Part I: Initial Analysis (W/P I-1) and the Income Statement with Common-Size information (W/P Please refer to the Planning Comments and Internal Control Questionnaire I-2) to answer these questions in Part I. Consider the income statement and the related common-size accounts. A. What trends and patterns do you see? B. What account(s), in particular, should be investigated more? Please be specific, and discuss your concerns. Green Tech Manufacturing Company Workpaper 1-1 12/31/2015 Initials J.A. K. Planning Comments Date: 1-15-16 ages d it be? of this recommendation. Memo from Jessica Kirner January 15, 2016 There has not been turnover in the top four client people: Marvin Green, Owner; Jacob Merriweather, Treasurer; Maeve Rehnhart, ac- countant; and Lucinda Washburn, factory manager. While talking at various times with these client people, I learned that a small piece of land was purchased from a nearby landowner, and the factory was expanded. In addition, some new equipment was purchased. This expansion is to allow a new product, Solar Panel Plus (Model X-4), to be produced. Builders are requesting this new solar panel, as it is easier to install than the other models. Marvin thinks the new products will be a great seller. He has a new office, which is the corner office. Jacob recently returned from three-month paternity leave to take care of his new baby. He was able to work from home, so he said he is mostly current with his work. Maeve is getting a divorce and has missed some work to attend ar- torney meetings and court dates. Lucinda recently completed the second level factory manager-computer certification, so that she can run the new software related to the expansion. 248 Case Studies in Forensic Accounting and Fraud Auditing In addition to reading Jessica's memo, you can talk briefly with four individu als. Here are a few of their comments. KEY COMMENTS FROM PRIMARY INDIVIDUALS Owner, Marvin Green: I'm not really into all the accounting, but we seem to have less cash than I would expect. Sales are up, but I'm not sure why we are not generating more cash." Treasurer, Jacob Merriweather: "We took a loan of about $600,000 from the bank in the beginning of 2015. This notes payable is for the factory expansion Accountant, Maeve Rehnhart: "Where did the cash go? Well, we bought new equipment, added to our factory, and bought some land. These acquisitions reduced our cash. I can show you the contracts for the PPE," Factory Manager, Lucinda Washburn: We have added to our building and productive capacity. I can give you a tour and show you the new area and item Green Tech Manufacturing Company Workpaper 1-1 12/31/2015 Initials J.A. K. Internal Control Questionnaire C 5 C ir in N Date: 1-10-16 Internal Control Activity Response Comments 1. Does client have an internal control manual Yes 2. Does client have independent checks on performance? No 3. Does client have adequate documents and records? Yes 4. Does client have physical control over assets and records? Yes, 5 Does client have proper authorization of transactions and activities? No. 6. Does client have adequate separation of duties? No Manual updated in May 2015 Because of jacob Merriweather's paternity leave a well as the factory addition and the new product everyone has been too busy to check the work of others The accounting system is computerized. All paper and electronic documents are pre-numbered File cabinets, storage rooms, and vault are locked Passwords are required to access all critical compu programs and applications An individual tends to authorize transactions his or her area. Lucinda Washburn authorians a factory activities Maeve Rehnhart authorizes ca disbursements Jacob Merriweather authorizes relationships and investment strategies Accountant Maeve Rehnhart authorizes cash disbursements and prepares checks Treasure Merriweather handles deposits and authorize banking activities Green Tech Manufacturing Company: Fraud and the Independent Auditor 249 Green Tech Manufacturing Company 12/31/2015 Income Statement with Common-Size Information Income Statement Workpaper 1-2 Initials J.A. K. Date 1-15-16 Unaudited Audited For Year Ending 12/31/2015 Common-Size 12/31/2015 For Year Ending Common-Size 12/31/2014 12/31/2014 Sales Revenue $ 11,000,000 100% $8,000,000 100% Cost of Goods Sold Expense Gross Profit $ 8,250,000 75% $5,920,000 74% $2,750,000 25% $2080,000 26% S, G and A Expenses $ 2,420,000 22% $1,520,000 19% Operating Income $330,000 3% $560,000 7% Interest Expense $121,000 14 1% $80,000 7% Income Before Taxes $209,000 2% $480,000 6%6 Income Tax Expense $ 62,700 7% $144,000 2% 4% Net Income $146.300 1% $336.000 250 Case