[Katerina Carter 01.0] Exit Strategy

by Colleen Cross

  “Since when does bridge get cancelled?” Harry hadn’t missed a game in ten years. “You’re here to find out more about Liberty, aren’t you?”

  “Possibly.” Harry stopped typing and glanced hopefully at Kat, like a dog waiting for a treat.

  “I need to know, Kat. I can’t eat, can’t sleep. I’m worried sick.”

  “Have you told Elsie?”

  “Told her what?”

  “You know what I’m talking about. Your Liberty stock market losses.”

  “It’s going to rebound, Kat. Once you find the money, the stock’s really going to take off. How much longer? A week? Two?”

  Kat stopped as a sick feeling came over her.

  “Tell me you didn’t buy more stock again.”

  Long pause.

  “Just a little.”

  “Are you nuts? The company’s almost bankrupt. It’s like gambling.”

  “Better odds than a lottery,” Harry said. “Besides, I’m lowering my average purchase price. Averaging down, they call it.”

  Kat threw her arms up in the air.

  “You already had a disaster on your hands. Now you’re compounding it?”

  “It’s a calculated risk, Kat.”

  “How much more did you buy?”

  “Not telling.”

  “Fine. But I’m not covering for you if Aunt Elsie asks.”

  “I’ll tell her when I’m ready. Just give me a few days.”

  “It’s your decision.” Who was she to argue? She hadn’t exactly been candid about her financial situation either.

  “Besides, it makes me a more effective investigator. Now I’ve got a lot of skin in the game.”

  “Investigator? I don’t think so.”

  “Why not, Kat? I can help you. You don’t have a lot of money, and I work for free.” Harry smiled hopefully at Kat. “I’m pretty good with Internet searches, and I can help with some of the data entry.”

  “I don’t know.” Kat doubted Harry would be able to concentrate on anything besides his rapidly depleting stock holdings.

  “C’mon. It’ll be good. You have a tight timeframe, and judging by this mess, you can’t keep up with the filing.”

  “I guess we can try it out. But it’s only a trial, so I’m not promising anything.” The paperwork was getting out of hand, and as long as she kept a close eye on Harry, he could be helpful. Providing his investment in Liberty didn’t interfere, she could use the free labor.

  The entry door slammed and rubber soles on lino squished down the hallway. She wasn’t expecting anyone, and forensic accountants in bad neighborhoods simply didn’t get walk-ins. Likely the wacky interior decorator across the hall who wanted to sell her on a makeover. The glass wall facing the hall was like a storefront, and he was repulsed by her seventies thrift-store retro.

  But it wasn’t him. Instead, Jace poked his head in the doorway and grinned at her expectantly. She didn’t need to ask, but decided to anyway.

  “Are you here for more story? You’ve already got everything I know.”

  “That was yesterday. You must have tracked Bryant down by now. Don’t hold out on me, Kat. I’m desperate.”

  Did these guys think it was easy to track down fugitive billionaires?

  Tina skidded down the hall, narrowly missing the doorway and Jace’s ankles. She was followed by Buddy in close pursuit.

  “Jace, I haven’t got anything new. You’ll be one of the first to know when I do.”

  Jace stared after Buddy and Tina as they rounded the corner to the kitchen.

  “Not the first?”

  “I do have a client. After them.”

  “Why are your cats here?”

  “Feline field trip.” She wasn’t about to tell Jace she was living at the office.

  “Really?” Jace’s eyes crinkled in amusement. “Don’t cats hate travel?”

  “They’re on assignment. Mice in the building.” Lame excuse, but it was all she could think of. She couldn’t let Jace know the truth.

  “Mice? I can help with that.” Jace turned and followed the cats down the hall.

  Kat jumped from her chair to follow, but it was too late. Jace opened the storage room where her bedding lay on the floor. Why hadn’t she at least made her bed?

  “What’s all this? Someone sleeping in the closet?”

  She ran to the door, slamming it shut so that Harry wouldn’t see.

  “You? You’re sleeping here?”

