Fraud Case 18-1
AnuGhai was a new production analyst at RHI, Inc., a large furniture
factory in North Carolina. One of her first jobs was to update the
activity rates for factory production costs. This was normally done once
a year, by analyzing the previous year’s actual data, factoring in
projected changes, and calculating a new rate for the coming year. What
Anu found was strange. The activity rate for “maintenance” had more than
doubled in one year, and she was puzzled how that could have happened.
When she spoke with Larry McAfee, the factory manager, she was told to
spread the increases out over the other activity costs to “smooth out”
the trends. She was a bit intimidated by Larry, an imposing and
aggressive man, but she knew something wasn’t quite right. Then one
night she was at a restaurant and overheard a few employees who worked
at RHI talking. They were joking about the work they had done fixing up
Larry’s home at the lake last year. Suddenly everything made sense.
Larry had been using factory labor, tools, and supplies to have his lake
house renovated on the weekends. Anu had a distinct feeling that if she
went up against Larry on this issue, she would come out the loser. She
decided to look for work elsewhere.
Requirements:
1. Besides spotting irregularities, like the case above, what are some
other ways that ABC cost data are useful for manufacturing companies?
2. What are some of the other options that Anu might have considered?