1.Is there anything that is suspicious on the summary? Explain your answer.

2.Do you have predication for fraud? Why or why not?

3.Would you conduct a surprise audit of the area? Why or why not?

4.How would you approach the area?

5.What are your next steps?

You are K.C. Barton, a new auditor in the Internal Audit department of Jenkins Manufacturing Company. Jenkins Manufacturing Company (JMC) has been in business for more than forty years in central Texas and is a publicly traded company with ten subsidiaries. The company manufactures parts for computers, having jumped into the computer business when it was in its infancy back in the 60s. The Jenkins family still owns the majority stock of the company. The company has 12,000 employees that are spread all over the United States, Canada, Mexico, and Scotland in seven offices. The business has been solid for most of its forty years, and although it has had slowdowns during recessions, there have been very few times when the company had to lay off employees.

The company’s chairman of the board is James Jenkins, son of founder John Jenkins. The Vice-Chairman of the Board is Jenny Jenkins Roberts, daughter of John Jenkins. Other senior executives are not members of the Jenkins family, but have been with the company, on average, 20 years. The company prefers to promote from within and offers stock options to all employees no matter what level they are.

In order to become familiar with the audits that are conducted by the department, you have been reviewing working papers for previous audits. You note that two years ago, an audit was conducted of the purchasing function of a small division of the company in which the purchasing director, Thomas Brackens was extremely uncooperative. While that might be a fairly common occurrence in audits, this audit was never completed. There is a notation in the file that the CEO of the company asked the department to conduct another audit of an area that had been having serious problems as soon as possible, which required all resources to be pulled to complete the CEO’s request. The internal audit department had planned to finish the audit but never did. The auditors who worked on the purchasing audit have since left the company as has the internal audit manager. There were some notations that the auditors were having trouble locating some invoices and requisitions that had been selected for audit and that there were some purchases that looked like that had been split. A previous audit of the area was conducted without any major findings noted. In fact, there is a memo in the file from Jim Miller, the former director of purchasing (now retired) who thanked the internal audit for their assistance and that he would implement their recommendations immediately.

You decide that it is time to look back into this situation. There are too many red flags that say something isn’t right. You bring it up to your manager who says to go ahead and check it out, but that if it’s going to take more than 100 hours, you would need to let her know.

You decide to conduct an audit of the purchasing function for this division. But before you do, you decide to get some more information about the division and the employees. You find that Mr. Brackens has been an employee for more than twenty-five years, coming to the company right out of college. He has five employees that work for him, one is a manager (Angela Harkins) and the rest are buyers — two senior buyers and three junior buyers. Harkins has been an employee for 15 years and the buyers have been working in the department for six months to ten years: Jim Rydel, Sr. Buyer (10 years); Ruth Bell, Senior Buyer (7 years); Ben Troupe, Junior Buyer (2 years); Rhonda Davidson, Junior Buyer (2 years); Rick Adams, Junior Buyer (6 months).

Regarding purchasing policies, any purchase that is more than $10,000 must go out for a bid. All bids must be approved by the manager of the purchasing department or higher. Only authorized vendors are allowed to bid. Vendors without a vendor number must be handled by special processing and approved by the director.

Junior buyers can authorize purchases of up to $5,000; senior buyers, $7,000; managers and directors, $9,000.

You pull a listing of vendors who have been paid more than $100,000 for the years, 2000. 2001, and 2002 and find the following.

Vendors with >$100,000 2000-2002
	2000		2001		2002		Total	% of Total
Black IPS	47,844	12.09%	52,468	5.90%	0	0.00%	100,312	3.59%
Warehouse Eqpmt	30,402	7.68%	44,447	4.99%	70,940	4.69%	145,789	5.22%
Lantern Co	38,089	9.62%	78,682	8.84%	45,872	3.04%	162,643	5.83%
Oak Hill Distributors	61,166	15.46%	24,566	2.76%	78,229	5.18%	163,961	5.87%
Seros	37,090	9.37%	48,843	5.49%	119,068	7.88%	205,001	7.35%
Randazzo Supply	41,189	10.41%	62,012	6.97%	111,845	7.40%	215,046	7.71%
Adam Systems	50,470	12.75%	52,198	5.86%	140,033	9.27%	242,701	8.70%
AA Supply	67,194	16.98%	80,378	9.03%	113,723	7.53%	261,295	9.36%
Ad Sys	20,321	5.13%	78,019	8.77%	173,854	11.51%	272,194	9.75%
Top Q	0	0.00%	105620	11.87%	247172	16.36%	352,792	12.64%
Blues Pro	0	0.00%	260785	29.30%	408323	27.02%	669,108	23.98%
	395,765	100.00%	890,019	100.00%	1,511,061	100.00%	2,790,842	100.00%

Answer rating: 100% (QA)

1 Yes the first thing that I notice is that vendors Top Q and Blues Pro had no supply 0 in 2000 to J... View the full answer