  Kat felt her face flush with shame. What would Jace think if he knew his fix-and-flip investment partner was practically homeless?

  “Ssshh. Yes, I’m sleeping here. Long story.”

  “With mice? I don’t believe it. Trying to overcome your phobia?”

  “There aren't any mice,” Kat whispered. “I just made that up. Please, don’t let Harry hear you.”

  “Why all the secrecy? Why can’t you sleep at home?”

  “I moved out. Can we talk about this later?”

  Jace wasn’t letting up.

  “You moved out? Of your apartment? There’s something you’re not telling me.”

  “Shorter commute.”

  “Kat, what’s really going on?”

  Kat didn’t answer. Instead, she strode back towards the spare office to head off Harry, just as he emerged with a file in his hand.

  Jace followed.

  “Why can’t you just tell me?”

  Kat ignored him.

  “Jace, come over here,” Harry said. “By the way, Kat, I hired Jace as my assistant. He works for free too.”

  “Guys, I don’t know why you’re both here, but I need to get some work done.”

  Harry and Jace followed her into her office. Harry opened the file and pointed to a spreadsheet.

  “What do these numbers mean, Kat? What does mining production have to do with the missing money?” Kat imagined Harry spending hours trying to figure it out on his own. It wouldn’t hurt to give them some more background. At the very least, talking through it might highlight something she had missed earlier. And distract Jace from her sleeping arrangements.

  “I’m not sure how they’re connected yet, but I’m pretty sure the numbers have been manipulated. To get an overview of Liberty, I imported all of the numbers from the general ledger into Snoopy. All of Liberty’s financial records seem reasonable, except the mining output.” Snoopy was Kat’s nickname for her proprietary audit software, which used statistical modeling to examine large amounts of data for inconsistencies and anomalies.

  “As part of my forensic audit, I’m looking for any other strange patterns in the numbers. You’d be surprised how often frauds are discovered this way. And there is something odd about the numbers. Somehow it’s connected to the missing money.”

  “So the production’s low? Is that the problem?”

  “No, and that’s what’s so strange, Uncle Harry. The output is too high when you compare them to mines of similar size and scope. First, I reviewed production results for similar mines in the same stage of depletion. It wasn’t too difficult, since pretty much all diamond mines of this size are also owned by public companies, so the results are readily available on the Internet through their annual reports. It seems Liberty consistently out-produces them by about thirty to thirty-five percent.”

  “Maybe Liberty manages its mines better than the competition. Besides, why would you overstate your production if you wanted to steal from the company?”

  “There’s got to be a reason.” Kat continued, “I just don’t know what it is yet. Why does Liberty’s data differ so much from the other similar diamond mines? The normal range deviation I would expect to see is about six to eight percent, so it is significant.

  “I can’t figure out why it would be higher either. Until a couple of years ago, production was in line with other mining companies. Then it suddenly increased. Weird. Not only that, but the data distribution doesn’t correspond to Benford’s Law.”

  “Wait a sec—what’s Benford’s Law?” J
ace’s interest was suddenly piqued.

  “It’s a mathematical law based on the principle that in just about any set of numerical data, numbers occur as the first or second digit at a predictable rate.” Kat took a breath and continued.

  “For instance, the number 1 will appear as the first digit thirty-one percent of the time, but the number 9 will only appear first about five percent of the time. So, to test Liberty’s data, I started with the last ten years of financial data for various items, and compared them to other companies. Under Benford’s Law, you would expect the leading digit to be 1 about thirty percent of the time, but in Liberty’s case it doesn’t appear as the first digit ever. Not only that, but 5 appears sixty-one percent of the time, when according to the rule it should appear only seven-point-nine percent of the time.”

  “How can that be? Aren’t numbers random, like when you flip a coin?”

