Circle L Project

Circle L Project

After analyzing all 23 stores using a variety of methods, we have narrowed our choices down to only 5 stores. We used 6 different analysis methods to determine the most likely overstated stores. For each method, we picked the 6 stores most likely to be overstated. We reasoned that stores that end up being picked the most throughout the 6 different analyses should be the ones that are inspected in detail for misstatement.

Our first step was judgment analysis. We looked at the numbers to see if anything seemed out of the ordinary. We also took into consideration the information provided by the controller, Wilson Wilsen. According to him, stores 5, 11, and 22 were “miles away from any freeway.” The majority of Circle L’s sales should theoretically come from people taking detours from the freeway in order to either get gas or pick up something they need. Stores 5, 11, and 22 however, had relatively high sales, and were not located anywhere near a freeway. This put up a red flag, and we decided to include those in our six stores. We were especially interested in store 22, as it had the highest sales of any Circle L store, and yet was not near a major freeway. Wilson also mentioned that store 20 had a small problem with a manager, who decided his job was unsafe after an armed robbery the very first night. While we were not overly suspicious of any fraud, we decided to include store 20. Finally, we included stores 1 and 19. Both of these stores had sales that were far from average (one above and one below), while they’re other attributes were fairly common (avg employees, etc.) These stores are marked with an X in the summary table on page 4.

The second step we performed was trend analysis. We calculated the percentage increase in sales for each store, and picked the highest six numbers. Stores with higher percentage increases are more likely to have misstated earnings. The stores that ended up having the highest numbers were store 2, 14, 10, 6,...