Accountant Stole Trust Plus $4M, Lawsuit Says

by Mark Friedman  on Monday, Dec. 3, 2018 12:00 am   6 min read

Accountant Edward M. Cooper Jr. occasionally asked for a few extra blank checks in case he made a mistake preparing payments for Roach Manufacturing Corp. in Trumann.

Cooper, who worked for Osborn & Osborn CPAs PLLC of Jonesboro, told employees of the conveyor system manufacturer that he would void the spare checks if he didn’t need them. The employees did as Cooper requested, since he had provided accounting services for the family-owned company since the 1980s.

They shouldn’t have.

Cooper allegedly used the checks to embezzle at least $4.5 million between 2007 and 2018, Roach said in a lawsuit filed on May 31 in Craighead County Circuit Court.

“I wish I could say this is uncommon, but we hear this story unfortunately too often,” said Andi McNeal, director of research at the Association of Certified Fraud Examiners of Austin, Texas.

Cooper has not been charged with any crime. But the civil case provides a cautionary tale for business owners who might put too much trust in their accountants.

“It comes down to the concept of trust but verify,” McNeal said.

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Cooper’s unauthorized use of his client’s checks may have gone undetected for so long because he handled all of Roach’s bank statements. McNeal said a small- or medium-size businesses can possibly prevent embezzlement if the owner or executive receives and opens the company’s bank statements every month.

“It just can’t go to the accountant,” she said. “Unfortunately, a lot of small businesses just want to trust their accountant completely, and so they deliver all the financial information to the accountant.”

That practice, however, could leave the business open to being taken advantage of, she said.

Financial officers usually aren’t suspected because they typically don’t have a history of criminal behavior. About 90 percent of the embezzlement done by financial officers is done by first-time offenders.

“It often is something where the person is not a career criminal,” McNeal said. “They find themselves in some sort of financial need and they see the opportunity.”

At first, embezzlers tell themselves that they are just borrowing the money or it’s just for a short period to justify the theft, she said.

“Once they realize they can get away with it, they often abandon that mindset and just keep taking the money because it was easier than they expected,” McNeal said.

Roach’s lawsuit didn’t suggest any motive for Cooper’s alleged theft or where the money went. He and his wife bought their 3,000-SF home in Jonesboro in 1997 for $135,000, according to real estate records.

Cooper’s attorney, Bill Stanley of Jonesboro, had not returned messages from Arkansas Business as of press time. In court filings, Cooper relied on his Fifth Amendment right against self-incrimination instead of responding to the allegations.

In June, Craighead County Judge John Fogleman issued a preliminary injunction, which Cooper agreed to, that prevents Cooper from withdrawing or transferring more than $150 a day from any financial account.

Cooper’s wife, LaNita Cooper, is being represented by bankruptcy attorney Stanley Bond of Fayetteville, who asked in an Oct. 26 court filing to be informed of all proceedings in the case.

As of Wednesday, LaNita Cooper had not filed for bankruptcy protection and will do so “only if she has to,” Bond told Arkansas Business. “Right now, the purpose is to protect her interest in the state court [case] where she is not a named party. But it is materially affecting assets that are hers alone and also with Mr. Cooper.”

Bond said he doesn’t know what happened to the $4.5 million. “Mrs. Cooper does not have it,” he said.

Roach also named Osborn & Osborn, the accounting firm where Cooper worked, as a defendant, alleging breach of fiduciary duties and negligent supervision of Cooper.

Osborn’s attorney, Gordon S. Rather Jr. of Wright Lindsey & Jennings of Little Rock, said Osborn and Roach reached a confidential settlement in the last few weeks. He expects the case to be dismissed soon.

Roach’s attorney, David Wilson of Friday Eldredge & Clark, declined to comment.

Building Trust
In an article last year, Arkansas Business reported that Roach had about 300 employees and the company expected about $70 million in revenue in 2017. It’s a business with 65 years of history behind it.

In 1953, Gay W. Roach Sr. moved about 15 miles from Marked Tree to Trumann to manage a cotton compress and warehouse. He soon discovered that his compress needed a better way of weighing, moving and tagging massive bales of cotton.

The conveyor system he developed became the foundation for Roach Manufacturing Corp., later rebranded as Roach Conveyors.

“Cotton bales were Dad’s first patent back in 1953,” Mike Roach, the company’s vice president for production and manufacturing, told Arkansas Business last year. “At that time the bales were moved by hand. No motors, just a lot of people using two-wheel hand dollies.”

His design worked. “Dad designed and manufactured a conveyor system, and he used a war surplus forklift to set bales up on the conveyor for weighing and tagging.”

On Christmas Eve 1970, Roach filed paperwork with the Arkansas secretary of state’s office to incorporate the company.

