Switch Watches & Clock Fraud Case Sheldon Cooper was a strange character, perhaps more comfortable in a university setting than a boardroom meeting. Starting out as an 18-year-old high school graduate, he worked his way up from the assembly floor of Switch Industries, a manufacturer of watches and clocks. Sheldon's job was to ensure that the company's name and the product registration number were affixed to the bottom of each assembled timepiece. He took great pride in his role at Switch but yearned for the day when he could assume a management position. Sheldon realized that if he wanted to be successful, he would need a college education, so he enrolled in a local university. After Sheldon received his bachelor's degree in accounting, he informed Switch administration and asked to be considered for the management training program. Shortly thereafter, a position opened in the Purchasing Department for an accounts payable clerk. Sheldon jumped at the opportunity, and his ascension began. Rising through the ranks, he took on roles with increasing responsibility. Sheldon worked in nearly all areas of the Accounting Department, including payroll, receivables, cash management, and financial reporting. He also had a leadership role in the development and implementation of the new computer systems for inventory management and accounting. By the time Sheldon was promoted to chief executive officer (CEO), his tenure with the company exceeded 25 years. He knew virtually every detail about Switch Industries. But his meteoric rise left him with few allies. When Sheldon walked into a room, conversation ceased. Employees scattered to avoid confrontations with him, mainly because he believed in management by intimidation. He frequently made unreasonable demands and set unattainable goals. Sheldon's entire existence and self-worth hinged on the successes and failures at Switch. He never married and routinely worked 15-hour days. The employees joked that he secretly lived at the corporate office. No matter how early they arrived or how late they left, Sheldon Cooper was there. In the few hours he was not at work, he managed to cultivate expensive hobbies and tastes. It was also important to him to demonstrate his success with flashy vehicles, homes, and artwork. He lived in the most exclusive neighbourhood in Toronto and drove a candy-apple-red Ferrari. In fact, Sheldon frequently sped off to Caesars Casino to gamble with customers. He was known as a high roller. Switch began in 1922 in a Toronto basement workshop of a Swiss immigrant, Howard Wolowitz. Howard worked full time during the day as a butcher but came home each night to tinker with his collection of clocks. Word spread regarding Howard's fascination with clocks and his skill in their repair. Eventually he had so many people requesting his services that he decided to quit his job and open Switch Watches & Clock. The choice of name was similar to a famous watch brand in Switzerland. But in the 1950s, he and his son, Stuart, decided to expand the company. They became Switch Watches & Clock Industries. To keep up with the ever-increasing demand, they built a state-of-the-art facility to assemble and package their timepieces. After Howard retired, Stuart, an energetic 28-year-old, took over the helm. Stuart was less of a craftsman than his father but had a keen sense for business. He decided to bolster the company's employee time clock business. This strategy paid off with the burgeoning industrial economy and increased focus on mechanization. Sales at Switch Industries grew to record levels. After being in the business for years, Stuart took note of an ambitious employee named Sheldon Cooper who had distinguished himself in the factory and was working toward becoming a manager. Stuart developed a mentoring relationship with Sheldon, knowing that someday, he would be the leader of Switch Industries. Switch experienced many highly profitable years, and Stuart became very wealthy and decided to retire. Sheldon received a 20% interest in Switch when the company went public and became the new CEO. Stuart appointed several of his close friends and business associates to the board of directors, regardless of their business acumen and leadership skills. A seat on the board, as Stuart saw it, was his method of repayment for their support and loyalty throughout the years. By the time Sheldon took over, technology had gradually outpaced the products Switch offered. For a while, the company did not realize this because the demand for replacement parts and clocks was still heavy. Sheldon felt it was important to portray a prosperous image, exemplified by the newest addition: a swanky corporate office adjacent to the factory. Before long, the company experienced a decline in both sales and margins. When Switch hired a new chief financial officer (CFO), Leonard Hofstadter his first directive was to handle the financial statement audit for the current year. Leonard believed this task would be a piece of cake given his 20 years of experience with an international accounting and auditing firm. There he was the engagement partner on two prominent accounts in the timepiece industry. Over the course of Leonard's first few weeks at Switch, he met with supervisors in all areas of the company to obtain an understanding of the operations. During this time, he began the formal process of documenting the system of internal control. He created flowcharts of the key processes, such as accounts receivable/cash receipts, accounts payable/cash disbursements, inventory management and control, and purchasing and payroll. Leonard was astounded by the lack of documentation and cross-functional knowledge of the employees. He was even more alarmed when rumours of financial shenanigans surfaced in nearly all of his interviews with the managers. But everyone feared the wrath of Cooper. Leonard took the rumours very seriously. Utilizing the scant details, he began an investigation unbeknownst to Sheldon. He discovered many irregularities that required further analysis. To complicate matters, the year-end audit was scheduled to begin the very next Monday. Leonard did not want the auditors to be aware of the potential restatement of previously issued financials unless he established concrete evidence of fraudulent activity. He and the corporate legal counsel, Will Wheaton, scheduled a special telephone conference meeting of the board of directors to inform them of the allegations. It was clear to Leonard and Will that the board was out of touch with Switch-they appeared to be merely puppets for Sheldon Cooper. Sheldon tried to downplay the comments from the various managers and said that he did not think an internal investigation was merited. Leonard and Will convinced the majority of the board members to authorize the retention of forensic accountants. Leonard called the accountants recommended by Will, the firm of Fowler, Ranch, Gilbert, & Associates. Leonard provided Amy Fowler, with a detailed description of what he had discovered. Fowler told Leonard she would put an investigative team together and scheduled a meeting at Switch for the next morning. The team consisted of four professionals: two junior staff accountants, who would be relied on for data entry and obtaining source documents; an accountant to supervise the staff and investigate the more complex questionable financial transactions; and Bernadette, the senior manager,