Question

While performing his routine internal audit of Some Co’s payroll records, Baxter noticed that salaries and wages expense, including overtime pay for Q1 2018 had increase 17% over the previous quarter and 10% over Q1 2017. Baxter found these increases to be unusual given the recent layoffs at the company and its efforts to keep overtime pay to a minimum. He is aware that pay raises, capped at 1%, were issued in Q1 2018, but these alone do not explain the large increase in salaries and wage expense.

After some initial inquiry, Baxter learned that Some Co’s controller, Derek, had covered for the human resources manager while she was on vacation for two weeks during Q1 2018. Baxter is concerned that this breach in separation (segregation) of duties might have set the stage for payroll fraud. He is especially concerned about the possibility of a false salaries and wage scheme.

Create a planning form shown in class: Red Flags, Documentation, Testing, Why Not Fraud to show Baxter how you are going to investigate the situation.

Assume you have completed the investigate prepare an interoffice memo case study format to detail your findings for Baxter.

Answer 1

Information about Payroll memo :

Payroll memos provide information to employees about new changes in company policy and remind employees about current policy. For example, if employees habitually forget to sign their time cards, a brief memo can remind them of the requirement. If, because of a holiday, checks are going to be available a day early, you can use a memo to notify employees. Only send memos to necessary personnel. The payroll department should include payroll memos with employee paychecks or earnings statements to ensure that employees receive the memo.

Memo Format :

Interoffice Legal Memorandum

To:          Company XXX                                      Case: Payroll investigation

From:    Baxter,

Date:    Quarter1,2018

Subject: Investigating reasons for sudden increase in payroll payments.

Assignment

You have asked me to found reasons for increase in payroll payment % including overtime pay from final quarter of 2017 to 1^st quarter 2018.

Facts of the case

Baxter noticed that salaries and wages expense, including overtime pay for Q1 2018 had increase 17% over the previous quarter and 10% over Q1 2017. Baxter found these increases to be unusual given the recent layoffs at the company and its efforts to keep overtime pay to a minimum. He is aware that pay raises, capped at 1%, were issued in Q1 2018, but these alone do not explain the large increase in salaries and wage expense.

After some initial inquiry, Baxter learned that Some Co’s controller, Derek, had covered for the human resources manager while she was on vacation for two weeks during Q1 2018. Baxter is concerned that this breach in separation (segregation) of duties might have set the stage for payroll fraud. He is especially concerned about the possibility of a false salaries and wage scheme.

Analysis

During investigation we found that 17% of including overtime pay for Q1 2018 from last quarter of 2017 in wages and salaries and 10% over quarter1 of 2017 is because of some coverage of human resources manager while she was on vacation for two weeks during Q1 2018, which has been found during initial inquiry. This stage of fraud in payroll can be overcome by breach in segregation of duties which concerned about the possibility of false salaries and wages