Question

Question 6 [Note this question is from the Week 11 Tutorial] 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: In the Week 11 tutorial, we discussed the different procedures that can be followed 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] [7 marks. Word limit: Up to 250 words.]

Answer 1

This case comes under Payment Fraud which also includes vendor fraud schemes as well as creating false customer accounts to generate false payments, like-

1. Altering payee details on checks and payables.
2. Self-authorizing payments.
3. Colluding with others (David) to process false claims for benefits or payments.

Procedures that can be applied to find Mr Peter's fraud

1. Use of electronic invoicing and payment-the best defence against invoice fraud is electronic invoicing. If you use the paper variant nonetheless, checking the beneficiary’s account number is the most efficient way to guard yourself against false invoices. Such extra checking is anything but superfluous, especially when large amounts are involved and the account number does not ring a bell!

2. Authentication of invoices by phone calls-Before making a payment we should always give a phone call and to make sure that the invoice is authentic. But we should never use the contact details on the (possibly) false invoice, but dial the telephone number from our CRM. It is one of the best practices to control such types of fraud.

b) Indicators of personal fraud that can reveal the possibility of such fraud

False invoicing and payment frauds are not particularly sophisticated but it is difficult to keep them going for a long period of time without detection. When an employee creates a false invoice following indicators may be present, such as:

1. The company name listed on the invoice is not a registered company;

2. No physical address is listed (do not solely rely on email addresses);

3. Invalid GST numbers or incorrectly formatted GST numbers;

4. No tax invoice details or GST value on the invoice may be incorrectly calculated.

5. Casual grammar, spelling mistakes, etc.

Please mention your doubts in comment box, if any.

Thanks & all the best....