Question

As a auditor, I was assigned to a team to audit possible payroll fraud. The company we were auditing always handed the Friday payroll checks to the department supervisor to disburse. On this visit it was my responsibility to gather a signatures, verify the employee ID to the payroll register for the shipping/warehouse department. Paychecks were always presented at 9AM, so the employees were there to pick them up as we were told.

This one department always had a high turnover rate. On this Friday I was in the warehouse managers office ready to go. One by one the drivers and warehouse personnel came in with ID and signed for their checks. At the end of the time period there were three checks leftover. The warehouse manager said three employees were out doing deliveries. I said have them see me when they come back, I will be here all day (10 hours).

Question:

1. Identify one way that the warehouse manager could defraud the company under the present system.

2. Discuss a control feature that the company can use to safeguard against fraud.

In addition, there is a 200 word minimum for your initial post.

Answer 1

To write the answer one can take note of following points:

1) In the present case employees come present their ids, sign and collect their checks at 9 AM for this process warehouse manager is responsible in disbursement of checks. While auditor observed and watched the whole internal control system process of collection of checks by employees, on that day there were 3 checks leftover. In this case warehouse manager may defraud company by making GHOST EMPLOYEE SCHEME i.e. faking employee ids and signatures and taking the amount of those 3 checks leftover as it would be easy to defraud company in present system due to HIGH TURNOVER Rate in the department.

2) Company should take record of employees leaving the company and taking personal feedback of reasons of their leaving the company. In high turnover rate departments like warehouse in this case company should enable documentation and authorization before an employee can be added to payroll, conducting background check on new employees, separate the duties of maintaining payroll record and personnel record, direct deposit into the accounts of employees should be done to establish paper trail.