preliminarily analysis determined profit dropped B u s i n e s s F i n a n c e

preliminarily analysis determined profit dropped B u s i n e s s F i n a n c e

HW Week 05: Something is Amiss in the Purchasing Department

Something is Amiss in the Purchasing Department at The Wheel Drive

The Wheel Drive has been a profitable company since it was founded 10 years ago. At the start of the last financial year, the company had doubled the number of employees from the year before. Wheel Drive hired and trained employees for a specialized Purchasing Department. The Purchasing Department’s main role is to purchase raw materials required for the production of specialized car hubcaps and wheels sold to old car enthusiasts.The Purchasing Department is also responsible for negotiating and obtaining bids for all non-production related requirements of the company. Over the past year, Wheel Drive saw its operating profits drop dramatically, thus management is trying to identify the reasons for the sudden and unexpected drop in profits. Their preliminarily analysis determined profit dropped as a result of lower gross margins and unexpected increases in non-production operating expenses.

The Purchasing Department operates as follows:

– Purchase order requisitions are prepared by each department, approved by the respective department manager(s), and submitted to the Purchasing Department for processing;

– The Purchasing Department has a manager who oversees purchasing activities of 3 new employees hired at the start of the current financial year; all have several years of professional purchasing experience;

Management has already investigated whether the sales mix has changed in the current year to less profitable car hubcaps and wheels, and found there has been no significant change in the sales mix over the prior year. Management has also investigated whether there have been significant increases in the price of raw materials or in any of the other major operating expenses since the prior year, and found no significant increases.

In responding to the questions related to this case, be sure to provide references for all sources you used. Your answers to this case study should be 5 pages in total, including cover and reference pages. The body of the paper, which must be at least 3 pages in length, should be double-spaced. Make a copy of each question below and place the questions into the body of your paper in bold-type, so that we can both see that you have addressed each one of the questions in your submission.

Questions/Requirements

You have been hired to perform an investigation of potential fraud which may be occurring in the Purchasing Department at The Wheel Drive.

Select 2 of the following 4 questions.

  1. You request a meeting with the manager of the Human Resources Department at The Wheel Drive. Make a list of questions you plan to ask regarding this investigation. Include a brief explanation of why you would be asking each question. Be specific.
  2. You request a meeting with the Purchasing Department Manager. You realize you must be careful and very tactful in this meeting. List at least five questions you would use to start your conversation? Hint: what are some vitally important internal controls that should be in place in that Department? Be specific.
  3. You request a meeting with the Receiving Department Manager. List questions you plan to ask in that meeting with regards to this investigation. Include a brief explanation of why you would be asking each question. Be specific.
  4. You request a meeting with the Accounts Payable Department Manager. List questions you plan to ask in that meeting with regards to this investigation. Include a brief explanation of why you would be asking each question. Be specific.