If You Need Love, Get a Puppy: A Case Study on Professional Skepticism and Auditor

Independence
Braun, Robert L;Stallworth, H Lynn
Issues in Accounting Education; May 2009; 24, 2; ProQuest

pg.237

ISSUES IN ACCOUNTING EDUCATION

Vol. 24, No. 2

May 2009

pp. 237-252

If You Need Love, Get a Puppy:

A Case Study on Professional
Skepticism and Auditor
Independence
Robert L. Braun and H. Lynn Stallworth
THE CASE
ife is good, thought Will Stallard as he got into his truck that October morning. He
could have been thinking of any one of a number of things-his wife of seven years,
his beautiful baby girl, or his job as a staff auditor at Dykstra, Banister, and Huston
(DB&H), a CPA firm with offices in Montgomery and Mobile, Alabama. Or, maybe it was
the slight chill in the air and the opening of bow-hunting season in nine days. Whatever it
was, his feeling of satisfaction inspired him to reflect on the path that got him to this point
this morning.
As a nontraditional student at a local university, he struggled to balance competing
demands on his time. He maintained his business as a plumber while carrying nine hours
of classes per semester. He could have made a fine living as a plumber, as his father did
before him. But, as he half-joked to his auditing professor, "I want a job where I take a
shower before I go to work." It had taken seven long years, a lot of patience from his wife,
and his dad coming to the rescue on more than a couple of his plumbing jobs, but he had
reached his goal. It had taken several unsuccessful attempts, but he had finally passed the
CPA exam. After spending a year with a large regional firm, he had switched jobs four
months ago to decrease his travel and overtime as the baby's due date approached. He
seemed to be on his way. Life was good, or was it just the lack of sleep dulling his senses?
This morning, his commute would be a short one. He was auditing the Town of Rosedale, a bedroom community northeast of the city and just five miles from the town where

Robert L. Braun is an Associate Professor at Southeastern Louisiana University, and

H. Lynn Stallworth is an Associate Professor at Appalachian State University.
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he had lived since he was four. This was his first engagement on his own at DB&H. Of
course, his work would be reviewed, but he was going to be the only one at the offices of
the Town of Rosedale. DB&H had been doing the audit for the last four years and had
never had any problems. Of course, controls could be tighter; they made recommendations
for the improvement of handling cash receipts and disbursements every year, most of which
were disregarded. But the relationship with the mayor and the financial staff was good, and
Vince Huston, the partner that he had worked with on his first three engagements, thought
that Will was ready. When Will told him that Jessica Randle, the assistant Clerk of Court
for the Town of Rosedale, was the wife of his best friend, Vince said that it didn't violate
any independence rules and that his biggest concerns were related to time management
rather than objectivity. Vince said, "The key on this job is to realize that they are a small
municipality and they are not going to be perfect. It's easy to get too hung up on this
notion of precision and perfection that you might have gotten from the textbooks. The
world doesn't work that way. I am glad that you know Jessica. It is important for you as
a first-time in-charge to have a client contact that can help you avoid blowing the budget.
Her presence could go a long way toward helping you feel more comfortable."
Three days into the job, he was not sure he would go all the way to comfortable in
describing the job so far. Yes, it was nice that Jessica was a point of contact within the
organization, but she seemed somehow different at work. Then, there was the challenge of
running his first engagement. He couldn't begin to count the number of times he wanted
to pick up the phone and call Vince. He had already called him twice in the first four days
of the audit. Vince had been more than willing to help, and his advice helped to steer him
in the right direction. Still, he felt as if he shouldn't need the help.
He missed the certainty that he had as a plumber. Although plumbing challenged his
mind as well as his body, at the end of the day if the pipes fit and he wasn't getting wet,
he knew he had done his job. Auditing, he was finding out, wasn't quite so cut-and-dried.
His moment of reflection was interrupted by his ringing cell phone. It was Nacho, his
best friend. Nacho earned his nickname from the golf ball-sized drop of cheese on the front
of his shirt during his first date with Jessica at the Alabama State Fair. Somehow, Jess was
able to see past the cheese-stained shirt to marry him, but his friends were not so generous.
Their relentless jokes produced the nickname that stuck with him much longer than the
stain or even the shirt itself.
"Are we on for next weekend?" asked Nacho.
"We're good to go," Will replied. So far, the phone call was completely unnecessary.
The two had opened deer hunting season every year since they both got bows for high
school graduation. Hunting weekends had become more difficult to arrange in recent years.
With the new baby, Will wasn't sure how many times he would get to go this year, but
opening day with Nacho was off limits to any other activity. Although he had the good
sense not to bring it up when he and his wife were planning to have a baby, he wasn't at
all disappointed when the due date fell safely five months before October would roll around.
He was pretty sure his wife knew it, too.
By the time they concluded their conversation, Will was at the town offices and ready
to get to work. As his laptop booted up he strolled over to Jess's desk to say hello and to
relay a message from Nacho. While Jess was always impulsive and free-spirited when they
got together, she was all business at work. He doubted that her coworkers would believe
that she was the one who would plan outings and get-togethers on impulse. "Just leave the
details to Jess," was the comment that he and his wife would make. They were seldom
disappointed.

