In the case study of Stefan Winkler, who was the chief financial officer for a beverage company in Florida, how did he conceal his skimming scheme? How could the scheme have been prevented or -discovered?

Case Study: Beverage Man Takes the Plunge For most people, Florida shines brightly from postcards and televisions, as brilliant as it must have seemed to the first Europeans who hoped to find the Fountain of Youth there. The contemporary image is a little gaudier than ancient myth but still going strong. And when most people go to Florida, the vacation schedule and the tourist industry can make it seem as if the postcard image lives and breathes. There really is something for the entire family: a tropical paradise for Mom and Dad, lots of noise and colors for the kiddies. But televisions switch off, and tourists go home. The land remains a place where people work, where they live and breathe and raise their families. This is the story of one of those people. Stefan Winkler worked for a beverage company in Pompano Beach, Florida. As director of accounting and controller, Stefan touched the flow of money into and out of the company at every point, though he was particularly focused on how money came in. The beverage company-call it Mogel's, Inc.--collected from customers in two ways: Either the delivery drivers brought in cash or checks from their route customers, or credit customers sent checks in the mail. The cash and checks from drivers were counted and put in the bank as route deposits; the checks arriving by mail from credit customers were filed as office deposits. Drivers gave their daily collections to a cashier who made out the route deposit slip and sent it to Winkler. Any checks from office mail went directly to Winkler, who verified the money according to the payment schedule-30 days for some customers, 60 for others, and so on. Winkler's job was to combine office deposits and route deposits for the final accounting before bank deposit. Theoretically, then, Mogel's had two revenue streams, both of which converged at Winkler's desk and poured smoothly into the bank. But Winkler had other plans. He siphoned off the cash from the route deposits through a lapping operation, covering the money he lifted from one account with funds from another. Winkler took large amounts of cash from the route deposits and replaced each cash amount with checks from the credit customers. He might filch $3,000 in cash from the transportation bags and put in $3,000 worth of checks from the mail. That way, the route deposit total matched the amount listed by the cashier on the deposit slip. There was no gap in office deposits, because Winkler never listed the check as received. Instead, he would extend the customer's payment schedule outward, sometimes indefinitely. He occasionally covered the amount later with other embezzlements. Like a kiting operation, lapping takes a continual replen- ishment of money, forcing the perpetrator to extend the circles of deception wider if the scheme is to continue to produce. And like kiting, lapping is destined to crum ble, unless the person can find a way to replace the original funds and casually, walk away. Winkler probably told himself he would replace the money sometime, preferably sooner than later. Maybe he figured he would make a killing in the stock market or win big at the track and set everything right again. Only he knows whar he was thinking: he never admitted to taking anything. Acting as his own lawyer he announced at trial. "There are other people besides me who could have taken that money." The prosecution, then, had to prove that Winkler, and not those other people, had actually stolen the money. How that happened is, as they say, the rest of the story. Mogel's operated in Pompano Beach as a subsidiary of a larger company from Delaware. Oversight was casual: auditors generally prepared their reports by dis patches from the local office. This gave Winkler as accounting director lots of room to maneuver. But perhaps there was too much room. Over the course of a year and a half, Winkler's superiors became increasingly dissatisfied with his performance. Winkler was, fatefully enough, fired on the Friday morning before auditors were to arrive the following Monday. He did not have the money to replace what he had stolen, so he used the time to rearrange what he could of his misdealings and throw the rest into disarray. He took cash receipts journals, copies of customer checks, deposit slips, and other financial records from the office and removed his personnel file. He altered electronic files, too, backdating accounts receivable lines to make them current and increasing customer discounts. Examin ers would eventually discover an extremely unusual general ledger adjustment of $303,970.25" made just before Winkler was fired. As the prosecuting attorney, Tony Carriuolo, puts it, "He attempted, through computers and other manipulations, to alter history." When the auditors arrived on Monday, they started the long haul of reconstructing what had actually happened. This was, as Carriuolo and CFE Don Stine put it, the fun part, even though it was exhausting, of piecing together what happened and who did it, with documents missing and nothing that we could use to point directly at Winkler and say, "There it is, he did it.