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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, Buckets 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 Total

Woods R Us Oak 157.00 2 314.00

Cherry 75.00 3 225.00

Cedar 125.00 1.5 187.50

Spruce 42.00 3 126.00

Harris Lumber Oak 215.00 4 860.00

Cherry 115.00 8 920.00

Cedar 140.00 6 840.00

Spruce 80.00 9 720.00

Lumber Jacks Oak 158.00 1 158.00

Cherry 74.00 2 148.00

Cedar 124.00 2 248.00

Spruce 43.00 3 129.00

Smalls Lumber Oak 156.00 3 468.00

Cherry 76.00 3 228.00

Cedar 127.00 1 127.00


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 years 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 Products
Oak Cherry Cedar Spruce
Price Quantity Price Quantity Price Quantity Price Quantity
Woods "R" Us 157 2 75 3 125 1.5 42 3
Harris Lumber 215 4 115 8 140 6 80 9
Lumber Jack's 158 1 74 2 124 2 43 3
Small's Lumber 156 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 Oak Cherry Cedar Spruce


Woods "R" Us 157 75 125 42
Lumber Jack's 158 74 124 43
Small's Lumber 156 76 127 41
Average price 157 75 125 42
Price paid to Harris Lumber 215 115 140 80
Difference in price per unit 58 (215-157) 41 (115-74) 16 (140-124) 39 (80-41)

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