Accounting 8372153

Case5: There once was a corporation from Nantucket. Its controls leaked like holes in a bucket. Smelling trouble with the buyer, and with the supplier, they determined to fix it or chuck it. This limerick accurately depicts Bucket Corp., which manufactures wood furniture. Bucket has enjoyed several years of good profits but has recently seen some alarming trends in its bottom line. Although not drastic, Bucket’s profits first stagnated and are now beginning to decline. After some cost analysis and investigation of financial records, the company has determined that the problem may be coming from the procurement division of operations. Below is a small random sample of invoices from various vendors: Supplier

Product

Price/Ton

Quantity

Woods “R” Us

Oak

157.00

2

314.00

Cherry

75.00

3

225.00

Cedar

125.00

1.5

187.50

42.00

3

126.00

215.00

4

860.00

8

920.00

140.00

6

840.00

Spruce

80.00

9

720.00

Oak

158.00

Cherry

74.00

2

148.00

Cedar

124.00

2

248.00

43.00

3

129.00

156.00

3

468.00

Cherry

76.00

3

228.00

Cedar

127.00

1

127.00

Spruce Harris Lumber

Oak Cherry Cedar

Lumber Jack’s

Spruce

Small’s Lumber

Oak

115.00

1

Total

158.00

Spruce

41.00

4

164.00

1) What could the CFO do to investigate the potential problems in the procurement department of Bucket Corp.? Answer: As it is given in the problem that Bucket Corp has enjoyed several years of good profits but in the recent years it has seen some alarming trends in its bottom line. The management of the company has analyzed that there is requirement of investigation so that vulnerable are can be identified and the reason for such can be carried out. The management should make investigation by following ways: 1. Analysis the activities of all the divisions 2. Determine the trend and ratios for analytical review 3. Segregate the same products that are using in all the divisions 4. Classify the price that was actually paid for such products 5. Establish a comparison among all the classification 6. Establish the comparison from the previous year’s data whenever required 7. In case of suspect confirmation from suppliers. 2) Do you think it is possible there is fraud involved? Why? As per my investigation it is concluded that there is not only the possibility of fraud but also fraud exist in such division. I have framed my opinion after comparing the price of the same products from different divisions that was being paid. The company is purchasing the same products from different suppliers and there is a significant change in the prices of suppliers. These are as under: Supplier

Woods "R" Us Harris Lumber Lumber Jack's Small's Lumber

Products Price 157 215 158 156

Oak Quantity 2 4 1 3

Cherry Cedar Spruce Price Quantity Price Quantity Price Quantity 75 3 125 1.5 42 3 115 8 140 6 80 9 74 2 124 2 43 3 76 3 127 1 41 4

In the above analysis it is found that company is paying to Harris Lumber more amounts for same product than any other suppliers. Company is currently buying more percentage of quantity from the Harris Lumber and also paying very high price for per unit. As per normal thought if anyone purchase more quantity from same supplier then he has given discount also but price are not charged more in case of any reasons.

Hence it is clear that there is possibility of fraud and company is making fraud by paying more amounts to Harris Lumber. It may be either related person or have some other interest in the company. Particulars Woods "R" Us Lumber Jack's Small's Lumber Average price Price paid to Harris Lumber Difference in price per unit

Oak 157 158 156 157 215 58 (215-157)

Cherry 75 74 76 75 115 41 (115-74)

Cedar 125 124 127 125 140 16 (140-124)

Spruce 42 43 41 42 80 39 (80-41)