The Water Tank
Adopted from The Management Accountant’s Guide to Fraud Discovery and Control by Davia, Coggins, Wideman, and Kastantin.

You are the auditor for the Bluebird Corporation. The Bluebird plant, located in La Crosse, Wisconsin, comprises many buildings which house general and administrative services, manufacturing operations, and shipping, receiving, and warehousing functions.

Bluebird’s management has recently become sensitized to the corporation’s vulnerability to fraud, after hearing of experiences elsewhere, and you are instructed to devote some of your time to searching for evidence of it.

On day, in compliance with management’s request, you make a random selection of payment transactions. The first one you select for examination is a $5,000 payment that was made to Aztec Company. You retrieve the purchase order that required the work that was done and find that it called for the following:

1. Drain 5,000 gallon water tank atop Building 12.
2. Scrape and clean interior surfaces of the tank.
3. Rehabilitate surfaces as may be necessary.
4. Coat all interior surfaces of the tank with Z-26 Sealant, and elastomeric waterproofing and rust proofing compound.
5. Refill tank with 5,000 gallons of water.
6. Perform and complete all work during the plant vacation shutdown period August 1-14, 2004.

Required:

Consider the possible common frauds that could be perpetrated in this situation. Which seem more likely?

Assume that you suspect a shell payment scheme is in operation here. Write out short answers to the 7 basic questions a fraud examination must address (presented in the last class.)

I thought kickback may be involved. It is possible that the work may be worth less than $ 5000, and the Aztec Company offer the left money to a purchasing agent of Bluebird Corporation in return to get this job. Or there is other company offers