Goodner Brothers, Inc.
“Woody, that’s $2,400 you owe me. Okay? We’re straight on that?”
“Yeah, yeah. I got you.”
“And you’ll pay me back by next Friday?”
“Al, I said I’d pay you back by Friday, didn’t I?”
Borrowing money from a friend can strain even the strongest relationship. When the
borrowed money will soon be plunked down on a blackjack table, the impact on the
friendship can be devastating.
Woody Robinson and Al Hunt were sitting side by side at a blackjack table in Tunica,
Mississippi. The two longtime friends and their wives were spending their summer
vacations together as they had several times. After three days of loitering in the casinos
that line the banks of the Mississippi River 20 miles south of Memphis, Woody found
himself hitting up his friend for loans. By the end of the vacation, Woody owed Al nearly
$5,000. The question facing Woody was how he would repay his friend.
Two Pals Named Woody and Al
Woodrow Wilson Robinson and Albert Leroy Hunt lived and worked in Huntington, West
Virginia, a city of 60,000 tucked in the westernmost corner of the state. The blue-collar
city sits on the south bank of the Ohio River. Ohio is less than one mile away across the
river, while Kentucky can be reached by making a 10-minute drive westward on
Interstate 64. Woody and Al were born six days apart in a small hospital in eastern
Kentucky, were best friends throughout grade school and high school, and roomed
together for four years at college. A few months after they graduated with business
management degrees, each served as the other’s best man at their respective weddings.
Following graduation, Al went to work for Curcio’s Auto Supply on the western out-skirts
of Huntington, a business owned by his future father-in-law. Curcio’s sold lawn-mowers,
bicycles, and automotive parts and supplies, including tires and batteries, the business’s
two largest revenue producers. Curcio’s also installed the automotive parts it sold,
provided oil and lube service, and performed small engine repairs.
Within weeks of going to work for Curcio’s, Al helped Woody land a job with a large tire
wholesaler that was Curcio’s largest supplier. Goodner Brothers, Inc., sold tires of all
types and sizes from 14 locations scattered from southern New York to northwestern
South Carolina and from central Ohio to the Delaware shore. Goodner concentrated its
operations in midsized cities such as Huntington, West Virginia; Lynchburg, Virginia;
Harrisburg, Pennsylvania; and Youngstown, Ohio, home to the company’s headquarters.
Founded in 1979 by two brothers, T. J. and Ross Goodner, nearly three decades later
Goodner Brothers’ annual sales approached $40 million. The Goodner family dominated
the company’s operations. T. J. served as the company’s chairman of the board and chief
executive officer (CEO), while Ross was the chief operating officer (COO). Four secondgeneration Goodners also held key positions in the company.
Goodner purchased tires from several large manufacturers and then sold those tires at
wholesale prices to auto supply stores and other retailers that had auto supply
departments. Goodner’s customers included Sears, Walmart, Kmart, and dozens of
smaller retail chains. The company also purchased discontinued tires from
manufacturers, large retailers, and other wholesalers and then resold those tires at cutrate prices to school districts, municipalities, and to companies with small fleets of
Goodner Brothers hired Woody to work as a sales rep for its Huntington location. Woody
sold tires to more than 80 customers in his sales region that stretched from the west side
of Huntington into eastern Kentucky and north into Ohio. Woody, who worked strictly on
a commission basis, was an effective and successful salesman. Unfortunately, a bad habit
that he acquired during his college days gradually developed into a severe problem. A
gambling compulsion threatened to wreck the young salesman’s career and personal life.
Woody bet on any and all types of sporting events, including baseball and football games,
horse races, and boxing matches. He also spent hundreds of dollars each month buying
lottery tickets and lost increasingly large sums on frequent gambling excursions with his
friend Al. By the summer of 2006 when Woody, Al, and their wives visited Tunica,
Mississippi, Woody’s financial condition was desperate. He owed more than $50,000 to
the various bookies with whom he placed bets, was falling behind on his mortgage
payments, and had “maxed out” several credit cards. Worst of all, two bookies to whom
Woody owed several thousand dollars were demanding payment and had begun making
menacing remarks that alluded to his wife, Rachelle.
