CHARLI BOOKS

FORENSIC AUDIT REPORT

Table of Contents
DISCLAIMER..........................................................................................................................3

1. BACKGROUND...............................................................................................................4

2. EXECUTIVE SUMMARY..............................................................................................5

3. SCOPE / OBJECTIVE OF FORENSIC AUDIT...........................................................6

4. METHODOLOGY AND APPROACH...........................................................................7

5. KEY FINDINGS AND OBSERVATIONS......................................................................9

6. SUMMARY.......................................................................................................................0

7. IMPACT TO CHARLI BOOKS......................................................................................0

8. RECOMMENDATIONS..................................................................................................0
DISCLAIMER

This Report is based exclusively on the facts and circumstances described during the engagement
of the team for conducting Forensic Audit and is given based on the representations, express or
implied, and based on our interpretation of the law, which may differ to another person. Existence
of any other factual or historical background not provided to us might require a conclusion
different from the one expressed herein.

The information contained herein is specific only to the facts of the present case and cannot be
used in any other matter and is not intended to address the circumstances of any individual or
entity other than what has been described in the Report. Although we have endeavoured to provide
accurate and timely information, there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate thereafter. No person should act on such
information without appropriate professional advice based on the circumstances of a situation.
1. BACKGROUND

On January 28, 2009, the fraud examination unit at Charli Books received an anonymous
telephone call on its fraud hotline from an unidentified man who claimed that he was a former
supplier to Charli. The caller alleged certain improprieties in the bidding and procurement
process.

Based upon this initial predication, a fraud examination was conducted, which included
reviews of relevant records and interviews of appropriate personnel.
2. EXECUTIVE SUMMARY

The fraud examination commenced when Loren D. Bridges, CFE, received a telephone call from
an unidentified man who said that he had been a long-term supplier to Charli for sundry office
supplies and paper. The caller said that ever since Linda Reed Collins had taken over as
Purchasing Manager, he had been gradually “squeezed out” from doing business with Charli.

Linda Reed Collins has been employed in the purchasing department of Charli Books since June
1, 2004. She was promoted to Purchasing Manager effective November 8, 2006.

The Fraud Examination Team reviewed selected purchases from 2006 to 2007 and conducted
interviews of key participants and Charli employees who we believed may have information
regarding the misappropriation of assets. The Team reviewed purchasing guidelines, personnel
files of interviewees, and various financial documents relating to both Charli Books and Linda
Reed Collins.

After obtaining sufficient documentation, the Team interviewed Linda Reed Collins, who gave a
full signed confession to her misdeeds.
3. SCOPE / OBJECTIVE OF FORENSIC AUDIT

The objective of the Fraud Examination Team was as follows:

 Determine the existence of a possible misappropriation of assets of Charli Books,

Incorporated. The examination is predicated upon an anonymous telephone call
alleging improprieties on the part of Linda Reed Collins, Charli’s purchasing
manager.
4. METHODOLOGY AND APPROACH

Fraud Examination Team Members

Loren D. Bridges, CFE, Charli Books; Tonya Vincent, CFE, Charli Books

Procedures

As part of the examination of this matter, the Team took the following actions:

 Obtained, reviewed, and analyzed memoranda pertaining to the anonymous call

described previously.
 Obtained, reviewed, and analyzed Charli Books’ financial documentation, including purchase
records, invoices, and canceled checks.
 Obtained, reviewed, and analyzed records from the St. Augustine County Courthouse
regarding civil actions in which Edward J. Collins and Linda Reed Collins were
named; records from the Florida Secretary of State’s Office regarding Collins Marine
Corporation; records of chattel mortgages held by Linda Reed Collins and Edward J.
Collins; financial records from Dun & Bradstreet regarding Collins Marine
Corporation; and public records regarding the financial condition of Linda Reed
Collins and Edward J. Collins.
 Conducted surveillance activity in order to determine whether the two key individuals in
the matter were involved in an illicit relationship.

Individuals Interviewed: The following individuals were interviewed in person by members of the
Fraud Examination Team:

 Mark W. Steinberg, CPA (Chief Financial Officer, Charli Books)

 Roger Donald McGuire (Purchasing Agent, Charli Books)

 Mary Rodriguez De La Garza (Purchasing Agent, Charli Books)

 Sara Louise Dawson (Former Employee, Charli Books)

 Thomas C. Green (Attorney, Sharp, Green and Langfrom, P.A.)