Studies in Forensic Accounting and Fraud Auditing Green Tech Manufacturing Company 12/31/2015 SG&A Expense Detail Workpaper 1-3 Initials JAK Date 1-16-2016 Selling General and Administrative Detail Detail Amounts Subtotal Account Descriptions 12/31/2015 12/31/2015 Unaudited Unaudited Corporate Headquarters Autel Depreciation 1.300.000.00 $100,000.00 Office Building $1000000 $121,000.00 Heating and Cooling $47.000.00 Electricity 115.000.00 $183,000.00 $125.000.00 Wate Repairs and Maintenance $16,000.00 Ace Supplies $50,000.00 XYZ Fumace and Air $35.000.00 Fred's Painting $32.000.00 $133.000.00 Norstein Electrical 545,00000 Administrative Salaries and Benefits $550,000.00 Executive $282.000.00 Managers 300,000.00 Customer Reps 590.000.00 $1,222,000.00 Support $ SOROGGION Training Enhanced Communications $40,000.00 Mand & Motivation 550,000.00 Computer Strategies $30,000.00 Diversity Plus 518.000.00 $138,000.00 $4000000 Travel Executive $60,000.00 Customer Reps 575.000.00 $135,000.00 $10,00 Entertainment Customer Meetings $37,000.00 Holiday Party $9.000.00 $46,000.00 $36.000.30 Professional Services Auditing Andrews and Andrews $42.000.00 $42,000.00 $3 Tax Andrews and Andrews $15.000.00 Legal $15,000.00 $14,000 Norris and Morris Claremont and Cimus $33,000.00 $2.000.00 $35,000.00 $13 Consulting Acme Consulting Environo Consultants $38,000.00 ProProfits Business Power $65,000.00 MAR Software Consulting $4,000.00 $50,000.00 $157,000.00 Engineering Factory Synergy High Power Engineering Chemstart Performance $ 68,000.00 Mechanix Water Tech Totals $213,000.00 $2420.000.00 TRAN scanned copy of check paid by and received from the bank. (see workpaper series 1-4) Tichmark Legend Selected expenses as sample items to test. Traced vendor name and ched a $ 45,000.00 $47,000.00 $53.000.00 Green Tech Manufacturing Company: Fraud and the independent 251 Green Tech Manufacturing Company Sample of Cancelled Checks For Year Ending 12/31/2015 (1) Front and Back of Check #2001 2-402/710 Cen Tech Manufacturing Company m industrial Road Boomington, MN 55422 yee ACE Supplies, Inc. teen thousand and no/100s water pipe repair Second state bank 0041 1967 5607198002 2001 Pay to Order of Prime Bank Date 1-15-2016 2001 Die feinary 2.5 $16,000.00 Farmington, MN For Deposit Only 00-376-0871 Ace Supplies, Inc. 26-15 (2) Front of Check and Back of Check #2007 Green Tech Manufacturing Company 17 industrial Road Bloomington, MN 55422 Payee Acme Consulting Thirty eight thousand and no/100s Installation Assistance for New Computers Second state bank 31-0041 1967 5607198002 2007 Deposit Only 3/24/15 Capitol View Bank St. Paul, MN #179-675 Acme Consulting 2-402/710 #2001 Date March 18, 2015 $38.000.00 Signed Maeve Re (5) Green Tech Manufacturing Company: Fraud and the Independent Auditor 253 Front and Back of Check #2035 Green Tech Manufacturing Company 1117 industrial Road Bloomington, MN 55422 Payee Norris and Morris Law Firm 2-402/710 #2035 Date: July 30, 2015 Thirty three thousand and no/100s $33,000.00 Tax Advice for Potential Acquisition Second state bank 31-0041 1967 5607198002 2035 Pay to Order of Big First Bank Minneapolis, MN Norris and Morris Deposit Only #417-22-0954 August 5, 2015 Signed Maeve Rehrhart (6) Front and Back of Check #2045 Green Tech Manufacturing Company 1117 Industrial Road Bloomington, MN 55422 2-402/710 #2045 Date September 22, 2015 Payee M and R Motivation Fifty thousand and no/100s Training for Executives Second state bank 31-0041 1967 5607198002 2045 Capitol View Bank St. Paul, MN #179-675 September 24, 2015 Deposit Only Restricted Endorsement V $50,000.00 Signed Maeve Rehnhart 254 Case Studies in Forensic Accounting and Fraud (7) Front and Back of Check of #2051 Green Tech Manufacturing Company 1117 Industrial Road Noomington, MN 55422 2-402/710 #2051 Date: October 15, 2015 Payee Diversity Plus Eighteen thousand and no/100s Training for Managers Second state bank 31-0041 1967 5607198002 2051 Diversity Plus 10/18/2015 Central City Bank $18,000.00 Signed Maeve Rehehert St. Paul, MN ACCT# 88-19071 Deposit Only (8) Front and Back of Check of #2058 Green Tech Manufacturing Company 1117 Industrial Road Bloomington, MN 55422 Payee High Power Engineering Forty seven thousand and no/100 2-402/710 #2058 Date: November 5, 2015 $ 47,000.00 Engineering Outsourcing Second state bank 31-0041 1967 5607198002 2058 High Power Engineering Deposit Only November 7, 2015 Capital View Bank St. Paul, MN Deposit Only ACCT# 179-675 Signed Maeve Rehnhart Traced vendor name and check amount to SG & A Expense Detail (See W/PI-3) "Adapted from Vol. 8, No. 2, Special Issue, 2016, Journal of Forensic & Investig tive Accounting