate. For the five remaining people, it was clear that there were some problems that would need to be rectified.Seth Warren, George Miller, Robin Simmons, Rose Waller, and Bobbi Jean Donnelly were systematically and routinely submitting expenses multiple times for reimbursement. Mike and I nicknamed them the "Fraudulent Five." By using IDEA to identify duplicate amounts quickly, we were able to isolate the expense reports that we needed to review in tandem. For example, the data would show us the exact amount, say $123.42, processed twice, and we would look at the different expense reports that corresponded with thosecharges. Mike and I looked at the receipts that were submitted as support. It became easy to separate the duplicates, and in some cases, those that were submitted multiple times. Seth appeared to be quite gutsy; he actually submitted a $132.86 charge for a car service five times over the course of seven months.Mike and I also used IDEA to analyze expenses submitted from the same vendor for similar amounts, expenses incurred in the same week based on the detailed receipt information, and multiple submissions of the same expense category for the same day. Once we identified the Fraudulent Five as individuals involved in similar schemes, we analyzed the patterns of data across them as a group and found a few instances where Seth and Robin submitted the identical expenses. When they traveled together and had a meal, one would pay with their credit card and the other would get the detailed receipt and submit it as if they paid cash for the meal. Through various schemes, the Fraudulent Five submitted approximately $75,000 in false expenses.About $12,000 was attributable to Bobbi Jean. I still had a nagging feeling about the sheer amount of expenses she was submitting. Using IDEA, I ran further analyses on her expenses to roll them up by category. I was very surprised to see that the majority of her purchases were samples. It particularly struck me as odd because that would mean that in her capacity as office manager, Bobbi Jean also had the luxury of traveling around the world with the design team to make decisions about fashion trends. I looked at her sample purchases and was overwhelmed. At times I can be considered a "fashion emergency," so the names of some of the designer clothes, shoes, and accessories that Bobbi Jean purchased didn't register with me, but the prices did. Seven-hundred and fifty dollars for a pair of Jimmy Choo shoes, $875 for a Herme s scarf, $1,250 for a Prada wallet: all samples and all coded to various projects that the design team appeared to have done for Mod Fashions.Using IDEA, I extracted all travel-related expenses submitted by Bobbi Jean to see if the sample purchases correlated to trips that other design team members took. I thought that this would at least validate that her role could be broader than it appeared and that I was worrying about all of these charges for no reason. I was very surprised to see that she did go on several trips with the team. Upon further review, I found a trip to London that seemed to further validate Bobbi Jean's importance on the design team. It appeared that Ron had sent her to London to meet with 12 students to recruit interns for Mod Fashions. Bobbi Jean had submitted over $6,000 for a one-week trip to do the recruiting; she had wined and dined the interns at the finest restaurants in London, including one outing that cost $1,386. Surely if all of these charges were fraudulent, Ron would have picked it up in his own budget review.I went back to the general counsel and took him through the circumstances of each individual. We decided that it was time to sit down with Ron to share the details of the investigation when he came to Kansas City. I had never met this design prodigy, but he was definitely a legendary figure at Mod Fashions. Fred warned me about the need to be delicate: "He is creative and might be a bit sensitive."Ron was wildly charismatic, bursting through the door of our conference room like a gust of wind. Fred introduced us, and Ron made it clear that he did not like auditors. Hewas very kind in ensuring that I didn't take his comment personally, but it was clear that he was not interested in becoming friends. As Fred and I took him through the schemes of the Fraudulent Five and the $75,000, it was apparent that he was disappointed and disgusted by his staff's conduct. He shared that Seth was a wheeler-dealer type so he wasn't surprised, but the rest really caught him off guard. The person that disappointed Ron the most was his trusted manager, Bobbi Jean."I pay her so well. Why would she steal $12,000?" he asked. "Her family is so wealthy; I can't understand why she would need the money!"Ron was really distressed. Deep down, he knew that Steven and Debra would be displeased with him for harboring a collection of untrustworthy employees.Next, Fred discussed a game plan. We collectively agreed that Fred and I would fly to New York to meet with each person and give them a chance to explain themselves. Bobbi Jean would be a problem, though; she was out on maternity leave, at home in the suburbs of New Jersey. Fred and I would have to organize a way to connect with her while we were there on our trip. A (CORRUPT) DESIGN FOR LIVINGFred and I arrived at the design office in New York bright and early on a Wednesday morning. We were clearly out of place in our corporate suits. The environment was casual, trendy, and very hip; we were not. Ron greeted us and quickly shepherded us into a small but exquisite conference room with floor-to-ceiling windows, a phenomenal view, and some of the most incredible objects d'art that I have ever seen. Ron introduced us to the human resources director, Anne Skully. We discussed our plan for interviewing Seth, George, Robin, and Rose. Anne would be present during the interviews along with Fred and me.George and Rose were quick interviews. They both readily admitted to the complete extent of their actions, taking full accountability for what they had done. Robin was a bit ornery. She put up a strong wall of resistance, denying any impropriety until directly confronted with each and every expense report. Ultimately, she bowed her head and accepted defeat.Seth was a completely different story. He was slick, as Ron had warned us. As we presented him with the evidence of each of his fraudulent acts, he responded with indignant outrage at "the incompetence" of his assistant. Seth poured on the charm as he explained that he was incredibly disorganized and incapable of even dreaming up the type of schemes we were accusing him of committing. He claimed that he gave his assistant wads of crumbled receipts to sort through and process."She is not very intelligent," he asserted. "This is all a mistake and it's her fault."Despite Seth's best efforts to deflect responsibility, his explanations did not make sense. Fred and I questioned him in excruciating detail about his process for giving his receipts to his assistant. He could not explain how she would have duplicate receipts to process for him over the course of many months unless he repeatedly gave them to her in a piecemeal fashion. Seth, George, Robin, and Rose were terminated that day.It was 2:30 p.m. when Ron, Anne, Fred, and I reconnected in the conference room to discuss how we were going to handle Bobbi Jean. Despite feeling betrayed, Ron insisted that we allow her to exit Mod Fashions gracefully. We decided that Fred and I would call her at home, explain what we found, and tell her that we would allow her to finish out her maternity leave and resign without returning to the office. Ron and Anne left the conference room so Fred and I could get down to business.As we were getting ready to make the phone call, I decided to ask Ron one more question. I walked to his office where he and Anne were meeting, and interrupted the two of them."I hate to bother you, Ron, but I just need to ask you one thing before we call Bobbi Jean. How much do you think she submits per year in expenses through her travel and expense reports?" "Probably about $10,000 to $12,000 per year," he answered.My stomach sank as I continued, "So if I told you the amount was more than $100,000 a year, it would surprise you?"It looked like someone had knocked the wind out of Ron. "That can't be! What are you talking about!?"I explained that the biggest category of expenses was samples, and went on to enumerate the types of purchases I saw. Ron calmly looked me straight in the eye as he attempted to hide his rage and whispered, "She was not authorized to purchase samples."Fred and I agreed that we needed to terminate Bobbi Jean immediately and then figure out the extent of her fraudulent activities and what actions to pursue. We called her and explained that we had found approximately $12,000 of expenses that she had fraudulently submitted for reimbursement. Bobbi Jean was confident yet guarded as she insisted that there must be a mistake. She went on to explain that her workload was so great that it was possible that she had accidentally submitted things for reimbursement on more than one occasion, and if so, it was in error. Fred then went on to tell her that we also believed that a large number of expenses that she submitted were not valid; they were possibly personal in nature. Bobbi Jean was cautiously dismissive as she said, "You just have no idea what I really do for the design team."Fred explained the conditions of her termination and indicated that we would do some additional work to determine if we would take any further action. As parting words, he suggested that she seek the assistance of a lawyer regarding this situation.Fred and I flew back to Kansas City that Wednesday evening. I spent Thursday and Friday working with my team to pull together all of Bobbi Jean's expense reports and receipts and catalog them for a detailed review with Ron that I scheduled for the following week.On Monday morning I flew to New York with two suitcases in tow, which contained meticulously prepared binders of the reports and supporting receipts that my team had pieced together. Ron and I agreed to meet at an office that he was able to borrow, a considerable distance from the design office. He was hesitant as he eyed the suitcases, butcordially invited me into the beautiful office overlooking Central Park. He offered me a cup of coffee and we got down to business.I pulled all of the binders out of the suitcases, organized them chronologically, and began reviewing them with