27 Jul PRINCIPLES OF FORENSIC ACCT
You decide to conduct an audit of the purchasing function for this division. But before you do, you decide to get some more information about the division and the employees. You find that Mr. Brackens has been an employee for more than twenty-five years, coming to the company right out of college. He has five employees that work for him, one is a manager (Angela Harkins) and the rest are buyers — two senior buyers and three junior buyers. Harkins has been an employee for 15 years and the buyers have been working in the department for six months to ten years: Jim Rydel, Sr. Buyer (10 years); Ruth Bell, Senior Buyer (7 years); Ben Troupe, Junior Buyer (2 years); Rhonda Davidson, Junior Buyer (2 years); Rick Adams, Junior Buyer (6 months).
Regarding purchasing policies, any purchase that is more than $10,000 must go out for a bid. All bids must be approved by the manager of the purchasing department or higher. Only authorized vendors are allowed to bid. Vendors without a vendor number must be handled by special processing and approved by the director.
Junior buyers can authorize purchases of up to $5,000; senior buyers, $7,000; managers and directors, $9,000.
You pull a listing of vendors who have been paid more than $100,000 for the years, 2000. 2001, and 2002 and find the following.
| JMC | ||||||||
| Vendors with >$100,000 2000-2002 | ||||||||
| 2000 | 2001 | 2002 | Total | % of Total | ||||
| Black IPS | 47,844 | 12.09% | 52,468 | 5.90% | 0 | 0.00% | 100,312 | 3.59% |
| Warehouse Eqpmt | 30,402 | 7.68% | 44,447 | 4.99% | 70,940 | 4.69% | 145,789 | 5.22% |
| Lantern Co | 38,089 | 9.62% | 78,682 | 8.84% | 45,872 | 3.04% | 162,643 | 5.83% |
| Oak Hill Distributors | 61,166 | 15.46% | 24,566 | 2.76% | 78,229 | 5.18% | 163,961 | 5.87% |
| Seros | 37,090 | 9.37% | 48,843 | 5.49% | 119,068 | 7.88% | 205,001 | 7.35% |
| Randazzo Supply | 41,189 | 10.41% | 62,012 | 6.97% | 111,845 | 7.40% | 215,046 | 7.71% |
| Adam Systems | 50,470 | 12.75% | 52,198 | 5.86% | 140,033 | 9.27% | 242,701 | 8.70% |
| AA Supply | 67,194 | 16.98% | 80,378 | 9.03% | 113,723 | 7.53% | 261,295 | 9.36% |
| Ad Sys | 20,321 | 5.13% | 78,019 | 8.77% | 173,854 | 11.51% | 272,194 | 9.75% |
| Top Q | 0 | 0.00% | 105,620 | 11.87% | 247,172 | 16.36% | 352,792 | 12.64% |
| Blues Pro | 0 | 0.00% | 260,785 | 29.30% | 408,323 | 27.02% | 669,108 | 23.98% |
| 395,765 | 100.00% | 890,019 | 100.00% | 1,511,061 | 100.00% | 2,790,842 | 100.00% |
Questions:
1. Is there anything that is suspicious on the summary? Explain your answer.
2. Do you have predication for fraud? Why or why not?
3. Would you conduct a surprise audit of the area? Why or why not?
4. How would you approach the area?
5. What are your next steps?
You contact Mr. Brackens and inform him that you will be conducting an audit of his area and it will begin tomorrow. You will be conducting an audit of the area to close out the audit that was started a few years ago. You don’t expect to be in the area more than a few days at most, but would appreciate his and his staff’s full cooperation. Mr. Brackens informs you that he and his staff do not have time for you to come in until, at the minimum, 3 months from now. Needless to say, after going back and forth between him and your boss, you make plans to conduct the audit tomorrow. You pull a listing of invoices paid to the highest paid vendors. The list starts on the next page.
Questions:
6. After reviewing the detailed listings, do you have any suspicions? If so what are they?
7. What are your next steps?
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