Take not of this question for your CA You are a manager in the forensic auditing investigation department of the audit firm. The directors of a local manufacturing company, MSc 2 Ltd, have contacted your department regarding a suspected fraud, which has recently been discovered operating in the company, and you have been asked to look into the matter further. You have held a preliminary discussion with Segun Peter, the finance director of MSc 2 Ltd, the notes of this conversation are shown below:
Notes of discussion with Segun PeterFour month ago MSc 2 shut down one of its five factories, in response to deteriorating market conditions, with all staff employed at the factory made redundant on the date of closure.
While monitoring the monthly management accounts, Segun perform analytical procedures on salary expenses. She found that the monthly total payroll expenses has reduced by 3% in the months following the factory closure-not as much as expected jilven that 20% of the total staff of the company has been made redundant. Initial investigation performed last week by Segun revealed that many of the employees who had been made redundant had actually remained on the payroll records, and salary payments in respect of these individuals were still being made every month, with all payment going into the same bank account. As soon as she realised that there may be a fraud being conducted within the company, Segun stopped any further payments in respect of the redundant employees. He contacted our firm as she is unsure how to proceed, and would like our firm‘s specialised department to conduct an investigation.
Segun says that the senior accountant, Akeem Bello, has been absent from work since he conducted his initial investigation last week, and it has been impossible to contact him. Segun believes that he may have been involved with the suspected fraud.
Segun has asked whether your department would be able to provide a forensic investigation, but is unsure what this would involve. MSc 2 is not an audit client to your firm. As a forensic expert, what are you going to do
The Correct Answer and Explanation is:
As a forensic expert, my initial course of action will be to formally accept the engagement, ensuring that an engagement letter is signed to outline the scope, objectives, confidentiality, timeline, and responsibilities. Since MSc 2 Ltd is not an audit client, there are no independence conflicts, but professional objectivity and diligence must still be maintained.
Key Steps in the Investigation:
- Preliminary Risk Assessment & Planning:
I will conduct a preliminary risk assessment to understand the potential scale of the fraud, the systems involved, and the suspected individuals. - Data Collection and Preservation:
Secure payroll records, redundancy documentation, bank statements, and employee HR files. Preserve digital evidence (emails, access logs) to prevent tampering or data loss. - Payroll Analysis:
Compare pre- and post-redundancy payroll data. Identify all employees who were made redundant and cross-check against ongoing payments. Investigate the bank account receiving the payments. - Interviews:
Interview key personnel including HR, payroll officers, and other senior staff. Attempt to contact Akeem Bello and document all efforts. - Digital Forensics:
If possible, examine Akeem Bello’s workstation, emails, and system access logs to trace actions that point to fraudulent activity. - Reporting:
Prepare a forensic report detailing findings, methodology, and evidence. Highlight whether the fraud is isolated or systemic. - Liaison with Legal Authorities:
If criminal activity is confirmed, I may assist in preparing evidence for possible prosecution or civil recovery.
In forensic accounting, the objective is to uncover fraud through methodical analysis and evidence collection. In the MSc 2 Ltd case, the red flag is the discrepancy between the expected and actual payroll cost reduction post-redundancy. A 3% reduction despite 20% layoffs suggests ghost employees—former staff still on the payroll.
The fact that salary payments for these individuals continued into a single bank account suggests collusion or manipulation, likely by someone with access to payroll systems—raising suspicion on the now-absent senior accountant, Akeem Bello.
My role as a forensic auditor is to identify how the fraud occurred, who was responsible, how much money was lost, and whether it can be recovered. This involves collecting and preserving evidence legally and securely, using investigative accounting and digital forensic tools, and conducting staff interviews. Maintaining a chain of custody and documenting all procedures ensures findings are admissible in court.
It is crucial to remain independent and unbiased, even though the client has suspicions. Only evidence should lead the conclusion. The forensic report will be detailed, impartial, and can serve for internal disciplinary actions, insurance claims, or legal proceedings.
Ultimately, this investigation will help MSc 2 Ltd understand internal control weaknesses, implement safeguards, and seek recourse against perpetrators.