*** Auditors for Mogel's set about evaluating! the mess Winkler had left behind, working through bank statements, total deposit schedules, accounting records, and reports from delivery drivers. They caught on to Winkler's method during the first efforts to reconstruct the previous two years' activity. An auditor found two checks totaling $60,000 on a route deposit slip but no entry in the accounts receivable brought forward for that month. (This was for July, a little over a month before Winkler was fired.) The deposit slip, someone pointed out, was not in the cashier's handwriting but in Winkler's. Still, making the case would not be as simple as locating route deposits with checks in them. Some customers paid with checks, and the company's cashier rou- tinely used route money to cash employees' paychecks. Thus, deposits regularly contained checks as well as cash. Examiners would have to cover each deposit and its constituent parts and compare this against what actually hit the bank and the accounts receivable entries in the office deposits. Carriuolo says, "I can't tell you how many times we had to compare the deposit slips from the cashier-some of which we had, and some we didn't-with the actual composition going to the bank. Because Winkler had removed so much from the office, sometimes the only way to verify what had come through the mail was to go to customers and reconstruct payments based on their records. Once the auditors had gone through the material, they hired Don Stine to confirm their findings and help Carrivolo make the case against Winkler Reviewing their work, Stine agreed that approximately $350,000 had been taken and that Winkler was the man. Mogel's left itself wide open for this hit because it had no controls cov. ering what happened with the checks that came in the mail, in effect giving Winkler "total authority to manipulate the accounts. Stine says that the situation at Mogel's is all too common, with managers and employees not recognizing a financial crime in progress until it is too late. "There are plenty of things to alert people missing deposit slips, cash and credit reconciliations between a company and a customer that don't match. There are signs, but it doesn't hit them in the head, and then when some- thing comes out, they say. "How did this happen?' Auditors did ask by phone why customers were paying later and later, but they took Winkler's word for it when he put the delays down to computer systems and reorganizations inside the companies. First contacts with Winkler did not pan out. He skipped meetings, stonewalled. and acted sullen and defiant. "I didn't do it," he said. "Trust me. Other people had access, they could have done it, too." But Stine and Carrivolo were ready for this. Winkler admitted that several clerks and cashiers had worked at Mogel's during a two-year period but that losses had occurred continually. Unless the company was consistently hiring crooks in those positions, Carriuolo argued, the answer lay else- where. Besides, the manipulations required someone with accounting skills above the level of the average clerk. The one constant, it turns out, was Stefan Winkler. Two other workers actually had been there during the entire time period, but they had neither the access or the skills necessary to redirect cash flow on the scale that had Occurred And there was the physical evidence. When he came to Mogel's, Winkler was in a bind. He had lost his house, and his finances were a mess. But his tenure at the beverage company brought a wave of prosperity. He bought luxury watches! expensive clothing, and several cars, among them a $40,000 Corvette paid for in cash. Winkler set up several businesses, including a limousine service, a jewelry distributorship, and facilities for a day care center he planned to establish with his wife. He spent lots of money gambling, which he used as an explanation for his Rich and Famous mode of living. "I gamble a lot. I win a lot," he said, "The pit bosses in the Bahamas taught me how to play, so I win almost all the time simple as that Just lucky. I guess. Stine knew this was bunk. Nobody was that lucky, not over two years. Winkler's wave of wealth pushed the "Lifestyle Changes, You Lose button in the game of fraud examination. "You see this in many of these employee defalcation, or employee fraud, cases." comments Stine. "Someone is making $50.000 a year but he's buving a $500,000 home, driving a $75,000 car. And unless someone died and left him an inheritance, it doesn't add up." In the civil trial for fraud and negligence. Winkler maintained his innocence and his arrogance. Carruolo and Stine presented evidence to show how the route deposits cash had been embezzled and covered for by the office deposits, explaining to the jury with charts and graphs and crash-course accounting presentations what crimes Skimming had occurred. The employee records, and the broad authority necessary to pull the scheme off, pointed the finger at Winkler. No one else, Carriuolo maintained. had the unique access to, and knowledge of, Mogel's Inc.'s accounting systems besides Winkler. Winkler's response? He dismissed (or lost) his attorney and declared he would represent himself. Little or no legal expertise was necessary for his defense: "It wasn't me, it must have been one of those other guys." When he cross-examined Don Stine, who has years of experience in litigation consulting, Winkler announced he had only one question: "Mr. Stine, do you know for certain who took the money?" Stine answered, "No," not with absolute, unconditional, ontological certainty. Happy to show there was no smoking gun, Winkler rested his case. But the jury was unconvinced by Winkler's tactics. After a brief recess, they returned a guilty verdict for the $353,000 lost by Mogel's, plus treble damages. for a total judgment of over $1 million. And it seems that Winkler remained unre constructed, since he was subsequently named in