Answer the following questions. Each answer should be at least one page
1- 1- 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.
After reviewing the random sample of invoices from various vendors in your text for this case (Chapter 6 Case 5), answer the following questions:
What could the CFO do to investigate the potential problems in the procurement department of Bucket Corporation?
Do you think it is possible there is fraud involved? Why or why not?
2- 2- Large frauds can often be detected by performing financial statement analysis. Although such analysis can raise areas of concern, not all red flags are the result of fraudulent activities. Reasonable explanations often exist for anomalies in financial statements.
The statement of cash flows is one financial statement that is analyzed in order to identify possible fraud. Please refer to the statement of class flows for Kelly Enterprises, Inc. in our text (Chapter 6 Short case 10).
What possible red flags can you identify?
Do any reasonable explanations exist for the areas of concern you identified?