12. Jones Aircraft is a large contractor with many defense contracts. Some of the contracts are fixed price and some are cost type. The contractor issues work to the shop for each contract by General Order (GO) referencing the contract by number but not any other details. In this case, GO-101 is a fixed price contract, and GO-102 is a cost reimbursement contract. Todd, the shop foreman had the responsibility to tell workers in his group to which GO they should charge the work being done that day. Todd had no idea what contract type was connected to any GO. Todd found, after a while, that when he charged more time to GO-102 and less to GO-101, he had many fewer complaints when his departmentâs performance review with top management came around each month. He continued this process and everything was fine for him and his department at program review. Harry, the VP Controller, noticed the pattern and complimented Todd on his departmentâs performance, although he knew that some fixed price effort was being charged to the cost type contract. This practice was in effect, knowingly increasing profit for the company by lowering costs on the fixed price contract, and increasing costs on the cost reimbursement contract. Harry also was the management official that certified all of the cost invoices the company submitted for reimbursement. A DCAA floor auditor discovered this situation, and brought it to the attention of his Resident Auditor. The Resident Auditor immediately took steps to stop the process in Toddâs shop, and ordered Jones Aircraft to make the appropriate cost adjustments to the two contracts. He then reported this to his Legal advisor (JAG) and suggested that Fraud had been committed. Answer the following questions: 1. What is your opinion of the cost accounting system that allowed a supervisor the authority to tell the person working on the part, which has a shop ticket with a GO number on it, which GO to charge on his/her time card? 2. Was Todd guilty of fraud? 3. Was Harry guilty of fraud?
12. Jones Aircraft is a large contractor with many defense contracts. Some of the contracts are fixed price and some are cost type. The contractor issues work to the shop for each contract by General Order (GO) referencing the contract by number but not any other details. In this case, GO-101 is a fixed price contract, and GO-102 is a cost reimbursement contract. Todd, the shop foreman had the responsibility to tell workers in his group to which GO they should charge the work being done that day. Todd had no idea what contract type was connected to any GO. Todd found, after a while, that when he charged more time to GO-102 and less to GO-101, he had many fewer complaints when his departmentâs performance review with top management came around each month. He continued this process and everything was fine for him and his department at program review. Harry, the VP Controller, noticed the pattern and complimented Todd on his departmentâs performance, although he knew that some fixed price effort was being charged to the cost type contract. This practice was in effect, knowingly increasing profit for the company by lowering costs on the fixed price contract, and increasing costs on the cost reimbursement contract. Harry also was the management official that certified all of the cost invoices the company submitted for reimbursement. A DCAA floor auditor discovered this situation, and brought it to the attention of his Resident Auditor. The Resident Auditor immediately took steps to stop the process in Toddâs shop, and ordered Jones Aircraft to make the appropriate cost adjustments to the two contracts. He then reported this to his Legal advisor (JAG) and suggested that Fraud had been committed. Answer the following questions: 1. What is your opinion of the cost accounting system that allowed a supervisor the authority to tell the person working on the part, which has a shop ticket with a GO number on it, which GO to charge on his/her time card? 2. Was Todd guilty of fraud? 3. Was Harry guilty of fraud?