Woody Finds a Solution
Upon returning to Huntington in early July 2006, Woody struck upon an idea to bail him
out of his financial problems: he decided to begin stealing from his employer, Goodner
Brothers. Other than a few traffic tickets, Woody had never been in trouble with law
enforcement authorities. Yet, in Woody’s mind, he had no other reasonable alternatives.
At this point, resorting to stealing seemed the lesser of two evils.
One reason Woody decided to steal from his employer was the ease with which it could
be done. After several years with Goodner, Woody was very familiar with the company’s
sloppy accounting practices and lax control over its inventory and other assets.
Goodner’s executives preached one dominant theme to their sales staff: “Volume, volume,
volume.” Goodner achieved its ambitious sales goals by undercutting competitors’ prices.
The company’s dominant market share in the geographical region it served came at a
high price. Goodner’s gross profit margin averaged 17.4 percent, considerably below the
mean gross profit margin of 24.1 percent for comparable tire wholesalers. To
compensate for its low gross profit margin, Goodner scrimped on operating expenses,
including expenditures on internal control measures.
The company staffed its 14 sales outlets with skeletal crews of 10 to 12 employees. A
sales manager supervised the other employees at each outlet and also worked a sales
district. The remaining staff typically included two sales reps, a receptionist who doubled
as a secretary, a bookkeeper, and five to seven employees who delivered tires and
worked in the unit’s inventory warehouse. Goodner’s Huntington location had two
storage areas: a small warehouse adjacent to the sales office and a larger storage area
two miles away that had previously housed a discount grocery store. Other than
padlocks, Goodner provided little security for its tire inventory, which typically ranged
from $300,000 to $700,000 for each sales outlet.
Instead of an extensive system of internal controls, T. J. and Ross Goodner relied heavily
on the honesty and integrity of the employees they hired. Central to the company’s
employment policy was never to hire someone unless that individual could provide three
strong references, preferably from reputable individuals with some connection to
Goodner Brothers. Besides following up on employment references, Goodner Brothers
obtained thorough background checks on prospective employees from local detective
For almost three decades, Goodner’s employment strategy had served the company well.
Fewer than 10 of several hundred individuals employed by the company had been
terminated for stealing or other misuse of company assets or facilities.
Each Goodner sales outlet maintained a computerized accounting system. These systems
typically consisted of an “off-the-shelf” general ledger package intended for a small retail
business and a hodgepodge of assorted accounting documents. Besides the Huntington
facility’s bookkeeper, the unit’s sales manager and two sales reps had unrestricted access
to the accounting system.
Because the large volume of sales and purchase transactions often swamped the
bookkeeper, sales reps frequently entered transactions directly into the system. The
sales reps routinely accessed, reviewed, and updated their customers’ accounts. Rather
than completing purchase orders, sales orders, credit memos, and other accounting
documents on a timely basis, the sales reps often jotted the details of a transaction on a
piece of scrap paper. The sales reps eventually passed these “source documents” on to
the bookkeeper or used them to enter transaction data directly into the accounting
Sales reps and the sales manager jointly executed the credit function for each Goodner
sales outlet. Initial sales to new customers required the approval of the sales manager,
while the creditworthiness of existing clients was monitored by the appropriate sales
rep. Sales reps had direct access to the inventory storage areas. During heavy sales
periods, sales reps often loaded and delivered customer orders themselves.
Each sales office took a year-end physical inventory to bring its perpetual inventory
records into agreement with the amount of inventory actually on hand. One concession
that T. J. and Ross Goodner made to the policy of relying on their employees’ honesty was
mandating one intra-year inventory count for each sales office. Management used these
inventories, which were taken by the company’s two-person internal audit staff, to
monitor inventory shrinkage at each sales outlet.
