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Monday, January 30, 2012

Downtown Cincinnati CPA Firm Targeted by McCluskey Chevrolet: GM Dealer Claims Accountants Didn't Uncover $6 Million Scam

GM Dealer Says CPAs Missed Hands in Cookie Jar
CINCINNATI (TDB) -- The latest chapter in the scandal unfolding over an alleged $6 million embezzlement scandal at the GM dealership is another lawsuit.  This one  accuses a respected accounting firm of professional malpractice for failing to spot hands in the cookie jar.  McCluskey Chevrolet Inc. lawyer David Eberley filed the suit last month.  Hamilton County Common Pleas Court records show  J.D. Cloud & Co. LLP has counsel retained to fight the auto dealer's case but has not yet filed a formal response disputing the charges.  The lawsuit is assigned to Judge Beth Myers, who has set a case management conference for March 2.  Boiled down, the dealership's lawsuit appears to center on whether the accountants  rode the audit trail hard enough earlier this decade.  On the other hand, there are contracts that did not guarantee illegal activity would be discovered.  The accounting contracts can be interpreted to say the CPA work did not come with an "absolute assurance" every issue would be detected.

McCluskey Chevrolet says it retained J.D. Cloud in November 2005 for accounting services that included preparing tax returns, reviewing balance sheets, and ensuring that its 401(k) plan complied with federal reporting standards.  The car dealer says the CPAs were "obligated to exercise reasonable professional care" that should have exposed any scheme to steal company funds.   McCluskey contends a former payroll clerk ran a $6 million operation that involved distributing payroll checks to dealership employees who would kick back some of the extra funds to the payroll clerk.   McCluskey says the scheme was perpetrated during some of the years -- 2005 through 2008 -- the CPAs were performing accounting and auditing services.  McCluskey said it found out about the embezzlement last September.

"In fact, per the American Institute of CPAs' Accounting and Audit Guide for Employee Benefit Plans, as well as PPC Audit Program for Participant Data and Employee Contributions (Guidelines) Defendant in performing audit and other services, was required to take certain specific steps:
   a.  Defendant was required to test the clerical accuracy of the empoloyer's payroll journal and any schedule of data associated with 401(k) participant data used in that audit area, including through reconciling gross pay amounts from the payroll journal to the participant data used by the third party administrator and to total compensation reflected on the W-3 tax form.
   b. Then, Defendant was required to trace gross salary or wages to and from the payroll journal and participant records, trace relevant demographic data (such as birth dates, hire dates, etc.) to personnel files, and tie out gross pay to amounts reported on W-2 forms for individual employees,  There are important steps -- gross pay is usually the basis for participant and employer contributions in a 401(k) plan."

Contracts with J.D. Cloud are included as exhibits in the lawsuit.  They likely will become major factors as the legal dispute focuses on determining exactly what the CPAs were required to do, and what they were expected find while examining financial records at the Chevrolet dealership.  A Dec. 7, 2005 contract seems to indicate that J.D. Cloud has a defense. Per an excerpt from one of the two CPA contracts:

 "Our engagement cannot be relied up to disclose errors, fraud or illegal acts that may exists.  However, we will inform you of any material errors that come to our attention and any fraud or illegal acts that come to out (sic) attention, unless they are clear inconsequential,  In addition, we have no responsibility to identify and communicate significant deficiencies or material weaknesses in your internal control as part of this engagement.  We will not perform an audit of such financial statements, the objective of which is the expression of an opinion regarding the financial statements taken as a whole, and accordingly we will not express such an opinion on them . . .

"You are responsible for management decisions and functions, and for designating a competent employee to oversee any bookkeeping services, tax services, or other services we provide.  You are responsible for evaluating the adequacy and the results of the services performed and accepting responsibility for such services.  You are responsible for establishing and maintaining internal controls, including monitoring ongoing activities."


