Chapter 2

As audit field work ended it was customary for a person in the firm's Tax Department to review and sign off on the Financial Statement tax accrual. McAllister was a major client, so it rated the presence of the Tax Department Manager.

Though Tom and Keith Masters were rivals as the firm's heavy hitters in their respective specialties, they were friends of a sort. They didn't socialize very much, since the Masters' tastes were somewhat richer than the Grahams'. Tom and Keith went golfing two or three times a summer. Keith and his wife could afford the higher lifestyle because they had no children. Stephie Masters worked as a fund raiser at a not-for profit.

Tom had already been on the job at the McAllister plant since eight that morning. Keith stopped in the BM&H offices downtown and then drove out to the client's plant. It was after nine-thirty when he arrived.

"Where do you want me to set up?" he asked Tom.

"They gave us the conference room to work in," Tom answered.

Keith rarely wore the pinstriped uniform of CPA's. He was much taller than Tom, and more athletic in appearance. His bright, red tie stood out from his charcoal suit and his sandy-colored, wavy hair was parted in the center and a bit longer than that of any of the rest of the male staff. Tom assumed it was part of being in the Tax Department. It was the gravy end of the business and got most of the glory. Audit was the meat and potatoes. At any rate, the female staff always gave Keith a second look—and maybe a third.

"Haven't seen you around the campus," Keith observed. "Bentley might forget who you are."

"I just saw him last night after I finished here," Tom answered. "Everyone else was gone. This audit's been a tough one. I've got two new guys with me, too."

"Dedicated, as usual," Keith allowed. "The trouble is, no one appreciates it. You should get into the Tax Department. Then, clients actually like you."

"I just don't have your charm, Keith."

"C'mon, Tom, that's not it. The difference is that you spend all your time telling them what they can't do. Auditing is the ultimate tattle-tale. I protect their money from the government. Think about it."

"The die is about cast by now," Tom replied.

"Did Bentley say anything last night—you know—about Howe's partnership?"

"No, he was very tight-lipped. I didn't ask him; it would have looked bad. I don't think they'll do anything until after the retirement party."

Keith's anxiousness surprised Tom; it was out of character for him. He understood his own nervousness better. Keith was always on top of the world.

Keith thought for a moment. "Makes sense," he agreed. "Well, let me see your work papers so we can get this job done. I'd like to take the afternoon off."

"You signed out for the whole day at this site, Keith," Tom protested. "I have to absorb your time against this job."

"This review won't take all day, and I have some plans. You won't snitch on me, will you, Mr. Auditor?"

"I can't believe it's the middle of Tax Season and you're sneaking out for an afternoon."

Keith shrugged his shoulders.

"I suppose that Allison called in sick today."

Allison MacKenzie was the hot little bachelorette who ran the firm's computer system.

"Now that you mention it, I did hear that she had the sniffles," Keith laughed.

"Well, don't catch cold, yourself," Tom warned. "You're going to get caught one of these days, you know."

"You see," Keith replied, "that's the difference between an audit man and a tax guy. You think that all bad deeds will be uncovered and I don't believe they ever will."

"All kidding aside," Tom said, "why can't you keep yourself occupied with Stephie? She looks pretty good to me."

"I just like a little variety once in a while. Nothing wrong with Stephie. She can get a little tiresome as a steady diet—like eating a sweet dessert as a main course when you want something hot and tangy." Keith paused and looked at Tom. "I know that you like Stephie. I suppose that if you and she want to have a little fun I couldn't object—turnabout is fair play, after all. I think she likes you, Tom."

"What're you talking about, Keith? I think Allison's got you out of control."

"Just kidding—just kidding!" Keith laughed, holding up his hands in mock self-defense.

"Let's get to work," Tom insisted. "One of the staff accountants is likely to come in and hear us."

It was true that Tom had admired Stephie from afar a time or two, and he liked her pleasing smile and quiet way. She worked at keeping her figure just right at the gym she belonged to. Kathy still had a few extra pounds to lose after the baby. She would work it off pretty soon—and besides, it didn't matter.

Later that day—about six in the evening—Tom was one of the few left at the McAllister offices. He was just finishing the review of the day's work papers. In a few minutes he would be packing up. Keith had left at about one-thirty, as planned, after signing off on the tax accrual. The staff accountants went home at five. The field work on the McAllister audit was nearing a close.

Tom looked up from his work and saw Les McAllister's secretary standing over him, wearing her hat and coat.

"Can I get you anything before I leave, Tom?" He shook his head. "Mr. McAllister was wondering if you could give him a few minutes in his office."

Les McAllister was the founder of the company that bore his name. It manufactured OEM² parts by plastic injection molding. The past few years had been tough ones, but the company was surviving. Les was older than Tom by about a dozen years, but looked older than that.

Tom sat across from McAllister at his desk, as he had many times.

"We're nearly done here, Mr. McAllister. I think you can have your conference room back after tomorrow's work."

"When are you going to learn that my name is 'Les'? Anyway, how did it go?"

"Same issues as last year," Tom answered. "Mr. Bentley will go over it with you, of course. It's going to be Obsolete Inventory again."

"I know," McAllister said. "I spoke with Charles Bentley on the phone this afternoon. He said the same thing. He knows all about the problem; he can't tell me what to do about it."

"I would cut lot sizes, for one thing," Tom blurted out. "At least that would be my suggestion," he corrected. "You might try to negotiate contracts for smaller quantities from your raw materials vendors. You wouldn't get caught holding the bag with so many leftovers when the OEM's change their specs."

The older man pursed his lips and nodded.

"You're right, of course. It would have to be hands-on. We don't have the money for expensive new systems."

"You'll have less next year. The over-production is killing your reserves."

"You're tellin' me!"

"I also met with Keith Masters when he was here today. You've got a tax problem with that Obsolete Inventory. Even though it'll hit your Income Statement, you won't be able to deduct it for tax purposes until you actually get rid of it. On top of that, the Unicap rules will add insult to injury."

"You've got to explain that to me, Tom."

"The tax rules inflate the value of the inventory on the tax return and lower expenses. You can't write it off until you sell it or throw it away and the higher levels for a larger basis for converting overhead expenses from deductions to inventory. Your book income is barely break-even but your taxable income will be quite high."

"I haven't got the cash. I'll have to borrow the money to pay the taxes."

"The bank won't be very receptive to increasing your line when they see this Income Statement, I'm afraid. I really suggest that you get that material to the dump."

"It's a damn shame to trash good material like that. Most of it's raw material that came in as the customers were changing specs. I was hoping to find a use for it. Do you know how many hours are tied up in designing and machining those mold dies?"

"No one likes the rule—but there it is, Les."

"I think you convinced me. I wish that Larry would give me a heads-up on this stuff," McAllister admitted. Les looked a little harder at Tom. "You don't think much of Larry, do you?"