Question

Mr Peter is working as a Purchases Journal clerk in a small firm located on the Gold Coast. David is his friend, who works as an Accounts Payable Ledger clerk in the same firm. Peter periodically enters fictitious acquisitions. After creating a fictitious purchase, Peter notifies his Accounts Payable Ledger clerk. David enters these transactions in his ledger. When the payables are processed, the payment is mailed to the non-existent supplier's address, a post office box rented by Peter. He deposits the cheque in an account he opened in the non- existent supplier's name.

In the Week 11 tutorial, we discussed the different procedures that can be followed to uncover the fraudulent behaviour of employees.

1. a) Discuss two (2) procedures that can be applied to find Mr Peter's fraud. [4 marks]

2. b) Discuss indicators of personal fraud that can reveal the possibility of such fraud.

[3 marks] please write up to 250. no plagiarism please

Answer 1

Answer :

a. The two procedures that can be applied to find Mr Peter's fraud are:

1) Implementation of Internal check system :- It implies organisation of the overall system of book keeping and arrangement of staff duties in such a way that no one person can carry through a transaction and record every aspect thereof. It is a part of overall control system and operates basically as a built-in-device as far as organisation and job allocation aspects of the controls are concerned.

The system provide existence of checks on the day to day transactions which operates continouously as part of the routine system where by the work of each person is either proved independently or is made complimentary to the work of another. In the given case all the power of purchases are with Mr. Peter so in order to stop this power need to be delegated to another staff in purchase department. In this manner the purchase fraud can be stopped to an extent.

2) Review of procedures by auditors (Internal Audit) :-

An auditor should be appointed who should review the overall procedures taken by the employees in the purchase department. The auditor should do signature reviewing or check the purchase order approval by a manager. Also Auditor should review the steps that employees should be doing to ensure that the procurement process is done correctly. This will help in finding fraud in the purchase department.

b. The indicators of personal fraud that can reveal the possibility of such fraud are:-

1. Inventory shrinkage: Although it’s normal to lose a few items of inventory when moving items, excessive inventory shrinkage may be an indicator of ongoing fraud.
2. Missing documents: An organization may experience frequent cases of reported missing documents that relate to critical departments. When the frequency of occurrence becomes too often, it may be a sign of ongoing fraud within the organization. Missing documents that are fraud red flags include registration of motor vehicles, lists of sales and purchases, checkbooks, and inventory reports. When such records disappear, it may point to an undesirable situation that may lead to loss of certain assets or money.
3. Multiple payments:There are cases when a company’s accounting department may erroneously process duplicate payments to a vendor or service provider. If the mistake was genuine, the officers involved ought to identify such errors and report so that urgent action can be taken.However, there can be cases where individual employees endorse duplicate payments to both genuine and fake companies. Some employees may even process payments to non-existent companies with the intention of defrauding their employer. To prevent such errors, all payments should be monitored and verified that they are going to the intended parties.
4. Spikes in invoice volume: A business in its growing phase may experience huge spikes in the number of invoices as it tries to carve a niche in the market. However, the high number of invoices creates room for fraudulent behaviors, as specific internal and external parties may seek to profit from the rapid growth of the business.