  1. Dealerships typically have management meetings once per week which include the sales, body shop, and service department heads. These meetings are profit driven meetings where up to date financial reports are distributed to the department heads. These department heads are paid rather handsomely from a percentage of the profits made from their individual department. How could this alleged fraudulent activity get by all these individuals? The dollar figure is too large. Did the alleged embezzler have some assistance? This alleged fraudulent payroll cost would have to be applied against at least one of the departments, and even if spread across all the departments, it is too large of a dollar number to go unnoticed. At other dealerships, the department heads are known to fight for any penny of overcharge against their departments. If not applied against the departments, the figures will not balance at the end of month or year. Appears many people have some serious answers to provide, not just the CPA firm. Wyler's dealership completely dropped the ball on this one.

    1. I couldn't agree more. There were most definately many more hands in this crime.

      1.) Why hasn't Keith The Theif fired his CFO, Gina Owens? Isn't it her job to ensure that crimes like this don't happen? Wouldn't you think that alllowing $6 MILLION to be stolen would be grounds for termination.

      2.) With number 1 in mind, has anyone considered that the payroll clerk might be innocent? Possibly the the CFO could be the real criminal?

      2.) How EXACTLY could $6 Million have walked away from that place? Typically, crimes of this nature only net $100K over the space of a few years. $6 Million is about 60 TIMES that magnitude.

      With my experience dealing with this place, it is very obvious to me that something is just not adding up.
      I'm a former employee of the Keith The Theif McCluskey. I can tell you that he watches every dime. He has the money in that place accounted for down to the penny. In fact, he is so money conscious, he regularly takes money AWAY from his employees..because he can, for any reason that he can.

      Up until 6 months ago, he charged his sales force weekly for "computer useage" and "uniforms." Salesmen are not provided uniforms. After the episode with the payroll clerk, he suddenly refunded the money he stole from these employees up to the beginning of 2011. That is all well and good, but what about people working there like Ken frakes who has paid those fees for TEN YEARS!!!???? Keith The Theif doesn't care. He paid the minimum he felt he could get away with.

      He is self insured. I saw Keith The Theif take $2,000 from several of his salesmen for a minor fender benders, and call it a "deductible." FYI-His "deductibles" vary per person, per position.

      He regularly takes money out of his service advisor's pay-which by the way is illegal-for very minor "infractions" such as cutting spare keys for his new car customers, when his salesmen lose them.

      He tells his salesmen to price the cars based on the maximum amount of money he can draw from whichever finance company the customer is approved at-PLUS whatever down payment they have. For instance, if a "special finance" customer can draw $10,000 from a special finance bank, and has $1,000 down-the price of the car is $11,000. If another customer can draw $12,000 from a bank and has $2,000 down-CONGRATULATIONS...he gets to pay $14,000.

      Honestly, the so called "company culture" in that place is one of dishonesty and theivery; the laws don't need to be obyed so long as you dont get caught breaking them.

      Whomever "stole" $6 Million learned everything they know about theivery from The Master Theif himself: Keith The Theif McCluskey.

    2. If Keith "the thief" was really a thief then why would he have donated close to a million dollars to various charities and local schools? Dont you think if he was really a thief that he would keep that money and buy exotic cars, fancy clothes, jewelry? A thief would but not Mr. McCluskey he is one of the most conservative men that I have ever met. And that 6 million wasnt stolen over a year not even 10, for almost 12 years that lady was adding small amounts ($100-300) to a group of employees (6 known) and over time that added up to $6 million. So please dont bash a caring family man like Keith "The Cheif" McCluskey

  2. You beat the Enquirer and the Business Courier again. BizCourier was about three weeks behind you last time. They try. Nothing in the Enquirer. They don't try unless it is a scandal about a Republican or a Democrat, which they blow out of proportion for Yellow Journalism.

  3. The easiest way to know double entry bookkeeping would be to realize that every financial transaction includes a double effect. Usually medium and bigger companies make use of a double entry system for recording transactions. Thus, double entry accounting evolves from the truth that every transaction has double effects.
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  4. If what you say about double entry accounting is correct, how could this have happened?

  5. I think it is easy to notice that it is scam in the big amount of money you should always ask.I agree on cpaoutsourcing comment.Because of the fact that double entry bookkeeping includes double effect in financial transaction.