Why is this Furniture Falling Apart Case Study Questions And Answers

It is vital for the government to ensure that tax payers’ money is not wasted by various government agencies. Governments have different control measures that help in detecting the existence of fraudulent financial activities in various government agencies. Government auditors are tasked with the responsibility of ensuring that government agencies engage in sound financial transactions. However, various government agencies formulate innovative methods that enable them to engage in fraudulent financial activities without being detected. This is highlighted by the case on Art Metals U.S.A. Art Metal U.S.A., was a company that manufactured furniture. Art Metals engaged in the manufacture of furniture for GSA. However, the company manufactured substandard furniture. It bribed the GSA inspectors to approve the furniture. Continued complaints by GSA customers and newspaper articles prompted the setting up of a congressional investigation on GSA. This led to the discovery of the fraudulent activities of GSA inspectors and art Metal. The discovery ultimately led to the collapse of the company since GSA was Art Metal’s sole customer.

Q1. Which of the four classifications of corruption schemes were involved in this case? Provide examples to support your answer. Reference each with appropriate citations. (10 points)

The company had sold General Services Administration (GSA) defective furniture worth $200 million. Some of the chairs had some legs that were shorter than others whereas desks collapsed. Federal agencies and GSA clients complained several times without any action being taken. The Washington Post run a series of articles that highlighted the fraud and wastefulness of GSA. The articles prompted the setting up of a congressional investigation. A congressional investigation is usually more thorough than other investigations. It involves the analysis of the all areas of financials and operations of an agency. Therefore, it can discover malpractice regardless of how well-hidden it is (Wells, 2011).

Q2. What measures could have been taken to prevent the fraud committed or detect it earlier? Reference each measure with appropriate citations. (30 points)

The congressional investigation decided to investigate the activities of Art Metal Furniture Company after Phillip J. Kurans, President of the company, appeared at the congressional oversight meetings uninvited. The congressional investigation showed that there was corruption between the top management of Art Metals and GSA inspectors. After reviewing the cancelled checks, the investigation showed that there were unusual payments. Art Metals made payments to a subcontractor, which were cashed instead of being deposited. The payments were made to three different names, I. Spiegel, Spiegel Trucking Company, and Spiegel Trucking Inc. However, Isador Spiegel cashed all the payments. The payments to Spiegel Trucking Co. were made to look as if they were for delivery of furniture to several GSA depots and customers. Art Metals also made several huge payments to ‘Auction Express.’ The above financial data provided enough information for the members of the congressional investigation to look for evidence of bribery. This prompted the members to look into the activities of GSA inspectors. They discovered that the financial life-style of a previous GSA inspector was more than his income. Upon interviewing past bookkeepers of the company, they got evidence that the company bribed GSA inspectors.

The company even had a petty cash fund for paying for meals and accommodation of GSA inspectors in luxurious hotels. Therefore, Art Metal was guilty of bribery. Bribery refers to the practice of giving, receiving, or soliciting any valuable resources for the sole purpose of influencing the decisions of government agents to favor a certain party. Art Metal paid the officials a certain amount of money for them to declare certain furniture as meeting the standards that would allow them to be deposited to GSA clients. The company had a kickback scheme that enabled it to dump substandard products while claiming they met the acceptable government specifications (Wells, 2011).

 It is hard to detect kickback schemes since vendors conduct them. The vendors may formulate several methods of hiding the kickback schemes. To detect the presence of kickback schemes, government auditors should check routinely for any inflation in the prices of products. They should check whether the rates of inflation are consistent with the rates in the market. The auditors should also compare the prices of products from different vendors if similar products are sourced from different vendors. The government auditors should also monitor the number of times that a vendor increases the prices of products during a certain period. This is due to the fact that vendors may formulate a kickback scheme in such a manner that it starts small and increases with time (Wells, 2011). Government auditors should ensure that they routinely monitor buying patterns of government agencies. This will help in detecting unnecessary expenditures. In addition, the government should ensure that all contracts have a ‘right to audit’ clause. This would enable the government auditors to have the right to undertake an audit of the financial transactions of the vendors, which would help in detecting fraudulent activities. An organization should also ensure that it has a policy that prohibits its employees from engaging in bribery (Wells, 2011).

Government agencies should also ensure that it has an updated vendor list. The agencies may also ensure that it has a spending threshold. It should closely monitor the amount and type of products purchased in comparison to its needs. In the case in question, Art Metal made payments for machinery that was not actually purchased. Regular inventory checks would have helped in discovering the fraudulent activities of the company. Checking the quality of products purchased compared to their prices would also have helped in discovering the existence of fraudulent activities. The actual amount of money that government agencies spend in comparison to their budgets would also have helped in discovering the kickback scheme of the company. Regular spending of a significantly higher amount of money than the budgets may indicate that the government agencies are engaging in fraudulent financial activities (Wells, 2011).

Q3. Assume you heard the following statement from a GSA employee in relation to this case: “We don’t need government auditors. We just need to put a reporter from the Washington Post on staff here to uncover all of our fraud!” Do you agree or disagree with this statement? Explain your answer. (10 points)

I would not agree with the statement “We don’t need government auditors. We just need to put a reporter from the Washington Post on staff here to uncover all of our fraud!” From the case, the Washington Post only helped in triggering the investigation on the fraudulent activities at GSA. They only had information on allegations that GSA was engaging in fraudulent activities. They did not have the hard evidence that there were fraudulent activities taking place in GSA. Therefore, the information in Washington Post could not be relied upon when taking measures against GSA. The government auditors are the parties that actually discovered the existence of fraudulent activities. After undertaking an audit of Art Metal, they discovered that the company had a kickback scheme that paid GSA inspectors to term their products as having standards that meet government specifications. The auditors had hard evidence of the malpractice. Therefore, they could be relied upon to when taking measures against GSA. Therefore, without the auditors there would be no proof of any fraudulent activities taking place at GSA. However, the Washington Post played a critical role in the discovery of the evidence. It alerted relevant authorities about the existence of fraudulent activities in GSA. This kick started the process of looking for the culpability of GSA. The discovery of the fraudulent activities of Art Metal led to the cancellation of its contract for the supply of furniture. Since GSA was its sole customer, the cancellation of the contract led to the ultimate collapse of the company (Wells, 2011).

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