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 dregarding 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, the first step is to formally accept the engagement by agreeing on the terms with MSc 2 Ltd. This includes issuing an engagement letter outlining the scope, objectives, responsibilities, limitations, and reporting format of the investigation. Once the engagement is confirmed, the forensic investigation will proceed through the following key stages:
Correct Answer:
Initiate a formal forensic investigation to gather evidence on the suspected payroll fraud, starting with a detailed payroll review, bank tracing, and staff interviews, while preserving evidence for potential legal action.
Explanation:
Upon engagement, the forensic audit team will begin by planning the investigation, which includes understanding the background of the case, identifying potential fraud risks, and determining the methods for gathering and analyzing evidence. The priority is to verify Segun’s findings and uncover how the fraud was perpetrated, by whom, and its financial impact.
The investigation will start with a thorough review of payroll records before and after the factory closure. Special attention will be given to identifying employees who were officially terminated but remained on the payroll, as well as tracking salary payments to determine which bank account(s) received the funds. A bank tracing exercise will be conducted to follow the flow of money and identify the beneficiary(ies) of the fraudulent payments.
Next, the team will review system access logs and authorizations, particularly around payroll entries and changes, to identify who made updates and approved payments. Given the suspicion surrounding Akeem Bello, further investigation will be directed towards his actions, including emails, login activity, and prior performance records.
In parallel, interviews will be conducted with key staff, including HR, payroll officers, and IT personnel, to corroborate findings and gather further insights.
Throughout the investigation, all evidence must be preserved properly, ensuring chain of custody and compliance with legal standards, as the findings may lead to criminal prosecution or civil claims.
Finally, a detailed forensic report will be presented to the directors of MSc 2 Ltd, outlining findings, financial impact, involved individuals, and recommendations to prevent recurrence.
