The Morales case was not the company’s first accounting headache. There were separate, earlier incidents suggesting Quail H Farms was leaking money, Smith said.
“In late 2009, I locked down on the cash sales side of our business and the accounting quickly went from $75,000 or $100,000 to about $250,000,” he said. Among other procedural changes, cash and paperwork began to accompany each other from start to finish.
If the difference was being skimmed, it’s unknown who the recipients were.
Civil suit filed
The case against Morales concerned sales made from October 2010 to January 2011. Quail H Farms went on to name her and El Cocho Produce among others as defendants in a civil suit filed Aug. 27 in state Superior Court in Los Angeles.
The suit alleges that starting in October 2010, El Cocho Produce buyer Hector Santos paid Morales for fresh produce in cash or checks payable to her, or deposited funds to her personal checking account. The sales were made without permission of Quail H Farms, according to court documents.
El Cocho Produce did not immediately answer phone calls seeking comment. Jeffrey Salberg, an attorney representing Quail H Farms, said in an e-mail that the Los Angeles company filed a general denial of claims. A written discovery process is next.
Morales sold and delivered more than $225,000 worth of products to Santos and to El Cocho Produce principal Alberto Arellano, the suit alleges, but Quail H Farms was paid only about $108,000. The company claims more than $29,000 was paid to Morales.
“Defendants knew ... that they would continue to receive substantial price concessions and credits if they continued to pay Morales directly for the produce,” the suit claims.