Mountain State Sporting Goods (Fraud Investigation Phases I-III.)

Appendix F: Interview of Sue Bryant

MEMO TO FILE Date: Mar 8, 2009 (transcribed Mar 8) Re: Meeting with and interview of Ms. Sue Bryant (1:00 – 3:15 pm) Office of Dwane Peoples, Esq. Subj: Mountain State Sporting Goods

Introduction of self and purpose of visit:

• Advised that I have been engaged by Mr. Peoples, attorney representing shareholders of

Mt. State Sporting Goods, to assess the operations of the business including its books and records.

• Advised that Mr. Peoples was concerned about the viability of the business and the

accuracy of the accounting reports.

• Advised that I had previously reviewed the following:

o The company’s income tax returns for years ’03–’08; o The company’s reviewed report for Dec 31, ’06 and compilation reports for ‘07

and ’08; o The company’s valuation report of Dec 31, ’06; o The company’s detailed general ledger and adjusting entries for years ’06-’08;

and o Workman’s employment contract

Ms. Bryant freely agreed to be interviewed and provided the following:

1. Personal profile: • 67 years old • Widowed – no children • Residence – South Charleston, WV • Degree in education – taught high school business math and bookkeeping • Helped JD start the business in ’93 – his first employee • Started out part-time; full-time in ’00 or ‘01

2. Mountain State Sporting Goods

• ’93 through ‘06 • Base compensation was $750 per week; also received bonuses (avg about

$45k per year) • Benefits included health insurance, 3 wks vacation and IRA contributions

• Duties included all accounting and payroll maintained a comprehensive set of books and records everything was automated system of checks and balances generated monthly financial statements focus was always on cash flow Tax returns done by H&R Block

• Pawn shop activity

Thought pawn shop was great idea Worked hard to develop policies and procedures – controls JD hired a consulting firm to help set up (purchased specialized

software) Big boost to business – new traffic Opened in summer of ’06 – by year end about $50k in

loans Interest rate of 20% per month All principal payments made (and loaned ) in cash Interest payments by usually by checks (some cash) Deposit slips should provide breakdown of deposit source Default rate about 25-30% (defaults go to inventory – markup of

100%; Markup is the amount added to a cost price to calculate a selling

price JD’s plan was to save pawn revenues for improvements and down

payment on building

3. Business after JD’s death • Total confusion

• JD had no plan – boys in school; spouse not physically capable

• Informal agreement with family to co-manage with Tom Workman (TW);

attempted to split JD’s duties TW was a long-term employee – about 10 years TW worked as asst. floor mgr – not involved with administrative

functions – limited knowledge of overall business; no working knowledge of pawn shop

• First 15 days were hell

Total confusion – TW asserted total control a. First problem was bonus – TW insisted that JD had

promised; we agreed to complete YE and discuss with family

b. Second problem was TW’s pay and benefits – TW wanted $60k (per advice of Hess); I thought it was excessive – we agreed to discuss with family

c. Third problem was Hess; I agreed to hire to help with YE – turned into nightmare

i. First step was to add TW to bank signatory – he started writing checks – big problem

ii. Second step was to abandon accounting controls, especially over pawn shop

• Met with JD’s family on Jan 3, ‘07

Advised of problems and decision to retire (too much stress) Suggested valuation and sell of business Thought TW could do the job – he is not afraid of work; needed

controls Suggested hiring new in-house accountant and/or different CPA

firm for objective review – Hess to close Suggested employment contract for TW – $50k base plus a

percentage of sales (incentive) Store offered limited benefits – suggested health insurance for TW Suggested annual audits Agreed to serve on Board Did not see TW’s employment contract

• Limited involvement after Jan 6, 2007

Not invited to attend BOD meetings Occasional p/conversations with Hess about coding issues YE adjusting entries made by Hess or staff members Surprised to hear Anita and Mia were doing day-to-day accounting Surprised audits not conducted Have not seen annual reports

Discuss Relationship with Anita and Mia

4. Sue stated as follows:

• Like Anita and Mia • Anita worked at the store part-time during holidays and for inventory • Committed to daughter • Did not want to work full time • Surprised she was doing accounting work for store • Calls occasionally to check in • According to Anita, Hess is running accounting functions • Mia very sweet – glad she was working at the store – good experience

Discuss Relationship with Hess (CPA)

5. Sue stated as follows:

• Hess involved in negotiations of building lease – worked for landlord • Hess had visited the store after they moved to offer services • Hess was a friend of TW’s • Understand Hess has small practice • Believes Hess saw JD’s death as opportunity • Confused by Hess’ suggestions regarding physical inventory and change in

accounting software • Understand that TW hired Hess on full-time basis – took her job • No direct knowledge – mostly through Anita

Discussion of Specific Transactions I presented for discussion the following specific transaction; Sue stated as follows:

6. Check for $45,000 on Dec 23, 2006 – initially recorded as employee loan; reclassified (adj) to reduce sales ($45,000); $20k came from company LOC – coded as payroll tax payable [Copy of $45,000 check presented]

• No knowledge • Shocked • Would not have seen check – would have been included with Dec bank

statements – received in mid-Jan Closing Statements I concluded my interview and inquired if she had any final statements or information. Sue advised as follows:

7. Very surprised – but not shocked.

8. Understood that TW’s lifestyle had changed – house, cars and trips.

9. Does not believe Anita or Mia aware.

10. Believes bad advice from Hess. End.