Reference no: EM131640698

The Wheel Drive has been a profitable Company since it was founded 10 years ago. By the start of the last financial year, the firm has doubled the number of employees and also hired and trained a specialized purchasing department. The purchasing department’s main role is to purchase the raw materials required for production of the specialized car hubcaps and wheels sold by The Wheel Drive to the growing market of old car enthusiasts. the purchasing department also is chartered with the responsibility of negotiating and obtaining bids for all non-production related requirements of the company, ranging from copy machines to desk top computers. Over the past year, The Wheel Drive saw its operating profits decrease dramatically, and management is trying to identify the reasons for the sudden and unexpected drop. The decrease in profits has been preliminarily analyzed as emanating not only in/from reduced gross margins recorded on the sales of the car hubcaps and the wheels, but also unbudgeted, unexpected increases in non-production operating expenses.

The purchasing department operates as follows:

-purchase requisitions are prepared by each department, including by production and inventory control for raw material requirements, are approved by the authorized respective department manager(s), and submitted to the purchasing department for processing;

-the purchasing department has a manager that oversees the purchasing activities of the 3 new employees hired at the start of the current financial year; all have several years of professional purchasing experience;

Management has already investigated whether the sales mix has changed in the current year to less profitable car hubcaps and wheels, and found there has been no significant change in the sales mix over the prior year. Management has also investigated whether there have been significant increases in the prices of raw materials being charged by vendors or in any of the other major operating expenses since the prior year, and found no significant increases which could explain the dramatic drop in operating profits.

You have been hired to perform an investigation of potential fraud which may be occurring in the purchasing department at The Wheel Drive. Below are some of the areas where you would potentially start your investigation:

You request a meeting with the human resources (personnel) department at The Wheel Drive. What are at least 5 questions you would ask him/her? Include an explanation of why you would be asking each question. Be specific.

You next request a meeting with the purchasing department manager. You realize you must be careful and very tactful in this meeting. What would be at least 5 basic questions you would start your discussion with to get the investigation moving forward? (Hint: for the purchasing department function, what are some vitally important internal controls which should be in place including separation of duties in that department?) Again, be specific.

You then request a meeting with the receiving department manager. What questions would you ask him/her? Include an explanation of why you would be asking each question.

You then request a meeting with the accounts payable department manager. What questions would you ask him/her? Include an explanation of why you would be asking each question.