The Paving Company Case

According to the company website, Fine Works Pavers, located in Green Valley, California, is a leading landscape and masonry supplier. The company supplies items such as concrete paving stones for patios, walkways, and outdoor landscaping. The company sells bricks, decorative stone, and landscaping supplies. The products are high quality and are meant to be decorative, functional, and eco-friendly.

Mary Stewart Sharp was born in 1970, the youngest of three children. Her father worked as a financial analyst for a construction company, and her mother suffered from mental illness. Her fathers job required frequent moves, and by the time she was a teenager, Sharp lived in four different east coast states and Great Britain. Her teen years were difficult. Her siblings excelled in school, but she did not. Sharp failed in college and later accepted a job as a payroll clerk. In this job, she did well and was promoted to supervisor of accounts receivable and later moved on to a financial management position with a conference management company. She met Stephen Sharp, a widower, in 1998. They married in 1999 and had two children.

Sharp, however, longed for the west coast, and the family moved to California. Sharp found work with Fine Works Pavers while her husband remained unemployed.

A Trusted Employee

Fine Works Pavers hired Sharp as a part-time bookkeeper in December 2005, and the owner was so pleased with her performance that he offered her a full-time position the next year. John Travolta, the owner of Fine Works Pavers, grew up on a farm. He did not attend college but had a knack for business. His construction company had grown tremendously when the economy was booming.

Over the years, he purchased and sold several businesses, and as a result, he controlled approximately a dozen companies, each with their own financials in an enterprise that grossed $25 million a year.

Sharp was a trusted employee and soon was overseeing the finances of four companies. However, Sharp was having difficulty paying the rent and fearing eviction, she stole her first $750 from her employer, and no one noticed. From there, it escalated. She started small, but by 2009 she had taken nearly $460,000. She would come to work dressed as she always had and lived in a modest home. Her only extravagance seemed to be once a year when she and her husband would go all out decorating their home for Christmas.

Sharps husband did not work, staying at home to raise the children. He and Sharp had a passion for Christmas, and in December, their house transformed. He had reindeers, a statute of Santa in the driver's seat of a customized sleigh, and a 20-foot Christmas tree. The display inevitably drew the attention of the local papers and TV stations and then so many drive-bys that Sharp and her husband had to hire a nightly police detail. Sharps co-workers took notice. Some carpooled to check out the scene, among them Olivia Newton, Travolta's sister; and credit manager.

She liked Sharp, but after seeing the overblown Christmas display, she had to ask, "How can you afford all that?" Sharp explained that her husband, Stephen, had built some of the attractions and persuaded people to loan him the rest.

There were other things, however, that did not fit. Newton remembered that Sharp once remarked that she had property in New Hampshire. Newton knew Sharp made just over $40,000 a year, and her husband did not have a job, but Sharp had a ready answer. She said her in-laws had given them a spit of land as a wedding present. Newton could accept that, but she never understood a much smaller matter. "She bought lunch every single day - and not just a sub or something. She'd get takeout from some of the more expensive restaurants.

Meanwhile, Sharp was feeling pressure from elsewhere at work. The general manager of the Blue Stone Design plant often found the inventory and profit and loss reports that Sharp gave him didn't make sense. Blue Stone was in the black, but just not by what he thought it should be. When he would point out errors to Sharp, she would respond dismissively, saying she would look into it, but then never get back to him. The manager took his concerns to Travolta, but the boss was more worried about his companies that weren't making money.

Travolta had his different business operations, each in its own entity, and Sharp handled the books and the cash for several entities. When the auditors arrived, they sought to obtain the bank statements directly from the banks. Travolta thought that was a waste of time. He designated one of his most trustworthy employees as the point person to work with the auditors. "Sharp will give you anything you need," he told them. "She's got it all under control.

Sharp had a passion for horses and purchased several thoroughbreds for her daughter. In 2011 Sharp and her husband began construction on a log cabin on 100 acres in rural picturesque New Hampshire. The cabin had two kitchens with marble floors and four substantial bedrooms, each with its own private bathroom. The basement had a media room and a hand-carved pool table. The garage was large enough to house a growing collection of vehicles, while the upper level had a video arcade. The New Hampshire tax assessor valued the estate at an amount in excess of $1 million.

