Question

The cost for a supervisor are included in indirect cost. The supervisor’s travel is included in the indirect costs. Susie is a supervisor for a sewing department at a clothing manufacturing company. As a supervisor, she makes $75,000 per year. Lately, Susie has been traveling to conferences and recruiting employees. She has completed her own travel reports with copies of her receipts, not originals. Terry, Susie’s administrative assistant, noticed that Susie submitted a travel report for days she was in the office. Terry then reviews all of Susie’s travel reports. Terry’s investigation revealed that Susie had been in the office on at least half of the dates listed on the travel reports. What should Terry do? What effect does this fraud have on the company?

Answer 1

Terry, under the circumstances, should bring the matter to the notice of the head of the Sewing Department of the company, or the CFO of the company, corroborating the travel reports and Susie's attendance in office.

The fraud by Susie, if unchecked, would have the following effects:

• The sewing department would have an adverse variance in the factory overhead cost budget, and the line manager would have to bear the brunt.
• The factory overhead would be inflated, and since it is product cost. part of the amounts falsely claimed would be included in unsold inventories, resulting in overstated profits for the company.
• There would be additional cash outflows for the company.
• The shareholders of the company would get a distorted view of its operating results and financial position.