  “Not exactly.” Kat drew on the whiteboard. “A simple way to explain it is this—say Liberty’s production grows at an average rate of 10% per year from start up to peak production. The first year you have production of 1,000 tonnes; second year, 1,100 tonnes; and so on. The first digit will continue to be 1 until the total reaches 2,000 tonnes, at which point the first digit becomes 2. At a compound growth rate of ten percent per year, it will take just over seven years to reach 2,000 tonnes. To grow from 2,000 tonnes to 3,000 tonnes will only take a little over four years, because the base number is much larger; therefore ten percent of a larger base makes up a greater proportion of the 1,000 tonnes of growth. So, based on a growth rate of ten percent, the first digit is a 1 at least seven times, whereas it should be a 2 at least four times.”

  Kat opened the file and handed Jace the printout. “If you go through all the possibilities for numbers 1 through 9, and compare Benford’s Law to a sample of Liberty’s data, you get this.”

  “What does that prove?” Harry wasn’t convinced of the relevance. “Maybe Liberty had a few ups and downs. Isn’t mining a feast or famine type of operation?”

  “Well, maybe for profitability, but production volume for a fully operational mine should be reasonably predictable. You can see that the production figures for the diamond industry roughly correspond to the model, but Liberty’s do not. Numbers beginning with 1 are non-existent for Liberty, and there are a disproportionate number beginning with 5 and 6, which make me suspect that these numbers have been altered somehow. The question is, why would you inflate them?”

  “It sounds pretty intriguing, but how does it tie into Bryant’s disappearance?” Jace said. “Aren’t you supposed to focus on the missing money and the CFO that goes with it? How are you going to tie that together?”

  “I haven’t quite figured that out yet, but I’m sure they’re related.” Kat paused for a bite of chocolate chip cookie as she pondered Jace’s question. “If these numbers are doctored, then someone’s trying to hide something.”

  Ken Takahashi was right. The numbers were definitely being manipulated.

  Harry and Jace returned to whatever it was they were working on, and Kat pored over the numbers again. It was puzzling, and she didn’t have an answer for them.

  The money trail was cold, and here was an avenue that appeared suspicious. But why would a company alter the numbers and lie about producing something it hadn’t? There were easier ways to inflate revenues. Faking production at a high-security diamond mine would be difficult, if not impossible, and there would have to be physical evidence of the volume. If the diamonds didn’t really exist, a lot of people would have to be complicit in the cover-up, from the miners all the way up the food chain to the C-Suite execs.

  Kat penciled out a list of questions. First she needed a list of who stood to benefit in a big way from the higher production numbers. Higher output meant higher profits. The possible beneficiaries included shareholders, management, and employees, but they would also need access. Who had so much at stake they were willing to commit a criminal act?

  Finally, what would the production numbers have been if they were comparable to similar mines over the same period? By normalizing the production numbers over the last year to what production would have most likely been, she could determine the potential magnitude of the fraud. And how it tied to the missing billions.

  In reality, any employee shareholders in the company stood to benefit since increased diamond production meant a higher share price. Liberty had an employee share-ownership plan, so many employees fit into this category. Kat ruled out most employees simply because the upside gain on their small share holdings would not be enough to risk their jobs. Senior management and directors, with their stock options and larger holdings, definitely had more skin in the game, so they were a possibility. Large outside shareholders would also benefit, but they would not have the access to falsify company data.

  Obviously Paul Bryant had the opportunity to manipulate the numbers, but so did the rest of senior management and directors, including Susan. Someone else at Liberty was up to no good. The evidence was beginning to shift away from Bryant. But if it wasn’t Bryant, who was it? Who had the means and the motive to doctor the numbers? Kat left a message for Ken Takahashi. He would probably be reluctant to help, but her sources were limited and it was worth a try. She couldn’t exactly ask Susan about the doctored production without some sort of physical evidence.

  Kat hadn’t realized how hungry she was. She rooted through the fridge, nuked a bowl of leftover macaroni and cheese, and settled back in her office. She vaguely remembered Harry and Jace leaving about an hour ago, but was too engrossed to notice the time.

  Kat was sure of one thing. Paul Bryant didn’t need those overstated production numbers to pull off a fraud. Contrast the falsified production numbers with the obvious paper trail left by Bryant, and it made Kat wonder whether Bryant’s disappearance was voluntary. Was Bryant a criminal or a victim? If Bryant was innocent, then who was the thief? And what had they done with Bryant?

