Question

Something is Amiss in the Purchasing Department at The Wheel Drive

The Wheel Drive has been a profitable company since it was founded 10 years ago. At the start of the last financial year, the company had doubled the number of employees from the year before. Wheel Drive hired and trained employees for a specialized Purchasing Department. The Purchasing Department’s main role is to purchase raw materials required for the production of specialized car hubcaps and wheels sold to old car enthusiasts.The Purchasing Department is also responsible for negotiating and obtaining bids for all non-production related requirements of the company. Over the past year, Wheel Drive saw its operating profits drop dramatically, thus management is trying to identify the reasons for the sudden and unexpected drop in profits. Their preliminarily analysis determined profit dropped as a result of lower gross margins and unexpected increases in non-production operating expenses.

The Purchasing Department operates as follows:

- Purchase order requisitions are prepared by each department, approved by the respective department manager(s), and submitted to the Purchasing Department for processing;

- The Purchasing Department has a manager who oversees purchasing activities of 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 price of raw materials or in any of the other major operating expenses since the prior year, and found no significant increases.

In responding to the questions related to this case, be sure to provide references for all sources you used. Your answers to this case study should be 5 pages in total, including cover and reference pages. The body of the paper, which must be at least 3 pages in length, should be double-spaced. Make a copy of each question below and place the questions into the body of your paper in bold-type, so that we can both see that you have addressed each one of the questions in your submission.

Questions/Requirements

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 areas you would potentially start your investigation:

1.   You request a meeting with the manager of the Human Resources Department at The Wheel Drive. Make a list of questions you plan to ask regarding this investigation. Include a brief explanation of why you would be asking each question. Be specific.

2.   You request a meeting with the Purchasing Department Manager. You realize you must be careful and very tactful in this meeting. List at least five questions you would use to start your conversation? Hint: what are some vitally important internal controls that should be in place in that Department? Be specific.

3.   You request a meeting with the Receiving Department Manager. List questions you plan to ask in that meeting with regards to this investigation. Include a brief explanation of why you would be asking each question. Be specific.

4.   You request a meeting with the Accounts Payable Department Manager. List questions you plan to ask in that meeting with regards to this investigation. Include a brief explanation of why you would be asking each question. Be specific.

Answer 1

Introduction: The Wheel Drive has been a profitable company since it was founded 10 years ago. At the start of the last financial year, the company had doubled the number of employees from the year before. The Wheel Drive hired and trained employees for a specialized Purchasing Department.

The Purchasing Department’s main role is to purchase raw materials required for the production of specialized car hubcaps and wheels sold to old car enthusiasts. The Purchasing Department is also responsible for negotiating and obtaining bids for all non-production related requirements of the company.

Over the past year, Wheel Drive saw its operating profits drop dramatically, thus management is trying to identify the reasons for the sudden and unexpected drop in profits. Their preliminarily analysis determined profit dropped as a result of lower gross margins and unexpected increases in non-production operating expenses.

The Purchasing Department operates as follows:

- Purchase order requisitions are prepared by each department, approved by the respective department manager(s), and submitted to the Purchasing Department for processing;

- The Purchasing Department has a manager who oversees purchasing activities of 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 price of raw materials or in

any of the other major operating expenses since the prior year, and found no significant increases.

Question 1: You request a meeting with the manager of the Human Resources Department at The Wheel Drive. Make a list of questions you plan to ask regarding this investigation. Include a brief explanation of why you would be asking each question. Be specific.

Answer 1.

I 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 areas we would potentially start my investigation:

I request a meeting with the manager of the Human Resources Department at The Wheel Drive. Following is the list of questions; I would like to ask during the meeting with human resource department people.

• How you feel the purchasing department is working in The Wheel Drive Organization? – This question I want to ask to understand the general feeling of Human resource department about purchasing department’s working, as it will help to provide some clue’s for the investigations.
• Do you feel that the manager of purchasing department is genuine and drive guanine processes in the department? – This question will help to assess the personality of the purchasing leader of the company.
• How is your experience with the purchasing leader of the organization? – This question will help to understand any behavioral habit of purchasing leader.
• What is the key reason that last year you had high recruitments in the purchasing department? – This question will help to understand the key reason of high recruitment in the purchasing department communicated to HR for initiating the recruitments, to find out any clue for the same.
• Did we have enough background check for the people before recruitments? If yes, can you show me the report of executives of the purchasing department? – This question will help to understand the fraud background of the applicant / employees at the company based on their assessments. This will help in relation to fraud events.

• Do we have code of conduct for purchasing business and have everybody aware and signed off the business code of conducts in the organization? – This will help to understand the organization’s readiness towards the policies and procedures to avoid any fraud act in the organization by controlling with the help of business code of conducts.
• What are the key reasons do you feel for the drop of profit for The Wheel Drive? – This will help to understand the key reason HR understand for the drop out of profit based on the awareness in the company.
• Do you feel the unreasonable role of purchasing in the drop out of profits for the company? – This is the direct question related to role of purchasing in profit drop out and wants to know any clues if they knew or wants to know their way of answering the question.