Company Overview:

Bags MedicalDeviceCompany("BMDC" or "theCompany"),basedinArlington,Virginia,sellsmedicaldevicestohospitalsanddoctorsinprivatepracticesacross theUnitedStates.BMDC was foundedin1998 by SteveFlanderswho begansellingthedevicesfromhisgarage.

InformationalInterviewwiththe CEOSteveFlanders:

Question:

Answer:

How was theissue identified

by theclient?

Theissuewasidentifiedfromananonymouscallintothe

whistleblowerhotlineon 1/12/12.

Are thereanyfurtherdetails

regardingtheallegationthat has beenprovidedtoBMDC?

Basedon thecallfromthewhistleblowerhotlinethereisan

allegedcollusionamongstsales,legalandaccountingtolist additionalsalesmembersassecondarysalesrepresentativeson contractsalestoallowfor unmeritedcommissionpayments.

Whatarethesales

commissionsrelatedto?

ThesalescommissionsarerelatedtoaBMDC proprietary

product.

Canyou explainthesales commissionprocess?

Thesalescommissionsprocess is:

1.Salesreps areresponsibleformeetingwiththecustomersand collectingsalesordersafteraninitialcontractisestablished.

2.For acontracttobeestablished,amanagerfromthe contractingdepartmentmustapprovethetermsand conditionsof thecontract(price,discounts,rebates,etc.) Eachcontractliststhesalesrepthatistheprimarycompany representative(receives10% of thecontractprice).The

contractalsoallowsfor asecondarysalesrep(receives5% of thecontractprice);thisissomeonewho would haveassisted inthesalesprocess.

3.Onceit'sbeenapproved,eachcontractisenteredintothe accountingsystemwherethecommissionsareautomatically calculated.Thisprocessisoverseenby theaccounting department.Theaccountingclerkisresponsiblefor reconcilingcommissionspaidtocontractprice.Oncethe informationisreconciledandenteredintothesystem,the contractingmanagerthenreviewsthecontractentryand confirmsthatinformationwas enteredproperly.Itisnotthe responsibilityof theaccountingclerktoconfirmthatthe salesmenareappropriatelylistedon thecontract.

How has therecession affectedsales?

Thecompanywas hithardby therecessionandsaleshavebeen down thepastcoupleof yearsbutanalystshavehighhopes and haveprojectedan8% earningsgrowth thisfiscalyear.

Are thereanysuspicionsas to whomaybe involved?

TheWhistlebloweridentified5 individualswho hebelievesis involved:

1.MitchelBogart- SalesRep

2.CarlyMcFinnigan- AccountingClerk

3.AmandaSmith- SalesRep

4.WillieJohnson - SalesRep

5.BarryMcMillan- ContractingManager

OtherInformation

1.Our group of 15 salesmenworks reallywelltogetherandthey

areallveryfriendlywithoneanother.Theexceptionisone individualwho theCEO has toldus ishisstarsalesman.This person consistentlyisinthetop3 everyyearfor

commissions.Whiletheindividualoccasionallycollaborates as asecondarytoothersalesman'sefforts,herefusestouse secondarysalesmanon hisprimarysales.

2.Mr. Flandersadmittedthatheputsaconsiderableamountof pressure on thesalesforcetomeetandexceedestablished quotas.

Your consultingfirm,RangoFraud Specialists,LLPhas interviewedvariousBMDC employees includingthefive(5) individualsidentifiedby thewhistleblowertogatherinformation(seebelow). Someof theinformationispurelyspeculative.Bearinmindthatsomeofitcamefromtheinterview withSusieSanders,who isknown tobetheofficegossip queen.

MitchelBogart

Background

Mitchelhas beenwithBMDCfor thelast7 years.He cameon-boardbasedonarecommendationfromoneof hisformercolleaguesatanothermedicaldevice company.He was known tohavealotof connectionswithinsomeof distributorsthathandleBMDC' products.He startedoff slowlyinhisfirsttwo yearsatBMDC duetoanon-competeagreementwithhisformeremployer.In thebeginningof histhirdyear(2007) hissalesstartedtoclimbandby the secondhalfof theyearhewasbeatingoutothersalesreps.

Personal

History

Mitchelgrew up inanareathatconnectedhimwithhighlevelexecutivesatmedicaldevicedistributors.Most ofhiscustomersareoldfriendsof his. ThereisarumorgoingaroundtheofficethatMitchellikestoliveabovehismeanssincehejustboughtabrandnew porche.

