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THERE BE THIEVES IN TEXAS!

Gatesville, Texas is a small community in central Texas, located in Coryell County,


approximately 40 miles west of Waco. Gatesville is the largest municipality in Coryell County
and functions as county seat. It is typical of most Texas communities of its size. It still has a
reasonably thriving downtown area, a town square, one high school, and a strong sense of
friendliness within the community. Like many Texas towns, football is king and most of the
social activities center around the high school and local churches. In fact, very few things occur
in Gatesville that everyone in the community does not know about. It seems as if everyone who
lives in Gatesville knows everyone else who live in Gatesville. The largest employer in the
Gatesville area is a branch facility of the Texas Department of Corrections (state prison system)
for housing convicted adult felons. Therefore, people in Gatesville are not inexperienced in
dealing with criminals. Yet, the community was stunned in the fall of 1993 when a long-time
employee of the Coryell County Tax Assessor-Collector's office was arrested by the county
sheriff and charged with the embezzlement of tax receipts. Then, just as the news of the arrest
was beginning to sink in to residents, they were shocked by what happened a week later. The
accused employee committed suicide.

FACTS OF THE CASE


The Set-up
Joan Wilson had worked in THE Coryell County Tax Assessor-Collector's (TAC) office
for more than twenty years. During that time, she had performed a number of accounting
functions for the Coryell County TAC office. In addition, she had worked closely with Joan
Blanchard, who eventually was elected to be the county's TAC Director. As a result of the years
that Blanchard and Wilson had worked together and known each other, Blanchard gained
complete trust and confidence in Wilson and demonstrated this trust and confidence by
appointing Wilson to the Chief Deputy position shortly after Blanchard took elected office. In
fact, they became indirectly related in that Blanchard's son married Wilson's daughter.
Blanchard's trust and confidence in Wilson was so strong that she believed that Wilson would
carry out her duties on an ethical, honest and professional basis.
As a result of this trust and confidence, Wilson was allowed by Blanchard to carry out
her function as Chief Deputy with only a minimum of oversight. After all, if Blanchard could not
trust Wilson in her doing her job, who could she trust? Blanchard would review reports as they
were prepared by Wilson, but she rarely, if ever, reconciled any of the accounting data in the
reports to supporting detail documentation. Being a relatively small tax assessor-collector's
office, budget constraints and turnover would occur which would necessitate changes in job
duties. Any time such changes occurred, Wilson was always willing, if not anxious, to take on
the added responsibilities. Again, because of the trust Blanchard had in Wilson, she would
usually allow Wilson to take on the added duties and responsibilities, Wilson appeared to be a
willing, dedicated, hard-working employee who was not afraid to do whatever was necessary to
see that the job got done!
It was during one of these changes in job duties that Wilson was provided with
opportunity to begin her embezzlement scheme. Sometime during 1987, a data entry clerk retired
from the TAC's office. She had been responsible for the information from one of the tax receipt

forms that usually showed the amount of sales taxes collected from purchasers (Texas is one of
the states that depends heavily on its sales tax revenues as a primary source of tax revenues). The
clerk would enter the information from the tax form to the sales tax computer data base. Prior to
her retirement, the data entry clerk often had been absent due to her husband's serious illness. As
a result of these frequent absences and the importance of the sales tax information to the state,
the data entry clerk taught Wilson how to input the tax receipt information. Therefore, when the
clerk retired, Wilson told Blanchard that she could take over the responsibilities without
impairing her current workload and thereby save the time and money that hiring and training a
new clerk would incur. Naturally, given the relationship between Wilson and Blanchard, it was
not surprising that Blanchard quickly agreed to Wilson's suggestion.
In taking over the duty of entering the sales tax information into the computer, Wilson
now had sole responsibility for reconciling the total daily receipts (including cash), preparing the
daily cash sheet, preparing the daily bank deposit, and reconciling the tax receipts to the
computer summary report (which was also prepared by her).
Shortly thereafter, Wilson took over the motor vehicle sales tax reconciliation function.
When she received the Form 31 tax receipts--again, the side which showed the amount collected
from the motor vehicle purchaser. she began throwing away all of these tax receipts.
Subsequently, Blanchard discovered that Wilson was throwing these forms away and questioned
as to why. Wilson responded that she had been told by state Comptroller's office that the forms
were not necessary if the county involved had a computer data base. To her credit, Blanchard
told Wilson she was wrong and did indeed need these tax receipts forms. Therefore, Wilson
began filing them again in May, 1993.
Other unusual things began to happen in Wilson's performance of her tasks. Wilson
appeared to be very jealous and overly protective of the various tasks she performed. For
example, none of the other employees were ever allowed to input information from the motor
vehicle sales tax receipts forms (Form 31) into the motor vehicle sales tax computer data base.
Also, none of the other employees were allowed free access to the tax side of the Form 31
receipts. Whenever an employee needed to see one of these forms, Wilson would find the
receipt, pull it out of the file, and then hand it to the employee. When the employee was finished
with the document, it was returned to Wilson who then refiled the form. In addition, after the
3:00 PM reconciliation was completed and cash receipts had been placed into the bank deposit
bag, no one except Wilson was allowed to make change for any taxpayers who had presented
large bills.
Wilson would routinely get to the office very early in the mornings, usually before any of
the other employees had arrived. She also came into the office on Saturdays to enter the Form 31
information into the sales tax data base. One employee remarked that if another employee came
in early, Wilson would become very nervous and agitated and would not enter the tax
information into the computer whenever the employee was nearby.
Wilson, as chief deputy for the offices was responsible for the handling of employee time
sheets. She took this duty very seriously as employees would write onto the time sheet the hours
that they had worked. If Wilson believed the employee had improperly recorded hours worked,
she would change the time sheet to the hours she felt should have been recorded. Naturally, these
changes to other employee time sheets caused numerous arguments between Wilson and the
affected employees. Eventually, these disgruntled employees wondered if Wilson was as strict
with her own time sheet. It was common knowledge in the office that Wilson would take
numerous days off as well as taking off every Thursday afternoon and all day Friday. When

