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 nonexistent supplier's name. 7 Question 6 (Cont’d) Required:to uncover the fraudulent behaviour of employees. a) Discuss two (2) procedures that can be applied to find Mr Peter's fraud. [4 marks] b) Discuss indicators of personal fraud that can reveal the possibility of such fraud. [3 marks]

Answer 1

a)

Following procedures should be applied to uncover the fraudulant behavior of the employees: (you can chose to write any two)

1) "Conduct Unscheduled Audits"- This helps to catch any type of fraud taking place in the organisation as in this case employees get no pre information about conduct of audit of accounts payable and purchase procurements, they have no time to conceal the documents that may prove to be evidences of fraud taking place.

2) ''Review Transactions'' - Regularly review and examine transactions that may indicate some unusual amounts, unusual transactions, unusual gap in invoices etc

3) ''Implement Check Review Procedure'' - Two-step authentication for checks that cross a certain amount and review register for checks that fall under this threshhold.

4) ''Verify Vendors'' - Verify any new vendors that are being added to vendor files or vendors that establish a question of doubt by manually verifying through telephonic call, email or in person

b)

Following could be the possible indicators of personal fraud:

1) Large amount credited to one vendor that looks unusual or doubtful.

2) Unapproved or unusual vendors.

3) Duplicate payments to same vendors.

4) Invoices missing key details such as phone no., address etc.

5) Multiple invoices paid together.

6) Payment to vendors without reciept of goods.

7) Repeated payment to vendors for poor quality goods.

8) Tip from other employees regarding potential chances of fraud taking place in the organisation.

9) Working on weekends or for long hours without taking any vacation or leave.

10) Invoices that look unprofessional or have address similar to of any employee or has residential address.