Ron. For the next two days I received an accelerated education in fashion and began to bond with Ron in a way that neither of us expected. We were both infuriated by the audacity of Bobbi Jean as we separated the expenses into piles of those that appeared to be legitimate, those that were clearly fraudulent, and those that were questionable. Ron easily recognized a lot of Bobbi Jean's clothing, shoes, and accessory purchases as things that she wore to work on a regular basis.Mod Fashion's expense reporting process requires individuals to give descriptions for the business purpose of an expense and have their boss sign off on the actual expense report. Ron was amazed by the accuracy with which his signature was replicated. Every expense report had a signature that reasonably appeared to be his own. However, we compared documents that he actually did sign with those he did not, and viewing the documents side by side clearly showed the anomalies in the forged signature. With Ron's tutelage into the world of fashion, I was able to clearly see that in many cases Bobbi Jean's receipts did not match up to her explanations. Before meeting Ron, I did not know that Jimmy Choo exclusively sold shoes, handbags, and small accessories. On several occasions Bobbi Jean submitted Jimmy Choo receipts but claimed that they were blouses and pants. Ron showed me that a close look at the receipt clearly indicated a size of 7.5, which is not a clothing size but a shoe size. A savvy fashion buff would have easily seen the pattern of deception.Ron lost it when we came across the expenses for Bobbi Jean's trip to London to interview the design interns. He quickly pulled out his calendar and confirmed that the dates of that trip coincided with a vacation that she and her husband took to London.A final tally of her fraud was approximately $275,000 over two and a half years. Almost 95% of the expenses that she submitted to Mod Fashions for reimbursement were false. I called Fred to discuss our findings. We agreed that the right thing to do was to talk to the district attorney in New York and see if they would prosecute Bobbi Jean criminally for her actions. Our case was assigned to Assistant District Attorney Wendy Simmons. I met with Wendy at her office in downtown Manhattan. She was impressed with the organization and detail of the documentation that we provided for the case, and she readilyagreed to prosecute Bobbi Jean. Several weeks after meeting with Wendy, she called to tell me that she met with BobbiJean and her lawyer. Wendy shared that Bobbi Jean was very impressive and confident during their interview, denying all of the allegations and offering to provide witnesses who would substantiate her position of innocence. She claimed that all of her purchases were legitimate, authorized, and part of normal business practices of the design team. Wendy said that she would need to meet with these witnesses and Ron to decide if there really was a case to pursue.Wendy met with Ron and the three witnesses Bobbi Jean produced, all ex-employees of Mod Fashions: Jackie Adams and John Bresnin, who were terminated for poorperformance and had a clear ax to grind with Ron; and Holly Wilson, who left the business to start her own company. Jackie and John were cool yet adamant about the authenticity of Bobbi Jean's purchases and legitimacy of her actions. But Wendy quickly sized them up and concluded that they were disgruntled ex-employees who would not be credible witnesses for the defense.Wendy called me to confirm that she was now confident in the case against Bobbi Jean, and would sit down with her and her lawyer to discuss the possibility of a plea agreement. At first, Bobbi Jean was adamant about her innocence and refused to consider any plea agreement. Ron and I testified before a grand jury that subsequently handed down an indictment against Bobbi Jean. Eventually she decided to avoid a messy court battle and accepted a plea that came with a jail sentence of 6 to 12 months.Several months later I testified in unemployment court to justify our termination of Seth Warren for cause. The judge was very patient with Seth, allowing him to explain the "mistake." Before he denied Seth any unemployment benefits, the judge said, "Sir, you must expect that the whole lot of us are 'not very intelligent,' as you claim your 'poor hardworking assistant' to be, if you expect us to believe that you did not intentionally and systematically time the submission of your expense receipts with the explicit purpose of defrauding the company for your personal benefit." Visibly deflated, Seth did not seem to be so slick after all.I went to Bobbi Jean's sentencing hearing and watched as she stood apprehensively; her body language did not exude her usual confidence. The understated and unfashionable outfit she wore was ironic considering that her passion for fashion was the cause of her downfall. Bobbi Jean was ushered away in handcuffs with her head down, never turning back even to say good-bye to her husband. As she left the room, I thought about the baby she left at home. I wondered if she regretted her actionsor just getting caught

Questions

1. What lessons did you learn from this fraud?

2. What are recommendations to prevent future occurrences?