these employees managed to obtain copies of Wilson's time sheet from her desk one day when
she was gone, they noted she never docked herself for the time she was away from her job.
Employees also noted that Wilson would routinely steal; "little things" by using the postage
meter for her personal mail, using the business phone to make personal long distance calls, etc.
In addition to the changes in Wilson's behavior in the performance of her duties,
employees began noting other changes m her personal life and behavior. For example, she
always seemed to have large amounts of cash in her purse. Whenever co-workers went shopping
with her, she always paid cash. Another time when the office personnel had to attend a seminar
in Waco, Wilson pulled several twenties out of her purse and said she was going to "let the
county pay for our meals" yet she never filed a voucher requesting reimbursement for the meal.
Wilson and her husband, who was a local chiropractor, took a lot of trips to different locations
during the year and during the summer, they would go to their beach-house nearly every
weekend.
Suspicions Aroused
In September, 1993, Wilson's husband Charles became very ill which necessitated her
being off work for a week so she could be at home with him. During this time, Wilson's work
was performed by other employees within her department. Nothing unusual was noted with the
cash sheets, deposits, or reconciliations. However, on Monday of the following week, employees
began realizing something had occurred during the weekend. Upon arriving at work, employees
noted the computer had a strange message on it like it had been turned on during the weekend
and not turned off properly. Since Wilson was the only one who would come into the office on
Saturdays to enter the tax receipt information into the computer, they realized that Wilson had
been in the office on Saturday. Then, the clerk who had prepared the cash sheet on Friday
noticed that changes had been made on the cash sheet. It seems the clerk's original numbers had
been "whited-out" and changed to reflect lower balances. Although the clerk was curious about
the changes, she had seen similar changes before on previous cash sheets that she had prepared.
Normally, when she questioned Wilson about the changes (since it had been preached to her the
cash sheet had to be 100% correct, with no changes showing), Wilson told the clerk that the clerk
had made a mistake which was changed by Wilson and she should not worry about it. However,
this time she was certain she had not made a mistake on Friday since her cash sheet and the cash
receipts counted by another clerk had balanced. She was also disturbed by the fact that whoever
had made the changes was trying very hard to make it appear that the handwriting in the changes
looked just like the handwriting on the unchanged numbers. The clerk decided to ask Blanchard,
the director, why the change was made. Blanchard indicated she had no idea why a change had
been made over the weekend. Wilson was subsequently approached as to why the change was
made? and as before, simply commented that a mistake had been made and she had changed the
numbers. The second clerk informed Blanchard that everything had balanced on Friday and still
balanced on Monday, except the numbers were different, showing the office had taken in less
cash than had been shown on Friday. Blanchard became suspicious. She began checking tax
receipts taken on auto transfers against the amounts shown on the computer printouts. On several
of the tickets, Blanchard noted the amount on the receipt was $500 or $1,000 greater than what
had been recorded on the printouts. Since Wilson was responsible for the data entries, Blanchard
realized that her close friend was responsible for stealing a great deal of money. Finally, she
contacted the Coryell County District Attorney (DA) who instructed her to tally as much of the
losses that she could while the DA's office would initiate an investigate. When Blanchard

