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 engaged by MSc 2 Ltd to investigate a suspected payroll fraud, I will initiate a forensic investigation tailored to uncover the nature, extent, and perpetrators of the fraud. The investigation will include the following steps:
Forensic Actions to Be Taken:
- Engagement Clarification: Establish a formal agreement outlining the scope, objectives, timeframe, access rights, and confidentiality terms of the investigation.
- Preliminary Risk Assessment: Review initial findings from Segun Peter, including payroll data, redundancy lists, and bank payment records.
- Evidence Collection:
- Obtain payroll records, employee contracts, redundancy notices, and bank account details from the past six months.
- Secure all relevant emails, memos, and HR documentation related to the redundancies.
- Data Analysis:
- Identify employees marked redundant and compare them to those still receiving salaries.
- Perform trend and ratio analysis on salary expenses before and after the factory closure.
- Trace all suspicious payments to determine if they were routed to a single bank account.
- Digital Forensics:
- Investigate Akeem Bello’s system usage, email activity, and any digital trails left before his disappearance.
- Secure and examine any relevant devices or files he may have used.
- Interviews:
- Interview relevant staff including HR personnel, payroll clerks, and managers, excluding suspects.
- Reporting:
- Prepare a detailed forensic report outlining findings, conclusions, quantification of losses, and recommendations for legal action or internal control improvements.
Explanation
A forensic investigation is a specialized process that focuses on uncovering fraud, misconduct, or financial irregularities using detailed financial and digital evidence. In this case, MSc 2 Ltd suspects payroll fraud after a discrepancy was noted in salary expenses following the closure of one of its factories and the redundancy of 20% of its staff. The fact that salary payments continued for redundant employees into a single bank account is a strong fraud indicator, likely involving manipulation of payroll systems and bank details.
My role as a forensic expert begins with defining the scope and ensuring legal and ethical compliance. I will collect and examine all relevant documentation, both financial and HR-related, focusing on transactions made after the redundancy date. Analyzing these records will help identify how the fraud was executed, the individuals involved, and the total amount misappropriated.
Key evidence will include payroll data, bank records, and internal communication. Special attention will be paid to Akeem Bello, the senior accountant, who is suspected due to his sudden absence and potential system access. If digital forensics confirm his involvement, this will be crucial for prosecution or disciplinary action.
The final deliverable is a comprehensive report for MSc 2 Ltd, detailing our methodology, findings, and evidence. It will also include recommendations to prevent future fraud, such as enhanced segregation of duties, regular payroll audits, and stronger access controls. This approach ensures transparency, accountability, and supports potential legal proceedings.