Goodner’s inventory shrinkage significantly exceeded the industry norm. The company
occasionally purchased large shipments of “seconds” from manufacturers; that is, tires
with defects that prevented them from being sold to major retailers. The tires in these
lots with major defects were taken to a tire disposal facility. A sales office’s accounting
records were not adjusted for these “throwaways” until the year-end physical inventory
Selling Tires on the Sly
Within a few days after Woody hatched his plan to pay off his gambling debts, he visited
the remote storage site for the Huntington sales office. Woody rummaged through its
dimly lit and cluttered interior searching for individual lots of tires that apparently had
been collecting dust for several months. After finding several stacks of tires satisfying
that requirement, Woody jotted down their specifications in a small notebook. For each
lot, Woody listed customers who could potentially find some use for the given tires.
Later that same day, Woody made his first “sale.” A local plumbing supply dealer needed
tires for his small fleet of vehicles. Woody convinced the business’s owner that Goodner
was attempting to “move” some old inventory. That inventory would be sold on a cash
basis and at prices significantly below Goodner’s cost. The owner agreed to purchase two
dozen of the tires. After delivering the tires in his large pickup, Woody received a cash
payment of $900 directly from the customer.
Over the next several months, Woody routinely stole inventory and kept the proceeds.
Woody concealed the thefts in various ways. In some cases, he would charge
merchandise that he had sold for his own benefit to the accounts of large volume
customers. Woody preferred this technique since it allowed him to reduce the inventory
balance in the Huntington facility’s accounting records. When customers complained to
him for being charged for merchandise they had not purchased, Woody simply
apologized and corrected their account balances. If the customers paid the improper
charges, they unknowingly helped Woody sustain his fraudulent scheme.
Goodner’s customers frequently returned tires for various reasons. Woody completed
credit memos for sales transactions voided by his customers, but instead of returning the
tires to Goodner’s inventory, he often sold them and kept the proceeds. Goodner
occasionally consigned tires to large retailers for promotional sales events. When the
consignees returned the unsold tires to Goodner, Woody would sell some of the tires to
other customers for cash. Finally, Woody began offering to take throw-aways to the tire
disposal facility in nearby Shoals, West Virginia, a task typically assigned to a sales
outlet’s delivery workers. Not surprisingly, most of the tires that Woody carted off for
disposal were not defective.
The ease with which he could steal tires made Woody increasingly bold. In late 2006,
Woody offered to sell Al Hunt tires he had allegedly purchased from a manufacturer (by
this time, Al owned and operated Curcio’s Tires). Woody told Al that he had discovered
the manufacturer was disposing of its inventory of discontinued tires and decided to buy
them himself. When Al asked whether such “self-dealing” violated Goodner company
policy, Woody replied, “It’s none of their business what I do in my spare time. Why
should I let them know about this great deal that I stumbled upon?”
At first reluctant, Al eventually agreed to purchase several dozen tires from Woody. No
doubt, the cut-rate prices at which Woody was selling the tires made the decision much
easier. At those prices, Al realized he would earn a sizable profit on the tires.
Over the next 12 months, Woody continued to sell “closeout” tires to his friend. After one
such purchase, Al called the manufacturer from whom Woody had reportedly purchased
the tires. Al had become suspicious of the frequency of the closeout sales and the bargain
basement prices at which Woody supposedly purchased the tires. When he called the
manufacturer, a sales rep told Al that his company had only one closeout sale each year.
The sales rep also informed Al that his company sold closeout merchandise directly to
wholesalers, never to individuals or retail establishments.
The next time Al spoke to Woody, he mentioned matter-of-factly that he had contacted
Woody’s primary supplier of closeout tires. Al then told his friend that a sales rep for the
company indicated that such merchandise was only sold to wholesalers.
“So, what’s the point, Al?”
“Well, I just found it kind of strange that, uh, that …”
“C’mon, get to the point, Al.”
“Well, Woody, I was just wondering where you’re getting these tires that you’re selling.”
“Do you want to know, Al? Do you really want to know, Buddy? I’ll tell you if you want to
know,” Woody replied angrily.
After a lengthy pause, Al shrugged his shoulders and told his friend to “just forget it.”
Despite his growing uneasiness regarding the source of the cheap tires, Al continued to
buy them and never again asked Woody where he was obtaining them.
