Question

Sara Chung knew the construction contractors in her area well. She was the purchasing manager at the power plant, a business that was the major employer in the region. Whenever a repair or maintenance job came up, Sara’s friends would inflate the invoice by 10%. The invoice would then be passed through the accounts payable department, where the clerk was supposed to review and verify the charges before processing the payment. The accounts payable clerk, Valerie Judson, was happy to have a job and didn’t want anything to jeopardize it. She knew the deal but kept her mouth shut. Sara’s contractor friends would always “kick back” the 10% extra to Sara under the table. One day, Valerie had a heart attack and went into the hospital. The company hired a new accounts payable clerk, Spencer Finn. He had worked construction in his college days and suspected something was fishy, but he couldn’t prove it. He did, however, wish to protect himself in case the fraud came to light.

1. How could an auditor detect fraud of this sort?
2. What can a business do to prevent this kind of fraudulent activity?
3. What should the new accounts payable clerk do to protect himself?

Answer 1

Answer:

1)

Proof of the accounts payable misrepresentation may be distinguished by an auditor when the person in question cross checks the repair and maintenance invoices with the supporting documentation, for example, the agreements or contracts .The auditor may be made aware of errors between the costs ,terms ,and/or descriptions on the invoices versus those on the agreement itself.

2)

This sort of misrepresentation or fraud could be prevented by requiring accounts payable work force to cross reference each receipt or invoice with a purchase order so as to all the more likely distinguish invoice inflation . Another methods for limiting extortion would require two signatures on the checks sent to contractual workers for payment .Thus the proprietor would not be the just one looking at the checks.

3)

So as to protect from being considered liable for participating in accounts payable misrepresentation .Mr .F should ensure that the accounts payable procedure is being administered by somebody other than himself and the proprietor of the organization .Also he ought to get a duplicate of the purchase order and agreement and review each before paying a specific receipt or invoice