another complaint filed by the company he worked for after Mogel's. His high life keeps seeking new lows. Case Study: Beverage Man Takes the Plunge For most people, Florida shines brightly from postcards and televisions, as brilliant as it must have seemed to the first Europeans who hoped to find the Fountain of Youth there. The contemporary image is a little gaudier than ancient myth but still going strong. And when most people go to Florida, the vacation schedule and the tourist industry can make it seem as if the postcard image lives and breathes. There really is something for the entire family: a tropical paradise for Mom and Dad, lots of noise and colors for the kiddies. But televisions switch off, and tourists go home. The land remains a place where people work, where they live and breathe and raise their families. This is the story of one of those people. Stefan Winkler worked for a beverage company in Pompano Beach, Florida. As director of accounting and controller, Stefan touched the flow of money into and out of the company at every point, though he was particularly focused on how money came in. The beverage company-call it Mogel's, Inc.--collected from customers in two ways: Either the delivery drivers brought in cash or checks from their route customers, or credit customers sent checks in the mail. The cash and checks from drivers were counted and put in the bank as route deposits; the checks arriving by mail from credit customers were filed as office deposits. Drivers gave their daily collections to a cashier who made out the route deposit slip and sent it to Winkler. Any checks from office mail went directly to Winkler, who verified the money according to the payment schedule-30 days for some customers, 60 for others, and so on. Winkler's job was to combine office deposits and route deposits for the final accounting before bank deposit. Theoretically, then, Mogel's had two revenue streams, both of which converged at Winkler's desk and poured smoothly into the bank. But Winkler had other plans. He siphoned off the cash from the route deposits through a lapping operation, covering the money he lifted from one account with funds from another. Winkler took large amounts of cash from the route deposits and replaced each cash amount with checks from the credit customers. He might filch $3,000 in cash from the transportation bags and put in $3,000 worth of checks from the mail. That way, the route deposit total matched the amount listed by the cashier on the deposit slip. There was no gap in office deposits, because Winkler never listed the check as received. Instead, he would extend the customer's payment schedule outward, sometimes indefinitely. He occasionally covered the amount later with other embezzlements. Like a kiting operation, lapping takes a continual replen- ishment of money, forcing the perpetrator to extend the circles of deception wider if the scheme is to continue to produce. And like kiting, lapping is destined to crum ble, unless the person can find a way to replace the original funds and casually, walk away. Winkler probably told himself he would replace the money sometime, preferably sooner than later. Maybe he figured he would make a killing in the stock market or win big at the track and set everything right again. Only he knows whar he was thinking: he never admitted to taking anything. Acting as his own lawyer he announced at trial. "There are other people besides me who could have taken that money." The prosecution, then, had to prove that Winkler, and not those other people, had actually stolen the money. How that happened is, as they say, the rest of the story. Mogel's operated in Pompano Beach as a subsidiary of a larger company from Delaware. Oversight was casual: auditors generally prepared their reports by dis patches from the local office. This gave Winkler as accounting director lots of room to maneuver. But perhaps there was too much room. Over the course of a year and a half, Winkler's superiors became increasingly dissatisfied with his performance. Winkler was, fatefully enough, fired on the Friday morning before auditors were to arrive the following Monday. He did not have the money to replace what he had stolen, so he used the time to rearrange what he could of his misdealings and throw the rest into disarray. He took cash receipts journals, copies of customer checks, deposit slips, and other financial records from the office and removed his personnel file. He altered electronic files, too, backdating accounts receivable lines to make them current and increasing customer discounts. Examin ers would eventually discover an extremely unusual general ledger adjustment of $303,970.25" made just before Winkler was fired. As the prosecuting attorney, Tony Carriuolo, puts it, "He attempted, through computers and other manipulations, to alter history." When the auditors arrived on Monday, they started the long haul of reconstructing what had actually happened. This was, as Carriuolo and CFE Don Stine put it, the fun part, even though it was exhausting, of piecing together what happened and who did it, with documents missing and nothing that we could use to point directly at Winkler and say, "There it is, he did it.