When construction was complete, the Sharps held a party with an extravagant menu, including fresh lobster. There were endless refreshments and a full band. When the neighbours inquired about the apparent wealth of their new neighbours, Sharp said she was the CEO of several profitable companies.

Later that year, the Sharps decided they needed yet another home, as the ride to New Hampshire was over 200 miles from their home, so they purchased a four-bedroom home with an in-house movie theatre, just 20 minutes away, for $500,000.

Still, no one at Fine Works Pavers realized that anything was wrong. Initially, when Sharp began, she would write checks out of one of the company accounts and deposit them into her personal account. Later, she would write checks. from one company to another company and then to herself. By the end of 2012, she had embezzled $1 million in a matter of two months.

Meanwhile, at Fine Works Pavers, Travolta was consolidating, and Sharp would be moved from the corporate office, beginning in 2013, to the Blue Stone Design Plant. She would no longer be handling the books for several companies as several companies had been sold. She would focus all her attention on Blue Stone Design. However, the manager there did not trust Sharp and therefore hired a bookkeeper in mid-2013.

The new bookkeeper found some of Sharps accounting practices difficult to follow. When invoices did not reconcile to inventory, Sharp instructed her to simply override them to make them agree; rather than researching the discrepancy. In subsequent weeks, the bookkeeper noticed checks being written on Wednesdays when it was usually done only on Fridays. Once when she asked Sharp why the last page of a bank statement was missing, Sharp told her that the credit manager had a habit of throwing those out.

When the bookkeeper arrived, Sharp decreased the number of checks she was writing to herself but soon she began again. She needed the money. Sharp had hired a staff of professionals to arrange a spectacular June wedding reception for her brother and his fianc at her New Hampshire retreat. A horticulturist was brought in to build an elaborate English garden for the day, a sound-and-lighting specialist was flown in from New York, and an event planner was charged with arranging paid hotel rooms for 200 guests, limos, catering, and live entertainment.

Sharp had signed contracts promising a 20-minute performance by a 30-member touring troupe (at a cost of $75,000, plus an estimated $250,000 in expenses) and a one-hour show by singer/composer Beyonc (at a cost of $125,000, plus an estimated $400,000 in expenses.

As Sharp was planning the lavish wedding in New Hampshire, the bookkeeper started asking questions. The bookkeeper spotted questionable records for several checks, totaling over $70,000. The checks were posted to different vendors of Blue Stone Design, but the amounts were large. The bookkeeper called each vendor to see if the invoice number was correct and asked if the check was received. The vendors each replied that there was no such invoice, purchase, or check received. The bookkeeper then contacted the bank, and all the checks had been cashed, but they were paid to several of Travolta's inactive companies.

The Plant manager retrieved the cancelled checks from the bank. The Plant manager then called Travolta from the bank, saying, I'm looking at a check here for $44,000 made out to Mary Stewart." "Bring the check back here", Travolta said. "I'll call the police and call her in." His mind was racing, but he was still hoping this was a one-time thing. Around 4 p.m., Travolta called Sharp into the conference room. There she found the Plant manager and two police officers. After she waived her Miranda rights, Travolta slid a copy of the $44,000 check across the table to her. "Do you know anything about this?"

She didn't blink. "Yes. I've been stealing money."

"How much?"

"About $200,000."

"Two hundred thousand dollars! What have you done with it?"

Court records indicate that over a 6-year period, Mary Stewart Sharp stole approximately $7.7 million from Fine Works Pavers. The stolen money was used for a monumental shopping spree that included a 100-acre ranch in New Hampshire with a heated saltwater swimming pool, a Colonial-style home, 30 acres of land in Virginia, timeshares in Disney World, eight show horses, five all-terrain vehicles. Also purchased was a fleet of 27 motor vehicles. The Sharps lavishly furnished all their homes and hosted elaborate parties. They liberally bought gifts for friends, including vacation travel.

The auditors found the embezzlement to be $7.7 million, while Sharp confessed to $9.7 million. A judge ordered Sharp, and her husband, as an admitted accomplice, to pay Travolta $20 million, including penalties, in addition to the $2 million worth of personal property that she had already turned over to him. Sharp pleaded guilty, and the Court recommended a period of imprisonment of no less than 60 months.

a) Determine the type of fraud committed and describe the symptoms of fraud that might be evident to an investigator