Question

Management discovers that a supervisor at one of their restaurant locations removes excess cash and resets sales totals throughout the day on the point of sale (POS) system. At closing the supervisor deposits cash equal to the recorded sales on the POS system and keeps the rest. The supervisor forwards the close-of-day POS reports from the POS system along with a copy of the bank deposit slip to the company’s revenue accounting department. The revenue accounting department records the sales and the cash for the location in the general ledger and verifies the deposit slip to the bank statement. Any differences between sales and deposits are recorded in an over/short account and, if necessary, followed up with the location supervisor. The customer food order checks are serially numbered, and it is the supervisor’s responsibility to see that they are accounted for at the end of each day. Customer checks and the transaction journal tapes from the POS system are kept by the supervisor for one week at the location and then destroyed.

1. What control procedures in the above case allowed the fraud to occur?

2. What audit procedures would have detected the fraud?

Answer 1

Ans The control procedures in the above case that allowed the fraud to occur are:

I) Having too much trust on the supervisor for handling all the cash related aspects all by himself. is the foundation of him carrying out all the cheating.

ii) Having a POS system that does not automatically updates information in the entire database gave areas to the supervisor to carry out fraudulent activities.

iii) Manual recording and other activities in the POS can be great factor to give chance for a fraud to occur.

The audit procedures that would have detected the frauds are:

I) Linking the POS system and cameras could have been a great auditng procedure to detect fraud. The camera vision of tills linked with transaction details using timestamps can prevent probable frauds.

ii) Fraud could also have been detected by appointing external auditors who have no personal interest in the firm.

iii) Having a regular audit by an internal auditor or inspector generals who traces all misstatements just when they occur could have prevented chances of fraud.

iv) Building a different department that was dedicated with the responsibility to only detecting fraud and ensuring security. (eg. a bank have an internal security department for detecting customer account fraud).

v) Providing sufficient training to the auditors relating to symptoms of fraud, areas of occurrence, various fraud schemes could have also played a big role in detecting frauds that would otherwise go unnoticed.

vi) Having Data Analytics check could have given red flags of frauds to trace and rectify them.

vii) Having a real time audit system could have gone far to detect the frauds like mentioned in the case above,