*** Auditors for Mogel's set about evaluating! the mess Winkler had left behind, working through bank statements, total deposit schedules, accounting records, and reports from delivery drivers. They caught on to Winkler's method during the first efforts to reconstruct the previous two years' activity. An auditor found two checks totaling $60,000 on a route deposit slip but no entry in the accounts receivable brought forward for that month. (This was for July, a little over a month before Winkler was fired.) The deposit slip, someone pointed out, was not in the cashier's handwriting but in Winkler's. Still, making the case would not be as simple as locating route deposits with checks in them. Some customers paid with checks, and the company's cashier rou- tinely used route money to cash employees' paychecks. Thus, deposits regularly contained checks as well as cash. Examiners would have to cover each deposit and its constituent parts and compare this against what actually hit the bank and the accounts receivable entries in the office deposits. Carriuolo says, "I can't tell you how many times we had to compare the deposit slips from the cashier-some of which we had, and some we didn't-with the actual composition going to the bank. Because Winkler had removed so much from the office, sometimes the only way to verify what had come through the mail was to go to customers and reconstruct payments based on their records. Once the auditors had gone through the material, they hired Don Stine to confirm their findings and help Carrivolo make the case against Winkler Reviewing their work, Stine agreed that approximately $350,000 had been taken and that Winkler was the man. Mogel's left itself wide open for this hit because it had no controls cov. ering what happened with the checks that came in the mail, in effect giving Winkler "total authority to manipulate the accounts. Stine says that the situation at Mogel's is all too common, with managers and employees not recognizing a financial crime in progress until it is too late. "There are plenty of things to alert people missing deposit slips, cash and credit reconciliations between a company and a customer that don't match. There are signs, but it doesn't hit them in the head, and then when some- thing comes out, they say. "How did this happen?' Auditors did ask by phone why customers were paying later and later, but they took Winkler's word for it when he put the delays down to computer systems and reorganizations inside the companies. First contacts with Winkler did not pan out. He skipped meetings, stonewalled. and acted sullen and defiant. "I didn't do it," he said. "Trust me. Other people had access, they could have done it, too." But Stine and Carrivolo were ready for this. Winkler admitted that several clerks and cashiers had worked at Mogel's during a two-year period but that losses had occurred continually. Unless the company was consistently hiring crooks in those positions, Carriuolo argued, the answer lay else- where. Besides, the manipulations required someone with accounting skills above the level of the average clerk. The one constant, it turns out, was Stefan Winkler. Two other workers actually had been there during the entire time period, but they had neither the access or the skills necessary to redirect cash flow on the scale that had Occurred And there was the physical evidence. When he came to Mogel's, Winkler was in a bind. He had lost his house, and his finances were a mess. But his tenure at the beverage company brought a wave of prosperity. He bought luxury watches! expensive clothing, and several cars, among them a $40,000 Corvette paid for in cash. Winkler set up several businesses, including a limousine service, a jewelry distributorship, and facilities for a day care center he planned to establish with his wife. He spent lots of money gambling, which he used as an explanation for his Rich and Famous mode of living. "I gamble a lot. I win a lot," he said, "The pit bosses in the Bahamas taught me how to play, so I win almost all the time simple as that Just lucky. I guess. Stine knew this was bunk. Nobody was that lucky, not over two years. Winkler's wave of wealth pushed the "Lifestyle Changes, You Lose button in the game of fraud examination. "You see this in many of these employee defalcation, or employee fraud, cases." comments Stine. "Someone is making $50.000 a year but he's buving a $500,000 home, driving a $75,000 car. And unless someone died and left him an inheritance, it doesn't add up." In the civil trial for fraud and negligence. Winkler maintained his innocence and his arrogance. Carruolo and Stine presented evidence to show how the route deposits cash had been embezzled and covered for by the office deposits, explaining to the jury with charts and graphs and crash-course accounting presentations what crimes Skimming had occurred. The employee records, and the broad authority necessary to pull the scheme off, pointed the finger at Winkler. No one else, Carriuolo maintained. had the unique access to, and knowledge of, Mogel's Inc.'s accounting systems besides Winkler. Winkler's response? He dismissed (or lost) his attorney and declared he would represent himself. Little or no legal expertise was necessary for his defense: "It wasn't me, it must have been one of those other guys." When he cross-examined Don Stine, who has years of experience in litigation consulting, Winkler announced he had only one question: "Mr. Stine, do you know for certain who took the money?" Stine answered, "No," not with absolute, unconditional, ontological certainty. Happy to show there was no smoking gun, Winkler rested his case. But the jury was unconvinced by Winkler's tactics. After a brief recess, they returned a guilty verdict for the $353,000 lost by Mogel's, plus treble damages. for a total judgment of over $1 million. And it seems that Winkler remained unre constructed, since he was subsequently named in another complaint filed by the company he worked for after Mogel's. His high life keeps seeking new lows