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He could see some of those characteristics in "Work Jess," just without the fun. She
took on more than her share of the load and was the one that others would look for when
the job had to get done. As he was leaving her desk, Will mentioned, "I will see you later
this morning. I am testing revenue; it's pretty routine stuff. I will try not to get in your
way too much." Although her reply was polite enough, Will got the feeling she wouldn't
mind if he didn't get in her way at all.
By midmorning Will was ready to tackle the following audit program step, "Select, at
random, a sample of 20 traffic tickets marked as paid per the receipt book for misdemeanor
traffic violations. Trace to sheriff's computerized records as being paid, to bank deposit
slips, and to bank statements." The ticket receipt book had columns for the ticket number,
amount, date, reason for the ticket, and a column to mark when it was paid. The audit
procedure was routine. Now that he was gaining some experience on the job, Will was
starting to notice certain patterns. For 90 percent of the documents he vouched or traced,
he found no problems. For the remaining 10 percent, a document or a signature might be
missing. Those 10 percent had a way of blowing the time budget. The document always
turned up. The explanation was usually that the person normally responsible was sick that
day or on vacation, so something was filed incorrectly. Or, if there were a misstatement, it
would have been unintentional and immaterial. The gloom and doom prophecies of his
auditing professor were turning out to be more of a hindrance in his career than a help.
The echoes of the word skepticism that he heard all the time in audit class were gradually
giving way to the words time management.
So far, the work on ticket revenues was falling into the same pattern. Of the 20 selected,
18 were paid by check, credit card, or money order, and two were paid with cash. All of
the noncash transactions and one of the cash transactions were accounted for exactly as
they should have been. One of the two cash payments did not appear to have made it into
that day's bank deposit, however. Here we go again, thought Will as he prepared to look
for possible explanations as to why that one cash receipt was not deposited that day. His
first step was to check the deposits later in the week-not there. He could see the hands
of the clock in his mind start to spin in fast-forward. He double-checked the ticket to be
sure that it was shown as received in the receipt book and sheriff's computer records. It
was. Rather than spend a lot more time trying to figure this one out, he decided to take
it to Jess.
"I have a ticket marked as paid in cash in the receipt book, but it does not show up
on the bank deposit. It is showing as paid on the sheriff's computer and the daily receipts
voucher. Do you have any idea why or how that could have happened?"
Jess seemed unsurprised by the query. "Sure, there could be several explanations. The
most likely is that it got included with the other cash around here. Can you tell me the
ticket number? I can look for it when I get through with this report today or first thing
in the morning." Her casual tone was reassuring and Will thought nothing more of it as he
finished up.
When Will got in the next morning he had a note from Jess waiting for him. "I found
it. See me when you get a chance."
As Will approached, Jess had a bank deposit in her hand. "It was just as I thought.
The deposit had fallen in between two cabinets in the vault. We must have wrapped up late
that evening and decided to include it with the next day's deposit. So, we locked it up. The
problem was that it fell and we never missed it. The money is all here, though."
That makes sense, he thought, given that they don't have many tickets paid in cash and
that Jess was always working late. At the end of the day, Jess or the other assistant clerk