 Lincoln S. Wyzokowski (General Counsel, Charli Books)

 Becky Robinson (Accounts Payable Clerk, Charli Books)

 Ernie Quincy (Warehouse Manager, Charli Books)

 David Levey (Director of Sales, Jerrico International Paper Company)

 James R. Nagel (Sales Representative, Orion Corporation)

 Owen Stetford (Chief Financial Officer, Orion Corporation)

 Linda Reed Collins (Purchasing Manager, Charli Book

5. KEY FINDINGS AND OBSERVATIONS

Based on the documents reviewed, information collected, and interviews conducted during
the course of the fraud examination, the Team finds as follows:

 Did the Fraud Examination Team determine the existence of a possible misappropriation
of assets of Charli Books Incorporated?

Yes. The documents and information reviewed and interviews conducted by the Fraud
Examination Team during the course of the examination indicate that Linda Reed Collins,
together with James R. Nagel, did knowingly embezzle approximately $197,773 from Charli
Books over four years. During the fraud examination, the Team analyzed financial documents
and conducted interviews to corroborate the statements of an anonymous caller. The following is
a summary of the evidence and information supporting the Fraud Examination Team’s findings:

On January 28, 2009, an anonymous call was received by the fraud hotline at Charli Books,
Incorporated, from a former supplier to Charli Books. The caller alleged that after Linda Reed
Collins took over as Purchasing Manager in 2006, she eliminated him as a supplier. A subsequent
review of purchases made by Charli Books from 2006 to 2008 showed that a continuously
increasing share of the company’s paper business was being given to Orion Corp., even though
Orion submitted written bids in only 63 percent of the cases.

On February 1, 2009, Mark W. Steinberg, CFO of Charli Books, Inc., was interviewed. The
purpose of the interview was to inform him of the proposed fraud examination, obtain his
approval, and secure information from him regarding the purchasing process at Charli Books. In
addition to summarizing his responsibilities regarding purchasing at Charli Books, Mr. Steinberg
stated that in December 2006 he sent a memo to all the division heads at Charli Books informing
them that all purchases over $50,000 would from then on require at least three written bids.

We next examined the personnel records. A review of Linda Reed Collins’s file showed only that
she had been consistently rated “exceptional” by her supervisors in annual reviews.
On February 4, 2009, an interview was conducted with Roger Donald McGuire, Purchasing Agent
at Charli Books. After summarizing the purchasing process at Charli Books, he stated that he had
no knowledge of any improprieties committed by Ms. Collins.
The next interview conducted was with Mary Rodriguez De La Garza, a coworker of Ms. Collins’s
in the Purchasing Department at Charli Books. During the interview Ms. De La Garza stated that,
regarding the purchasing process, it is sometimes not practical to obtain bids, such as in emergency
situations or when they are short on time. She went on to reveal that she had suspected Ms. Collins
was having an affair with James R. Nagel, the salesman for Orion Corp. In addition, Ms. De La
Garza said she believed that Ms. Collins and her husband were having marital and financial
problems. She also mentioned that Sara Louise Dawson, a former employee under Ms. Collins, had
left on bad terms.

The next interview conducted was with Mary Rodriguez De La Garza, a coworker of Ms. Collins’s
in the Purchasing Department at Charli Books. During the interview Ms. De La Garza stated that,
regarding the purchasing process, it is sometimes not practical to obtain bids, such as in emergency
situations or when they are short on time. She went on to reveal that she had suspected Ms. Collins
was having an affair with James R. Nagel, the salesman for Orion Corp. In addition, Ms. De La
Garza said she believed that Ms. Collins and her husband were having marital and financial
problems. She also mentioned that Sara Louise Dawson, a former employee under Ms. Collins, had
left on bad terms.

The next interview was with Sara Louise Dawson, who wanted to consult with her attorney before
making an official statement. Ms. Dawson’s attorney, Thomas C. Green, later contacted the Fraud
Examination Team to let them know that Ms. Dawson was interested in making a statement, but
only in exchange for an indemnity against all claims arising out of her cooperation. After meeting
with Mark Steinberg and Lincoln S. Wyzokowski, General Counsel at Charli Books, Ms. Dawson’s
and Mr. Green’s proposal was accepted.

On March 3, 2009, Ms. Dawson made her statement, which included the following:

 After Ms. Collins was promoted to Purchasing Manager, she began favoring Orion Corp.
for paper purchases.
 On two occasions in 2008, Ms. Collins authorized prepayment on substantial
purchases from Orion, even though Ms. Dawson had complained about Orion’s
 poor quality and service. Later Ms. Dawson found out that the orders were never
received.
 Other vendors had complained of being squeezed out of business with Charli Books
after Ms. Collins became manager.

Ms. Dawson referred the Team to Becky Robinson in Accounts Payable for further information
about the orders. Ms. Robinson was interviewed and provided copies of the two prepaid invoices to
Orion Corp., the amounts of which were $102,136 and $95,637. In addition, Ms. Robinson said
that Ernie Quincy in Receiving would be able to verify if the two shipments had ever been
received.