discovered that for 1993 alone, Wilson had taken over $100,000 from the Coryell County Tax
Assessor-Collector's office, she had no choice but to swear out a complaint against Joan Wilson
with the county sheriff's office. Finally, on the afternoon of November 8, 1993, before television
cameras, Joan Wilson was arrested in her office. On November 15. 1993, she committed suicide.
Results of the Investigation
Even though the accused was now dead, the district attorney's office and the state
Comptroller's office decided to conduct an investigation. The investigation turned up a great deal
of evidence against Joan Wilson. For example, when Wilson would make the deposits for the
county with the bank that handled both the county's account and her family's account, she would
always make the deposits inside the bank lobby. However, when she made personal deposits, she
went through the drive-in bank teller. The bank teller noted that when Wilson made these
deposits, they were always either into the joint account or into her son's account. These deposits
were mostly in cash, with very few checks being deposited. Wilson made these deposits on
almost a daily basis and was almost always alone when she made the deposits.
In addition to the behavioral aspects noted, withdrawals from the bank accounts of Mr.
and Mrs. Wilson and their son as compared to total known sources of funds were as follows:
Year
Known Funds
Withdrawals
1990
$ 92,767
$ 179,993
1991
76,473
191,644
1992
74,185
204,863
1993
56,970
142,153
Other evidence came to light. The bank records did not show any transfers of funds
between the joint account and the chiropractic account. No funds generated by the chiropractic
practice could be traced to the joint bank account, which was used to pay the monthly obligations
of the household. Yet, the only known source of funds being deposited into the joint account
came from Joan Wilson's salary from the Tax Assessor-Collector's office.
Both Wilsons (Joan and Charles) committed themselves to various obligations during
these same periods. On the average, the recurring monthly payments for home mortgages, car
payments, insurance, credit cards, etc., were $5,976 per month. Again, as noted, these
expenditures were considered household obligations and were paid only from the joint account.
In addition to the recurring payments, it was known that a $15,000 investment was paid in lump
sum in 1991, a $4,000 lump sum loan made in 1991, and another large lump sum in 1993 was
paid. Interestingly, the average net paycheck from the county for Joan Wilson was about $1,000.
Early in 1993, the Guaranty Bank and Trust, which was the principal bank used by the
Wilsons, asked Charles Wilson to prepare and file a personal financial statement showing
personal income and cash flows for the year ended 1992 and projected income and cash flows for
the year ended 1993. The statements filed showed incomes of $36,158 and $42,564 for 1992 and
1993, respectively. Personal expenses were reported at $23,964 and $26,163 for 1992 and 1993,
respectively. It should be noted that deposits in cash to the son's account for 1992 and 1993 were
more than the total personal expenses shown. Also, it is interesting to note Charles Wilson had
monthly debt service payments on personal loans from 1989 until April, 1992 that averaged
$1,473, which was more than the monthly net pay available to pay all of the living expenses of
the household.
Epilogue

Based on the results of the investigation, the Coryell County District Attorney's office
decided to pursue the case since it appeared obvious that thefts over $100,000 had occurred,
which is a first degree felony offense in the state of Texas. However, since Joan Wilson had
committed suicide shortly after her arrest, the district attorney had to decide on who to prosecute.
Since Dr. Wilson seemingly benefited from the appropriations of funds by his wife, it was
decided that he would be prosecuted. Dr. Wilson's defense was that he had no knowledge of his
wife's embezzlement and should not be held liable or as an accomplice to her scheme. This
argument did not deter the district attorney nor the jury as Dr. Wilson was subsequently
convicted and sentenced to a substantial prison term. However, due to his age and poor state of
health, he is not expected to complete his term. In addition, the state of Texas has assessed the
Wilson estate for the collection of funds in the amount of $1,226,424.45, the amount that it has
determined that Joan Wilson had stolen since 1987.

Required:
Assume you are a state auditor for the State of Texas and you are assigned to deal with
this case (counties are subdivisions of the state). Complete the following:
1.
Identify the internal control weaknesses that appear to be in the Tax Assessor-Collector's
office. What types of recommendations would you make to improve the identified
weaknesses.
2.
What "red flags" could you note, based on the above information, that could arouse
suspicions that some type of fraud or embezzlement could have been occurring? Why do
you suppose that the employees within the county office failed to place much emphasis
on these red flags? As a state auditor, what would you recommend to try to prevent
future occurrences of this situation?
3.
In conducting the audit of this county office, which of the auditing standards would be
applicable in this situation (i.e., GAAS, GAO "Yellow Books' standards, IIA standards,
etc.). What accounting standards, if any, would be applicable for this county office?
4.
As a state auditor. what would be your audit objectives in an audit of a county tax
collector's office? Based on these objectives, what procedures would you recommend
using to achieve these objectives?
What type of guides or other literature could you search to help you in determining the
necessary procedures?
5.
Prepare a graph (bar graphs x-y format, etc.) to compare the known funds claimed by the
Wilsons versus the withdrawals made against the joint bank account. What does this
graph suggest to you? (Note: If possible, it is recommended that you do the graph using
appropriate computer software.)
6.
Dr. Charles Wilson, in his defense, argued that he was unaware of the embezzlement
being perpetrated by his wife. What information can you determine from the case to
refute his argument?
7.
It appears that this county office did not have an internal auditor on its staff. In fact, the
state did not conduct any audit work until the embezzlement was discovered. Do you
think that an internal auditor might have been able to uncover this fraud? If so, how do ou
think that the internal auditor would handle the situation?

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