Internal Auditors Discover Inventory Shortage
On December 31, 2006, the employees of Goodner’s Huntington location met to take a
physical inventory. The employees treated the annual event as a prelude to their New
Year’s Eve party. Counting typically began around noon and was finished within three
hours. The employees worked in teams of three. Two members of each team climbed and
crawled over the large stacks of tires and shouted out their counts to the third member
who recorded them on preformatted count sheets.
Woody arranged to work with two delivery workers who were relatively unfamiliar with
Goodner’s inventory since they had been hired only a few weeks earlier. He made sure
that his team was one of the two count teams assigned to the remote storage facility.
Most of the inventory he had stolen over the previous six months had been taken from
that site. Woody estimated that he had stolen approximately $45,000 of inventory from
the remote storage facility, which represented about 10 percent of the site’s book
inventory. By maintaining the count sheets for his team, Woody could easily inflate the
quantities for the tire lots that he and his team members counted.
After the counting was completed at the remote storage facility, Woody offered to take
the count sheets for both teams to the sales office where the total inventory would be
compiled. On the way to the sales office, he stopped in a vacant parking lot to review the
count sheets. Woody quickly determined that the apparent shortage remaining at the
remote site was approximately $20,000. He reduced that shortage to less than $10,000
by altering the count sheets prepared by the other count team.
When the year-end inventory was tallied for Goodner’s Huntington location, the
difference between the physical inventory and the book inventory was $12,000, or 2.1
percent. That percentage exceeded the historical shrinkage rate of approximately 1.6
percent for Goodner’s sales offices. But Felix Garcia, the sales manager for the Huntington
sales office, did not believe that the 2006 shrinkage was excessive. As it turned out,
neither did the accounting personnel and internal auditors at Goodner’s corporate
Woody continued “ripping off” Goodner throughout 2007. By midyear, Woody was
selling most of the tires he stole to Al Hunt. On one occasion, Woody warned Al not to sell
the tires too cheaply. Woody had become concerned that Curcio’s modest prices and its
increasing sales volume might spark the curiosity and envy of other Huntington tire
In late October 2007, Goodner’s internal audit team arrived to count the Huntington
location’s inventory. Although company policy dictated that the internal auditors count
the inventory of each Goodner sales outlet annually, the average interval between the
internal audit inventory counts typically ranged from 15 to 20 months. The internal
auditors had last counted the Huntington location’s inventory in May 2006, two months
before Woody Robinson began stealing tires. Woody was unaware that the internal
auditors periodically counted the entire inventory of each Goodner operating unit.
Instead, he understood that the internal auditors only did a few test counts during their
infrequent visits to the Huntington sales office.
After completing their inventory counts, the two internal auditors arrived at an inventory
value of $498,000. A quick check of the accounting records revealed a book inventory of
$639,000. The auditors had never encountered such a large difference between the
physical and book inventory totals. Unsure what to do at this point, the auditors
eventually decided to take the matter directly to Felix Garcia, the Huntington sales
The size of the inventory shortage shocked Garcia. He insisted that the auditors must
have overlooked some inventory. Garcia, the two internal auditors, and three delivery
workers spent the following day recounting the entire inventory. The resulting physical
inventory value was $496,000, $2,000 less than the original value arrived at by the
Following the second physical inventory, the two internal auditors and Garcia met at a
local restaurant to review the Huntington unit’s inventory records. No glaring trends
were evident in those records to either Garcia or the auditors. Garcia admitted to the
auditors that the long hours required “just to keep the tires coming and going” left him
little time to monitor his unit’s accounting records. When pressed by the auditors to
provide possible explanations for the inventory shortage, Garcia erupted. “Listen. Like I
just said, my job is simple. My job is selling tires. I sell as many tires as I can, as quickly as
I can. I let you guys and those other suits up in Youngstown track the numbers.”
The following day, the senior internal auditor called his immediate superior, Goodner’s
chief financial officer (CFO). The size of the inventory shortage alarmed the CFO.
Immediately, the CFO suspected that the inventory shortage was linked to the
Huntington unit’s downward trend in monthly profits over the past two years.
Through 2005, the Huntington sales office had consistently ranked as Goodner’s second
or third most profitable sales outlet. Over the past 18 months, the unit’s slumping profits
had caused it to fall to the bottom one-third ...
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