More troubling, it remained carried at that value after the certificates expired.
Most troubling, when certificates were distributed as payroll, the company reduced wage liabilities dollar-for-dollar using printed face value.
A certificate Blackidge had purchased for roughly twenty-eight cents per printed dollar extinguished one full dollar of wage liability on its internal books.
The economics became obvious on a whiteboard.
Grant entered during the explanation.
“What’s the issue?”
The senior auditor turned.
“The issue is that your books treat expired instruments purchased at a substantial discount as if they were equivalent to unrestricted cash.”
“They had face value.”
“They had an expiration date.”
“The issuer may honor them.”
“May?”
Grant looked irritated by the familiar word.
The auditor continued.
“And this agreement specifically prohibits their use as wage compensation.”
Grant looked at Preston.
Preston looked at the table.
The auditors then requested documentation supporting the $1.8 million retention reserve.
That request produced another problem.
The reserve had existed.
The money had been transferred into a designated account in October.
Then, during November and December, substantial portions had been moved back into operating cash.
Some supported ordinary expenses.
Some improved quarter-end liquidity.
Some helped Blackidge satisfy cash thresholds connected to the pending bank facility and Indiana contract.
The reserve had been described to employees as segregated and committed.
It was neither by December.
The auditors asked who authorized the transfers.
Preston’s name appeared.
Then Grant’s.
The next question became intent.
Grant’s first defense was delegation.
“I’m not an accountant.”
True.
“I don’t choose general ledger methodology.”
Also true in general.
“The CFO handled the certificate program.”
Preston’s face hardened.
The senior auditor asked:
“Did you approve use of the certificates for wages?”
Grant paused.
“Operationally, yes.”
“Did Mr. Caldwell raise compliance concerns?”
“I don’t recall.”
Preston looked at him.
The room changed.