  11

  “I don’t get it. Why sleep in a storage closet when you can stay here?” Jace looked down at Kat from the stepladder as he refilled his paintbrush.

  They were in Verna’s kitchen and Jace was applying the first coat of paint. He dipped his brush into the tray in a quick, precise motion, the lemon eggshell barely coating the brush hairs. Jace was very particular about painting. Kat preferred to saturate the brush. She loved the extravagance of the brush hairs expanding with the creamy paint, but Jace complained it left drips and ruined brushes.

  “Can we talk about something else?” Her aching back was enough of a reminder. She was broke, homeless, and no closer to finding Bryant and the stolen money.

  “You’re not telling me everything, Kat. Something’s wrong.”

  “No, there isn’t. Why are you so concerned about my sleeping arrangements?” Was it the paint fumes, or had they been repeating the same Q&A for the last hour?

  “Because you’re acting weird. I don’t get why you won’t tell me—why did you move out of your apartment?”

  A spasm of pain shot through her back as she lifted a stack of plates out of the cupboard. The plates slipped from her grasp and shattered on the kitchen floor.

  “Damn!” Here she was emptying and scrubbing cupboards while Bryant was slipping into a new identity and life of luxury in Brazil or some other country without an extradition treaty.

  “Why do you think, Jace? I’m broke! I couldn’t even pay my rent this month. I can’t pay you either.” Kat felt her face flush with anger as she turned away from him. Jace wouldn’t understand. Things always worked out for him, whether it was a winning lottery ticket or front row parking.

  “How can you be broke? Liberty’s a big case, isn’t it?”

  Jace descended the ladder and followed her into the pantry as she went searching for a broom. She tried to contain her frustration.

  “It is, but I’ve already spent my retainer, and it’s going to be awhile before I’m paid again. I was a little behind on my bills.” Huge
understatement, Kat thought as she felt her face flush.

  “Why didn’t you tell me, Kat? Friends help each other. Or am I not even that to you anymore?” Jace stood in the doorway, arms crossed. In the dim light of the pantry she could see his mouth had formed into a thin hard line. She had hurt his feelings.

  “Of course you are. It’s just that—I already owe you for the house.” Kat dropped the broom and dustpan she had just found and walked towards the doorway. It was like grade seven all over again, right after she moved in with Uncle Harry and Aunt Elsie. Right after her father left. Jace had been her friend then too, long before they were a couple. Instinctively she raised her arms to hug him, but caught herself. There was no going back. She couldn’t have Jace coming to her rescue all the time.

  She picked up the broom and dustpan and brushed past him in the doorway, avoiding his eyes. He followed her into the kitchen, and Kat busied herself sweeping the china fragments into the dustpan. Jace dropped the larger pieces in the garbage can.

  “It’s no big deal, Kat,” Jace said as he touched her shoulder. “Everything’s going to work out. You’ll solve the Liberty case, and that’ll bring in lots of new business. Companies will be chasing after you. You’ll see.”

  But could she do it in four days? She had to—her reputation depended on it. If she didn’t, she knew Nick and Susan would make sure she never worked anywhere again. Kat glanced at Jace then averted her gaze. She wanted to hug him but fought the urge. She didn’t want to give him the wrong message.

  “I wish it were that easy,” she said. “I’m getting nowhere with Liberty. Susan’s expecting results by Friday, and I’ve got nothing to give her.”

  “There’s got to be something. What about the faked mining results?” Jace pulled some takeout containers from the fridge and emptied them onto plates. “Leftover Thai?”

  “Sure.” It was a relief not to have any more secrets from Jace. Plugging in the kettle, she sifted through a tea canister on the counter, searching for something to go with the Thai food. She pulled out a packet of loose tea labeled Chinese Gunpowder in small neat handwriting. “I can’t tell Susan about the doctored production yet. What if she’s somehow involved?”