Mckesson & Robbins was a drug and chemical company in the mid-1920s that attracted the attention of Philip Musica, an individual with an unsavory past that included criminal acts and multiple fake names. Under the name Frank D. Costa, Musica greeted the advent of U.S. Prohibition in 1919 with the creation of a company that manufactured hair tonic and other products that had high alcohol content. These products were sold to bootleggers, who used the alcohol to produce liquor to sell to customers. Musica purchased Mckesson & Robbins in 1926 using the name F. Donald Coster and seeded the company with family members to help loot the company. The fraud involved fake purchase orders, inflated inventory and skimming cash from company sales, and occurred despite the presence of Price Waterhouse as the company's auditors. When the scam was finally detected in 1937, the SEC determined that $19 million in fictitious inventory was on the balance sheet-a sum equal to approximately $285 million in current dollars. Repeating a familiar pattern, Mckesson & Robbins quickly became a family affair. George Dietrich (brother George) was named assistant treasurer and Robert Dietrich (brother Robert) directed the shipping department. The New York office of Mckesson & Robbins was located in a building owned by Assumption Coster (Mama Assunta). George Vernard (brother Arthur) played critical roles as well, becoming head of Philip"'s private bank, Manning & Co., and remaining head of W.W. Smith & Co. Much of Mckesson & Robbins"'s fraudulent crude drug activities took place in the Brooklyn office of W.W. Smith where "...Arthur Musica prepared all correspondence for the fictitious companies with which the Mckesson corporation was supposedly dealing. .. [using] .. .a number of different typewriters, each of which was used for the typing of documents for one specific dummy corporation." To maintain distance between the companies, Most of the documents prepared in the Brooklyn office were then sent to an "office" in Montreal where a typist opened each piece of incoming correspondence, placed it in another envelope, and mailed it to Philip at Mckesson & Robbins in New York. Philip, as Dr. Coster, answered the correspondence and routed it back to Montreal. Five other associated fictitious crude drug wholesalers and a fictitious bank likewise were created in Canada and operated in a similar manner.In Canada paperwork was accurate and detailed. Basically, when a purchase was planned, McKesson & Robbins, upon receipt of the proper paperwork purchase order, invoice, receipt tick, and debit memo from Manning & Co. (Coster"s private bank) that the vendor had been paid would issue the check. He bought drugs from bankrupt pharmaceutical companies at low prices then booked them in inventory at highly inated prices. Sales were likewise supported on paper; the difference was that the receipts from the customer were in the forms of increases in receivables, increases in inventory, or payments to the Manning account. W.W. Smith was paid a basis fee of $18,000 per year plus 0.0075% of sales. All monies, an estimated $120,000,000 over ten years, however, ultimately moved in and out of the hands of Philip Musica. Yet all the carefully documented transactions were a hoax. How, one wonders, could the auditors have missed this for so long? No one seemed to notice that\"... there were not enough Himalayan musk deer in the world to ll the orders placed...\" or \". .. that vanilla beans are shipped in tins and not in 200- pound bags like lima beans...\" or \"...that the amount of procaine or iodoform supposedly stored in Canadian warehouses would supply the entire United States for years...\" or that merchandise was moved \". . .from South America to Australia and China ,,by truck."\". The SEC was later to ask similar questions and to state: The firm of Price Waterhouse & Co. for 14 years served as independent public accountants for F. Donald Coster's [Philip Musica's] enterprises. Within [the] range of the procedures which they followed there were numerous circumstances which, if they had been recognized and carefully investigated by resourceful auditors, should have revealed the gross ination in the accounts. We are convinced that despite collusion and skillfully prepared false documents [,] these items repeated themselves to such an extent as to have permitted detection of the gross inflation by alert auditors intent upon knowing the truth about the foreign crude drug operations. Perhaps part of the answer lies in a 1933 letter from Coster to Price Waterhouse Co.: Incidentally, our comptroller has called my attention to the fact that payments for auditing fees paid by us since organization to your good firm have reached the million mark. I am very glad of it and feel that among the major expenses incidental to mergers and consolidations only in auditing did our company really get its money's worth. Q1: What do you think was the role of Price Waterhouse (the auditors) in the fraud? Why do you think they behaved in the manner identied in the previous question? (2 marks) Q2: List 3 ways in which inventory in the company was misstated. (1 mark) Q3: List 3 data mining techniques that could be applied to detect the inventory fraud and in one sentence each explain how it could have discovered the fraud