Tool Co. is a medium-sized company that buys copper rod and plastic materials to produce insulated copper wiring. Tool Co. operates out of a single building of about 500,000 square feet that includes office space (3%), production area (57%), shipping and receiving (15%), and finished goods and raw materials inventory warehousing (25%). You have gathered the following data about the company€™s inventories and performance, and now you are ready to conduct an analysis on these numbers to discover possible fraud symptoms.

1. How would you go about looking for red flags?
2. Do you think red flags of possible fraud are present in 2010? By comparing these numbers to Sales you can do a vertical analysis. To do so, assume that Sales were $8,450,000 and 8,150,000 for 2010 and 2009, respectively. Also, Cost of Goods Sold were $6,242,500 and $6,080,000 for 2010 and 2009,respectively

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2010 2009 Finished goods inventory $1,654500 $1,175500 (Approx. 300 million ft.-2010) Copper rod inventory (Approx $2,625,000 $1,650,000 5.9 million lbs.-2010) Plastics inventory (Approx. $224,500 $182,000 1.1 million lbs.-2010) Accounts payable (for inv. $450,000$425,000 purchases) Days purchases in A/P Days sales in receivables Market price of insulated wire 43.6 days44.2 days 56.3 days48.4 days $0.009 $0.008 (per ft.) Market price of copper rod $0.480 $0480 (per lb.) Market price of plastics (per lb.) $0.120 $0.190