Question

QUESTION 2: PROCUREMENT FRAUD

Jeremiah Bogus is the new Procurement Manager for Construct Anything Limited. However, he has noticed that the internal control mechanism for the company is weak, with the site managers being dominant in their choice of vendors and materials. The domination of the tender process by the site mangers has made it possible to manipulate the process in many different ways. The culture of the organization seems to reflect the illegal gains as legal for just about anybody. There are five(5) site managers, all located within a close geographical range. They meet for lunch often and were university mates. He has brought this matter up to the management, and they have hired you to carry out an investigation.

REQUIRED:

Describe the investigation that you may take, clearly identifying the sources of information and investigative techniques that you plan to use. Also, do highlight the possible limitations that you could face during the investigation.

Answer 1

Internal control is an auditing process in which the objectives of the organization are evaluated and their reliability and operational efficiency and effectiveness is determined. The person performing the internal control is called internal auditor of the company. This process determines whether the goals of the organisation are framed within the stipulated rules and regulations and are complied with prescribed provisions. It is a process which helps in detection of any kind of fraud and misrepresentation in the company environment.

According to the given question,

The investigation requires:

• Physical checking of the accounting system of the company
• Physical checking of the assets of the company
• Collecting source documents related to all receipts and invoices
• Collecting evidences of preparation of financial statements and necessary working notes used in the preparation of financial statements etc.

The source documents are the documents which are used in reaching the final conclusion. These documents are vital in making of the final decision by the auditor. along with the working papers made by the auditor are also of great importance as they are clerical evidences of the detailed investigation made by the auditor.

The auditor should take unbiased decision and should check the working of the control committee, risk management committee and all other departments of the company. As the fraud is already detected by the procurement manager, the auditor should go deeply in the matter and should collect evidences stating the origins of the fraud. As in the fraud, the managers are involved, the auditor should check their decision and the projects they approved and the reliability of the projects.

Once the auditor is done with the investigation process, he should provide his opinion in the auditor report regarding whether the working of the company is justified or not.

The auditor can face a few limitations in the process of investigation regarding:

• Biased behavior of the employees
• Incomplete documents provided
• factors outside the scope of the internal control cannot be evalued
• Judgement can go wrong because of biased documents etc.