About that time Roach “began a longstanding personal and business relationship with Jim Osborn” of Osborn & Osborn, according to Katelyn Furnish, Roach’s financial manager and granddaughter of Gay W. Roach Sr. Furnish submitted an affidavit in the lawsuit. “O&O began providing to Roach services, advice and expertise in various areas including bookkeeping, accounting, financial reporting, tax filings and tax matters.”

Over the years, the relationship between Roach and Osborn’s accounting firm flourished and was based on the “highest degree of trust and confidence,” Furnish wrote.

Over the nearly 50 years of service, Roach came to exclusively use Osborn’s firm for its accounting services.

Sometime in the late 1970s or early 1980s, Osborn hired Cooper, who isn’t a certified public accountant, and he began working on the Roach account. Soon Cooper handled that account exclusively.

“Cooper’s relationship with Roach over the years since the 1980s has been based upon the highest degree of trust and confidence placed in Cooper by Roach,” Furnish wrote. “Over these years, Roach became heavily dependent and reliant upon Cooper’s advice and expertise.”

Cooper had regular contact with Roach’s family members and employees, and he typically visited Roach’s plant at least once a week, if not more. Cooper also began providing tax and accounting services to the individual owners of Roach.

‘A Few Checks More’
Cooper’s work for Roach included preparing the monthly and quarterly financial reports, writing checks and presenting reports and bank statements at the company’s board meetings.

Cooper also handled the checks for the quarterly estimated tax payments for the company.

Even though Roach had its own bookkeepers to handle day-to-day payments, the shareholders and managers decided to have Cooper personally prepare payroll and shareholder checks, according to a May 30 letter to Furnish from the financial firm Rasco Winter Abston Moore & Associates LLP of Little Rock.

“This was primarily done in order to minimize the potential exposure to confidential financial matters to which the internal employees might otherwise be privy, had they been the ones responsible for the calculation and writing of the distribution checks,” the firm’s letter said.

Roach’s checks required the signature of two Roach officers, and Cooper personally had the company’s officers sign each of the checks that he prepared. Those procedures were installed by Osborn’s firm and followed for more than 30 years.

Cooper also collected and maintained the company’s monthly bank statements.

Sometime before 2007, Cooper, while working on the dividend and estimated tax payment checks, “began requesting a few checks more than he actually needed to complete his duties,” Furnish said.

Because of Cooper’s long relationship with the company, the employees never questioned the request.

‘Cooper Was Evasive’
In the fall of 2017, Roach hired Furnish as a financial manager to start sharing some of the day-to-day bookkeeping and accounting duties that were handled by Roach’s existing accounting manager.

“At that time, I requested of Cooper that instead of simply providing Roach with a summary of the bank statements in the monthly financials, … I would prefer to have the actual bank statements so that I could begin reconciling those statements in-house,” she wrote. “Cooper was evasive in response to the request.”

In fact, Cooper never delivered the statements, Furnish said. When asked about them, “he would attempt to divert the conversation and promise that he would ‘get around to it’ soon,” she said.

Furnish eventually viewed the statements herself by using the bank’s electronic records.

In the middle of May, Furnish said that she couldn’t reconcile the balance. On closer inspection, she noticed that there was an April 16 check from Roach to Cooper for nearly $40,000. The check appeared to have been signed by Roach’s secretary/treasurer, who is Furnish’s mother, and the company’s president, who is her uncle.

But the signatures didn’t match and turned out to be forgeries, she said.

Rasco Winter was hired to look over Roach’s books. Its preliminary analysis concluded that of the 485 checks it reviewed, it found 70 made payable to Cooper totaling $4.5 million.

“We anticipate further review of records, and this report and its related findings are subject to change or modifications as we conclude our procedures,” Rasco Winter wrote in May.

The day after Roach received Rasco Winter’s report, it sued Cooper, which is rare, said McNeal, of the Association of Certified Fraud Examiners.

Only 23 percent of victimized businesses file a civil lawsuit against an embezzler to recover the losses, she said. And only about 60 percent of embezzlement cases get referred for prosecution.

“So unfortunately, a lot of the victim organizations just decide to move along,” McNeal said. “Then that kind of leaves the perpetrator out there to potentially harm somebody else.”


Edward Cooper’s Alleged Embezzlement From Roach Manufacturing Corp.

Year No. of Checks Amount
2007 6 $412,000
2008 6 $424,105
2009 4 $252,164
2010 7 $359,472
2011 7 $404,054
2012 4 $284,642
2013 12 $700,993
2014 9 $511,227
2015 6 $459,223
2016 4 $344,020
2017 4 $347,233
2018 1 $39,948
Total 70 $4,539,081

Source: Craighead County Circuit Court

 

 

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