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Expense Account Fraud

While auditing the financial statements of Petty Corporation, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following:

• Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.

• Swindle, Fox, and Kreip were not Petty Corporation’s attorneys.

• A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk.

• Boghas’s other duties included performing the endof-month bank reconciliation.

• Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.

Required:

a. What control procedures could Petty Corporation have employed to prevent this unauthorized use of cash? Classify each control procedure in accordance with the COSO framework (authorization, segregation of functions, supervision, and so on).

b. Comment on the ethical issues in this case.

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A collective bargaining agreement (CBA) does not have any provision for overtime pay. The employees covered under the CBA have been assigned shifts of twelve (12) hours per day four (4) days per week and are paid their regular hourly wage for all hour worked. The employees only option is to

1. File a disciplinary charge under the collective bargaining agreement (CBA)
2. File an unfair labor practice charge with the National Labor Relations Board
3. File a complaint under the Fair Labor Standards Act with the United States Department of Labor
4. File a grievance under the collective bargaining agreement (CBA)
QUESTION 6
The collective bargaining agreement does not have any provision for paid vacation or paid holidays. The employees can
1. File disciplinary action under the collective bargaining agreement (CBA)
2. Take vacation time and holidays as unpaid, with permission of the employer
3. File a grievance under the collective bargaining agreement (CBA)
4. File an unfair labor practice charge with the National Labor Relations Board
QUESTION
A collective bargaining agreement (CBA) is an agreement contract) that
1. Defines una labor practices
2. Defines the terms and conditions of employment
3. Explains the employees wages and hours
4. Provides for certification of a representative for the employees
QUESTION 8
If a Union fails to bargain in good faith, an unfair labor practice charge may be brought under NLRA section
A. 17
B. 2,8(a)(5)
C. 3.8(b)(3)
D. 4.8(a)(1)(A)
QUESTIONS
The first step in negotiating a collective bargaining agreement (CBA) is
1. Determine who is in the bargaining unit
2. For the Union to serve demands on the employer >
3. Preparation
4. To schedule a negotiating session
QUESTION 10
The parties to a collective bargaining agreement (CBA) are the
1. Employer, Union and employees
2. Employer and Union representing the employees
3. Union and employees
4. Employer and employees

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Income Statement Balance Sheet
Gross Sales $4 003 450.00 Assets
Cost of Goods Sold – CoGS $920 793.50 Cash $706 034.00
Gross Margin $3 082 656.50 Accounts Receivable $355 450.00
Inventory $1 590 435.00
Transportation Costs $657 322.00 Net Current Assets $2 651 919.00
Warehousing Costs $901 000.00 Net Fixed Assets $803 056.00
Inventory Carry Costs $567 987.00 Total Assets $3 454 975.00
Other Operating Costs $345 876.00
Total Operating Costs $2 472 185.00 Liabilities
Current Liabilities $1 678 589.00
Profit before taxes (EBIT) $610 471.50 Long-Term Debt $398 060.00
Interest $110 000.00 $2 076 649.00
Taxes $69 000.00
Shareholders Equity $1 378 326.00
NET INCOME $431 471.50 Total Liabilities & Equities $3 454 975.00

According to Wisner et al, the financial impact of purchasing can be measured via its effect on Profit before taxes, Return on Assets (RoA) and Inventory Turnover. Based on the excel sheet provided:

The financial impact of procurement_Excel Calculations sheet.xlsx

  1. Should the CoGs remain the same, calculate the inventory turnover ratio. Explain how inventory turnover ratio is calculated (formula)
  2. Should the CoGs remain the same, calculate the Return on Assets (RoA). Explain how Return of Assets (RoA) is calculated (formula)
  3. Should the CoGs be reduced by 20%, calculate the new inventory turnover ratio
  4. Should the CoGs be reduced by 20%, calculate the new Return on Assets (RoA).
  5. What actions can the purchaser take to improve the Cost of Goods Sold (CoGs). Ex. Outsourcing, etc

You can use the Income statement and balance sheet attached as support for the calculations, or you can do the calculations manually. The excel sheet does not have to be completed and returned.

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Various measures can be used to evaluate the success of a company’s operating strategy.

(a). Profit margin, asset turnover, and return on assets are commonly used measures.

(b). The ratio of operating cash flow to assets measures a company’s ability to convert its profits into cash.

(c). Inventory turnover measures a company’s ability to convert its investment in inventory into sales.

(d). Day’s sales in inventories measures the average number of days for a company to sell its total inventory, or how many days’ supply of inventory it keeps on hand.

(e). Accounts receivable turnover measures a company’s ability to convert its credit sales into cash.

(f). Average collection period measures how long it takes a company to collect its receivables.

(g). Fixed asset turnover measures the effectiveness of a company in using its investment in fixed assets to create sales.

(h). Gross profit margin measures a company’s efficiency in the production or purchase of goods for sale.

(i). Operating profit margin measures a company’s efficiency in controlling selling and administrative expenses in addition to its efficiency in controlling product costs.

(j). Return on equity includes the effect of financing in evaluating overall company performance and links operating, investing, and financing activities.

(k). Times interest earned measures the ability of a company to meet its interest requirements.

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