Related

Character(s)

Willie- Mitchel'swifeandWillie'ssoon tobeex-wifebelongtothesame knittingclub.

CarlyMcFinnagan

Background

Carlyhas beenanaccountingclerkatBMDC foralmost7 years.She is currentlyinthesamepositionthatshe was hiredinto.Hermainresponsibility istocalculatethecommissionpaymentstoeachof thesalesreps.In addition, she isresponsiblefor confirmingthattheclassificationof thesalesreps as primaryorsecondaryisappropriatebasedon thecontractinformationfilled

outby thecontractdepartment.Carlyhas beenup for promotiontoaccountingmanagerfor thelast3 yearsandhasbeenpassed overeachtime.Basedon her understanding,thecompanyinformedherthattheyhavenotbeenableto identifyanyonewho canfillhercurrentposition.Her beliefisthatthe companycan'tfindsomeoneelsetotakethislowpayingjob.

Personal

History

Carlyhas beenmarriedfor thelast15yearsandlivesinanaffluentareanear herjobwithher3 boys.Her husbandisabigtimeinvestmentbanker.

Related

Character(s)

Barry- Carlyhas beenBarry's neighborfor thelastfiveyears.Barryandher

husband havebecomegood friendsovertheyears.

AmandaSmith

Background

Amandahas beenwithBMDCfor thelast6 years.She startedas asalesrep andhas heldthesamepositionsincethen.Amandawas atop5 salespersonin herfirstfour years,butduringthelasttwo years,she has beeninthebottom5 insales.Becauseshe setthebarso highinitially,managementincreasedher salesquota.Butduringthelasttwoyearsshehasmissedhersalesquotaand fearsthatifthingsdon'tchangesoon she couldbeoutof ajob.

Personal

History

Amandaisdivorcedandsupports hertwo childrenalongwithherniecewho

has justmovedinwithher.

Related

Character(s)

BarryMcMillian- Longtimefriendof Amanda'ssincetheyattendedthesame collegetogether.

ThereisanofficerumorthatWillieandAmandahavebeensecretlydating sinceWillieandhiswifeseparatedlastyear.Thecompanydoes notallow inter-officedating.

WillieJohnson

Background

WilliehasbeenwithBMDCfor 4 years.Previously,Willieworked for oneof theleadingpharmaceuticalfirmsandworkedintheirsalesdepartmentfor 10 years.Becauseofhisexperienceinsales,Williehas hadaneasytimemeeting hisquotassincehejoinedBMDC.

Personal

History

Willie'spersonallifeisindisarrayasheisgoingthroughhisseconddivorce

anditisrumoredthathehas aseveregamblingproblem.

Related

Character(s)

Mitchel-Mitchel'swifeandWillie'ssoon tobeex-wifebelongtothesame knittingclub.ThereisanofficerumorthatWillieandAmandahavebeen secretlydatingsinceWillieandhiswifeseparatedlastyear.Thecompany does notallowinter-officedating.

Barry McMillian

Background

Barryhas beenwithBMDC for about8 yearsnow.He startedoff insalesand

has sincemovedintothecontractingdepartment.His roleistomakesure the termsofthecontractarewithinthecompany'spre-establishedlimitsandthat allof therelevantinformation(clientname,price,discounts,rebates)are properlylisted.In addition,heinputsthesalesrepresentativenameson each contractandclassifieseachrepresentativeaccordinglyas theprimaryor secondary.

Personal

History

Barryishappilymarriedtohiscollegesweetheartof 10 yearsandhas 3 loving kids.He livesinaveryaffluentareaneartheoffice.

Related

Character(s)

AmandaSmith- Longtimefriendof Barry'ssincetheyattendedthesame

collegetogether.

BradleyMcFinnagan- Barry's nextdoor neighborfor thelast5 yearsandthey havesincebecomeverygood friends.BradleyismarriedtoCarly McFinnagan.

Questions:

1.InAppendix 1, complete the calculation of the following:

i.Primary, Secondaryand Total Commissionsfor each contract (columns G, H, and I of tab ".1 Contracts by Year").

ii.Calculate the commissionspaid byyear for each individual inthe ".2

Commissions Paid" tab.

iii.Complete count of the number of contracts byindividual by year in the ".3

TotalContracts by Ind." Tab.

2.Describe how the fraud was perpetuated and by whom?

3.Quantify the amount lost by the company by the fraud occurring?

4.List three recommendations you would provide to BMDC to prevent this fraud from occurring in the future?