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

Appendix G: Interview of Anita Workman

MEMO TO FILE Date: Mar 10, 2009 (transcribed Mar 12) Re: Meeting with and interview of Ms. Anita Workman (6:00 – 7:30 pm) Mt State Sporting Goods Subj: Accounting Practices -- Duties and responsibilities

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 Her husband’s employment contract

• Advised that I had previously interviewed:

o Ms. Sue Bryant (the company’s former bookkeeper); and o The company’s banking agents.

Anita freely agreed to be interviewed and provided the following:

11. Personal profile: • DOB – Jan 26, 1969 (age 40) • Married – Thomas Workman (DOM -- May 15, 1989) • One child – Mia (17) • Education – community college – 3 semesters (business classes) • Work history:

i. Jan ‘07 to current

Mountain State Sporting Goods – Works as needed; training to be in- house accountant

Training provided by Hess & Associates, CPAs Attended a QuickBooks workshop at their office Salary $1,500 per month – salary determined by Charles Hess,

CPA Est. 25 hrs per week – sometimes more – sometimes less Does some bookkeeping work at home – payables and payroll –

takes about hour per week o Store purchased computers for use at home o Setup by CPA staff

Works at the store as needed – were needed – no set schedule; husband calls when shorthanded – fills in for Mia

Not involved with pawn shop – handled by TW – mostly guns Does not assist with inventory – done by TW and Hess – not sure

how they do it

ii. 1990 – 2007 Primarily a stay-at-home mom (school volunteer) Occasionally worked at the store for JD – as needed – register,

stocking or inventory a. Assisted Sue Bryant

iii. 1988-90

Blockbuster Part-time with H&R Block – personal income tax returns

iv. 1986 – 1988

Blockbuster

• No health issues / special needs

12. Spouse’s profile – Thomas Workman (TW)

• DOB – Sept 13, 1967 • Education – high school graduate • Work history

i. 1995 to current Mountain State Sporting Goods

Manager since JD’s death in Dec ‘06 Works all the time if not hunting or fishing Asst Mgr for about five years

ii. 1990 – 1995

General Dollar Store, Asst Mgr (store closed)

iii. 1988 Construction work

13. Daughter’s profile – Mia Workman

• DOB – June 20, 1991 • Education – high school (senior yr)

i. Already accepted at NC State • Work history

i. June ‘07 to current Mountain State Sporting Goods –as needed – mostly stocking and register

$10 per hr. Works full-time in summer; part-time during school

Discussion of Sue Bryant

14. Anita advised as follows: • Wonderful person – really knew the business • She was always kind and explained things – why or why not

i. Hess rarely explains why – just do it • She offered to train me – TW and Hess said no – they were installing new

system • Had been with JD from the start – maybe a relative (not sure) • College educated – before store she taught high school math • Light years ahead on using computers and software – loved them and what

they could do • Struggled with JD’s death – she was like his older sister • Initially agreed to co-manage store with TW at family’s request • Short lived – Sue quit after about 30 days • Big blowup over hiring Hess • Sue and TW started fighting after JD’s death– always fighting about the pawn

shop and gun purchases at gun shows i. Most guns keep at home in gun safes – 3 safes

• Sue did not like or trust Hess • She suggested other CPAs • Sue was not impressed with Hess – did not believe he knew anything about

the business – was learning on the store’s dollar • Sue insisted on audit by outside CPA • She decided to retire – not comfortable with changes being proposed • Sue is in her late mid-60s -- lot of energy • Sue very close to JD’s kids – also close to Mia

Discuss Relationship with Hess (CPA)

15. Anita stated as follows:

• Hess a friend of TW’s since high school • Always together – hunt, fish, poker • Trips to Canada (fishing), out west (boar hunting) and Vegas (gambling)

o Needed special rifles for boar hunting – talking about a trip to Fiji o They claim Vegas trips are product shows – all business

• No sure how trips are paid for o TW controls family money o TW opened a bank account for paying household bills, groceries, meds,

clothing and so forth • TW hired Hess after JD died

o TW thinks Hess smartest man alive o Hess did not like Sue – thought she was too old and nosey – wanted to know

everything • Hess handles almost all financial affairs – business and personal

o Knows more about their financial affairs than she does o TW hired to negotiate settlement of credit card debt

She no longer has a credit card o Handles their life insurance and IRAs o Does their tax returns o Negotiated auto leases and mortgage loans

Hess explained car leases better than purchase – tax write offs Not sure who pays – company or TW Purchased first residence in ’07 ($175k)

o Recent investment in condo Hess convinced TW great investment Condo owned 50/50 – Hess and TW 100% financing Understand note payments made with rental income

• Hess has small practice – secretary and two bookkeepers • Hess firm reviews all accounting transactions and does payroll reports, W2s, tax

returns, etc. • Her job is to pay the bills – Hess’ people set it up • If she has a question she calls Hess’ office • Does not recall ever writing Hess a check – not sure how he gets paid • Does not see YE financial statements or company tax returns – prepared by Hess • Does not attend Board Meetings

Discussion About Pawn Business Anita state as follows:

16. Little or no knowledge • TW manages • Keeps cash on hand – usually $10k • TW keeps separate from other transactions • TW deposits once a week –ck and cash • Interest payments usually by ck • Loan payoff by cash – identified on deposit slips • No knowledge about forfeited items • Not authorized to make loans

Discussion of Specific Transactions I presented for discussion the following specific transactions; Anita states as follows:

17. 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]

• Does not recall ever seeing the ck • No knowledge • Not sure what money was used for

18. Checks payable to Classic Construction – 5 in ’07 totaling $5k ($1k each) and 2 in’08

totaling $8k ($3k and $5k) • Classic did improvements to house • Assumed HW paid with personal funds • No reason to be paid by company

19. Checks (3) drawn on Company LOC ‘07 -- Payable to TW -- totaling $25,000: Not

recorded on books; entry to reduce sales and increase debt. [Copies of three checks presented - $5,000, $10,000 and $10,000]

• No knowledge • Entry makes no sense

20. Checks payable to Ford Leasing - $6,000 in ’07 and ‘08

• Not surprised • Adjusting entries make no sense

21. Checks payable to AMX (personal credit card) – 10 cks in ’07 totaling $13,212 and 12 cks

in ’08 totaling $21,409 • Shocked at amounts and specific charges

• Adjusting entries make no sense – appears personal not business

22. Check payable to TW May 3, 2008 ($40,000) • Initially recorded as loan to employee

i. Adjusting entry on Dec 31 ‘08 to reclassify to furniture and fixtures • No knowledge • Acknowledged they invested in property with Hess; • Thought down payment was $100k -- $50,000 each. • Believe TW borrowed from the bank – not the company

23. Checks (3) payable to Fidelity Investment in ’08 ($3,000 each)

• Recalls -- IRAs • Direction of Hess • Entry to COGS makes no sense.

End.