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would check the receipt book, prepare a voucher to send to the sheriff's office to update
its computer for all tickets paid that day, prepare the deposit slip for any cash and checks,
and make the deposit. Will noticed the perfectly penned letters in blue ink on the deposit
slip, the unmistakable handwriting of his good friend. He counted the money. All $320 was
present and accounted for in crisp, new bills. He turned to Jess, "Great! I knew that there
would be a reasonable explanation. This should help to keep us from getting bogged down
on this small item. Do you mind if I take this to my desk? I just need a couple of minutes
to cross-check a few document numbers."
As Will returned to his desk, he wondered why he didn't feel any better. The money
was all there. The explanation was certainly reasonable. It's just a lousy $320, anyway.
Materiality on the job is $5,000. This is nothing to get hung up on. He checked the receipt
book and the daily receipts voucher to make sure that everything agreed. It was all right
there in black and white. The date, November 16, 2005, and amount, $320, matched
perfectly well, almost perfectly. Why was the entry in the receipt book in black ink and
the envelope in blue ink? They should have been completed at the same time, he mused.
Come on, Will, you are getting hung up on details again, he thought as he began to
count the money again. These bills sure are sticky; this guy must have come straight from
the bank to pay this ticket. He looked closer at one of the $100 bills. Wow, this is new
money-brand new. The bills had "SERIES 2006" printed to the bottom right of the picture.
Wait a minute, he thought, how can a cash receipt dated November 16, 2005, have been
paid on that date with money printed in 2006? Will pulled on his tie. The evidence was
stacking up in favor of an explanation that was making him very uncomfortable. He quickly
logged the serial numbers of the bills and tried to compose himself so that he might be
able to face Jess as he returned the envelope. "Thanks, Jess. You should count this to make
sure that it is all there," he said, forcing a smile.
Jess counted the cash. "You are all business at work, aren't you?"
"I wouldn't want you to give me any special treatment because of our relationship."
Will replied. Then he lowered and softened his voice. "Is there anything else I need to
know?" He made sure to look at her directly as he paused for what seemed like an eternity.
This time, the unflappable Jess seemed to be at a loss for words. The silence was broken
by several rapid clicks of her pen. Then Jess brushed an invisible eyelash off of her cheek
as she glanced at the calendar over Will's right shoulder and quickly composed herself. "I
can't think of anything. Let me know if you need anything at all."
As he reached his desk, his cell phone began to ring. It was his wife. "The day care
just called and said that the baby is running a fever. I have my first meeting with a client
since coming back from maternity leave. Can you pick her up? Oh, and if the baby is sick
we need to cancel dinner tonight with Nacho and Jess. Can you tell her?"
Will groaned. He looked at his watch. It was just 8:45. "I guess I can take an early
lunch to get her now. I'll call my parents to see if they can watch her today. If they can't,
I don't know what we'll do. Two more things-good luck with your meeting and you might
want to give me some space for a few days. I am likely to be pretty uptight. It has been a
really bad morning."
Once he was in his truck, Will called Vince to fill him in on the morning's events. He
explained the evidence that he had obtained with respect to tickets paid in cash. Vince
instructed him to work on a different audit area until he could get back and assess the
situation with him. Vince did not seem to be at all pleased with the news he had just
received.
When Vince arrived, he and Will pulled eight more tickets that were marked as having
been paid with cash. Of these, five showed the same pattern. They were marked as paid in
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the receipt book but were not included with the day's deposit. Nor were they included with
any of the deposits made later in the week. Vince asked Will if he could think of any
explanation that could help them arrive at a different conclusion than the one that was
staring them in the face. Neither one of them could. They went back to the office to discuss
how they were to proceed.
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McKnight, C., T. Manly, and P. Carr. 2008. Maxwell and Company: Staff auditor embezzlement at a
small client. Issues in Accounting Education 23 (2): 29-297.
Peterson, B., and T. Buckhoff. 2004. Interstate Business College: A case study in fraud examination.
Issues in Accounting Education 19 (4): 505-527.