Never Ignore Anomalies

In this month's column, I am going to tell you a bitter story about how I got ripped off for at least $50,000.00. This sad tale begins in 1979, when I hired a middle-aged woman to come to work for me as an office clerk. She was a single mom with a young daughter, living in a trailer park a few miles outside of Boulder. Her job was relatively simple, as she was in charge of opening all correspondence for our mail order business, making the bank deposits, and then checking all orders received to be sure that the math had been done correctly by the customer. This job was pretty low key, as I had just purchased our mail order company from Richard Alf a couple of years earlier, and our sales were running a meager $1,000 per week. With only about $150 a day in orders being received, it was no big deal for her to get all the work done.

This relaxed atmosphere disappeared midway through 1980, when the very first Mile High Comics double-page spread featuring comics for sale appeared in the centerfold of all Marvel comics. Thanks to that groundbreaking ad (the very first one to ever show comics fans the market prices of back issues without having to send away for a catalog...) our sales volume increased by a factor of eight, to $8,000.00 per week, within the period of 15 days. Suffice it to say, there was absolutely no way that we were prepared for that kind of astounding increase in sales. I spent the 90 days after the publication of that first ad scrambling to rent a new warehouse (with 15,000 square feet!), hiring a brand new crew of 10 more workers, and moving all of our comics inventory into the new building. I also purchased 400,000 back issues from my main competition in Denver for $100,000.00. It took forever for us to completely integrate those comics from that vast purchase into our own inventory, but at least they helped us fill many orders that otherwise would have had to have been returned.

By the end of the summer of 1980, we had created the basics of the mail order company that carried us through the next 15 years. Despite gross sales frequently in excess of $10,000.00 per week, however, we were always chronically short of cash. It was easy to see where a great deal of our money went, as the rapid growth of the business had forced us to purchase an amazing plethora of necessary equipment, ranging from desks and chairs, to shipping scales, and even pallet jacks. Constant turnover among our new hires also caused us to spend many thousands of dollars on training staff. Blessedly, that was the period when I still did have the option of selling comics from the Edgar Church/Mile High collection of Golden Age comics, so I funded our cash shortfalls by selling off ever more and more of my precious old comics.

Despite my best efforts at scrimping and saving, however, it was never enough. We were always broke, and near the point of redlining with our critical vendors. The net result was that I ultimately had to sell off some really key books between 1982 and 1983, including ACTION COMICS #1-#10 AND MARVEL MYSTERY #1-#10. After paying the taxes, I received a net $70,000.00 for those books, all of which went into Mile High Comics to bolster our sagging working capital. Even after that major sacrifice on my part, however, we were still not able to keep our checkbook in the black. That's when I made the decision to sell all of our retail stores, and to focus our working capital entirely on just our mail order operations.

Once I started spending all of my time at the mail order company in 1984, I had this feeling that something just wasn't right. We were filling a great many orders, but the cash flow just wasn't what it should be. So I hired an outside accounting firm to try and figure out what we were doing wrong. That's when we discovered that the cash going into the bank each day was vastly less than the cash being reported as received in the daily totals. The way our system worked in those days was that, as the mail was opened, each order had the form of payment received marked in a special box at the top of the page. In those days the payments ran about 10% cash, 80% checks and money orders, and 10% credit cards. When I actually audited our deposit slips, however, I discovered that the cash entering the banks was frequently less than 1% of the total of our gross sales. When I then went back and checked the payment type noted on the actual physical order forms, I discovered that approximately 80% of the cash that we were receiving each day was never making it into the bank. It left the building in the hands of our office manager, but before she made the deposit into the bank, she first wrote a new deposit slip with a far lower amount in the cash line, and pocketed the difference.

The reason why this person was able to burn me so badly was because I made a classic mistake. I had the same person who was making up our deposits also balancing the checkbook. With no one beside her ever looking at the actual deposit slips, she was able to keep pilfering our cash receipts for a period of over 5 years! My only excuse for letting this happen for so long was that I was so darn busy trying to solve our cash flow problems by cutting expenses, that it never occurred to me that the real issue was what was happening to the revenue. In many regards, however, this was exactly her plan. By keeping me completely preoccupied putting out fires that she actually caused, she was able to avoid detection for many years. Because the legal proceedings ended before we finished auditing, we never did get a final total, but we had discovered over $60,000.00 in cash anomalies when we stopped, with about 18 months to go. Suffice it to say, this woman caused me unbelievable stress and grief, and can in many regards be held accountable for my being forced to sell the ACTION COMICS and MARVEL MYSTERY key issues.

What happened in the end is that she pled guilty to a felony, and made restitution to me (five years later...) of about $11,000.00. While that may sound like it at least helped with taking the sting away, after paying my attorney and accountant, I actually netted nothing from her prosecution. But at least I was able to show her that there were consequences to her actions. I also learned to keep the duties of receiving revenue, making deposits, and balancing the checkbook in separate hands. Even with those precautions in place, however, I was later burned by another gang of thieves who worked in collusion with each other, but my safeguards did allow me to detect that problem long before it reached anything approaching the magnitude of this first rip-off.

The moral of this story is to never ignore anomalies. If you are in business for yourself, or working for any company that handles cash, and you see the numbers not adding up, dig, dig, and dig for more information. What you don't know really can hurt you. As a case in point, the current owner of the Edgar Church/Mile High ACTION COMICS #1 reported turned down one million dollars in cash for that single book about five years ago. Believe me when I say that, if I hadn't been so desperate for cash, I would never have sold that book in 1983. So, even today, nearly a quarter of a century after the fact, that one massive rip-off keeps hurting me. Never forget that old adage that you're only being paranoid, if they're really not out to get you...

Please send your e-mails to chuck@milehighcomics.com, and your letters to:

Mile High Comics, Inc.
Attn: Chuck Rozanski
2151 W. 56th Ave.
Denver, CO 80221



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