On April 8, 2009, Ernie Quincy, the Warehouse Manager at Charli Books, was interviewed and
verified that the two shipments in question were never received. The next day, copies of the two
checks given to Orion Corp. for payment of the goods that were never received were examined.

An interview with David Levey from Jerrico International Paper Company yielded the
following information:
 At the time Levey began at Jerrico, Charli Books was a major customer of theirs, but
since then their sales to Charli had dwindled.
 Levey attempted to revive business with Charli Books, but by then rumors were
circulating about an inappropriate relationship between Mr. Nagel of Orion Corp. and
Ms. Collins.
 According to Levey, Mr. Nagel had a “bad reputation” in the industry.

Ms. De La Garza phoned the Team on April 13, 2009, to let them know that Ms. Collins had
plans to meet Mr. Nagel at the bar at the Hotel Atlantic that afternoon. The Team set up
surveillance of their meeting and reported that Ms. Collins and Mr. Nagel met at 5:55 p.m. and
ordered drinks.
They held hands under the table, kissed, and left the bar at 7:02 p.m. to go to room 652.

A review of St. Augustine County records showed that Edward J. Collins (Ms. Collins’s
husband) was a defendant in three civil actions. The circumstances of the actions indicated
 that the Collinses were having financial troubles.

A review of the Florida Secretary of State’s records showed that the Collinses were the
incorporators of Collins Marine Corporation.

A review of UCC filings showed that the Collinses had three liens in their name.

A net-worth analysis was performed on the Collinses based on information assembled from public
records. It showed unexplained income of $31,632.

In an April 19, 2009 interview, Mr. Nagel stated that his relationship with Ms. Collins was
purely professional and denied any improprieties regarding Orion’s business with Charli Books.
Mr. Nagel also refused to provide any of Orion’s financial information pertaining to the two
invoices in question.

On April 21, 2009, Owen Stetford, the CFO of Orion Corp., was interviewed and stated he was
unable to provide any copies of actual financial information, but that Orion had no record of any
receipt of payment for the invoices in question, nor any record that such orders had been placed or
shipped. In addition, Mr. Stetford said that Orion had no corporate accounts at Florida Marine
National Bank, the bank at which the checks from Charli Books were deposited. Mr. Stetford also
stated that the correct corporate name is Orion Corporation, not Orion Paper Company, as the
endorsements indicated.

On May 1, 2009, Mr. Nagel was again interviewed. After being confronted with questions and
evidence regarding the two payments and the bank account to which they were deposited, Mr.
Nagel voluntarily gave a statement attesting to his involvement with Ms. Collins in the
embezzlement of funds from Charli Books. He attested to the following:

 In 2008, Ms. Collins told Mr. Nagel that she would approve the payment of invoices to
Orion Corp. for product that would not be delivered. Ms. Collins authorized the payment
 of two invoices in the amounts of $102,136 and $95,637, but no product was shipped on
the invoices. Ms. Collins and Mr. Nagel established a bank account in the name of Orion
Paper Company at Florida Marine National Bank and divided the proceeds of the invoices
equally.

On May 1, 2009, Ms. Collins voluntarily gave a statement, which included the following:
 Ms. Collins stated that, starting in 2007, she accepted money from Mr. Nagel to ensure
that Orion Corp. received preferential treatment in supplying Charli Books with stationery
and paper products. On those occasions, she was aware that Charli Books was not
obtaining the best product at the lowest possible price from Orion; in other words, the
price charged was substantially higher than market value.
 Ms. Collins stated that on two occasions in 2008, she authorized the payment of invoices
for

$102,136 and $95,637 without any receipt of merchandise.

 Ms. Collins estimated that she had received in excess of $150,000 in connection with Mr.
Nagel.
6. SUMMARY

This report reflects that Linda Reed Collins, a purchasing agent for Charli Books, Inc., furnished
a signed statement on May 1, 2009, indicating she had accepted at least $197,773 in commercial
bribes and other illicit income in a conspiracy with James R. Nagel, an account representative
for Orion Corporation, St. Augustine, Florida.

The statements made by Collins are corroborated by the documentary evidence and the
interviews of other witnesses as described herein.
7. IMPACT TO CHARLI

Over the course of four years, Linda Reed Collins, in partnership with James R. Nagel,
misappropriated an estimated $197,773 from Charli Books, Incorporated.

Additional amounts were lost due to Charli’s overpaying for merchandise sold to it by Nagel.
Those amounts have not been calculated.
8. RECOMMENDATIONS

It is the policy of Charli Books to report such matters to the appropriate authorities and to assist in
criminal prosecution. A full review of internal controls should be conducted to determine how such
incidents can be detected in the future.

Place : United Kingdom

Date: 8th March 2019.