Taking Inventory: I’m Afraid I Can’t Let You Do That, Dave

, , , , , , | Legal | February 1, 2019

This story happened to a friend of mine. Let’s call him Dave. We like to think of it as the moment he went from small-time to big-shot.

Dave is a new systems administrator for this company but has been working in IT for close to 15 years at this point. The last admin retired with little warning, so Dave was hired with the understanding that he would be getting no training and would have to figure out the system more or less by himself. One of the earliest projects Dave is given is creating a proposal for the annual IT budget. He takes an inventory, crunches some numbers, and submits a budget of $495,000.

A few hours later, one of the VPs drops by and asks him to recalculate his budget. Dave gets an anxious vibe from the guy, so he doesn’t ask too many questions and goes back to the drawing board. Figuring there must be some financial issues he is unaware of, he tries to find places where he can save some money and skimp on costs, finally resubmitting a proposal for $460,000.

The next day, Dave is called into a meeting with the CEO, the head of accounting, and two senior VPs. They’re concerned about his budget and ask him to review it with them and explain the numbers. My friend obliges. He points out the cost of equipment currently in production, expansion based on the company’s estimates for growth, and the standard wear-and-tear replacement cycle for the servers, plus padding of ~15% for unforeseen costs. They ask why he was using that inventory list and not the one they provided, and he responds that he never received an inventory list and had to make this one from scratch. Apparently, someone had forgotten to give it to him.

The execs talk among themselves for a bit, then decide they want to double-check the inventory. Dave had previously called the server centers and satellite locations to get inventory counts, but now they decide to check each location personally. Over the course of two days, Dave ferries one of the VPs from location to location, checking every item on the list. He actually finds that several items have been depreciated due to age and failure, so his list is even shorter than he thought. After all this checking and making sure nothing needs replacing and a final bit of calculation, he submits a final budget closer to $380,000.

By now, the execs are mad. They tersely thank Dave, and he doesn’t hear from them all weekend. By this point, he is extremely nervous that he has done something wrong and he is going to lose his job, and picking up a job like this isn’t exactly easy. When he gets in on Monday, he’s called into the CEO’s office yet again.

It turns out the previous administrator had been putting in budgets in excess of $700,000 for the past four years, with the last before his retirement just scraping over $1,000,000. They show Dave the inventory sheets and math the old admin had submitted and they showed an artificially bloated system that didn’t exist — literally hundreds of servers that the company simply didn’t own. Turns out the guy was making the purchases, showing the receipts to accounting, then selling them to friends and family for a fraction of the price and pocketing the profit, which is how he was able to retire at 40, and why he insisted his inventory sheet be given to his replacement. He had effectively embezzled nearly two million dollars that they could prove, and an unknown amount that they could not.

Regardless, they got the court to freeze the guy’s funds, got a warrant for his arrest, and put him in prison where he belongs. They weren’t able to recover most of their money since he didn’t keep records of who he sold to, but the reduced IT budget at least helped them absorb the blow.

And that’s how one misplaced inventory sheet made Dave into a big-shot at his company.

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