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, I would explain to Segun Peter that our department can indeed conduct a forensic investigation into the suspected payroll fraud at MSc 2 Ltd. A forensic investigation is a detailed examination of financial information to detect and investigate fraud or other financial misconduct. The goal is to uncover the facts, identify those responsible, assess the financial loss, and provide evidence that may be used in disciplinary, civil, or criminal proceedings.
Explanation
The forensic investigation will begin with planning and scoping the engagement, including understanding the nature and scale of the suspected fraud. We will agree on the objectives with MSc 2 Ltd’s management, such as determining how the fraud occurred, identifying those involved, and quantifying the financial loss.
Next, we will collect and preserve evidence. This includes reviewing payroll records, bank account details, redundancy records, employment contracts, and access logs. Since you’ve mentioned that salary payments for redundant staff continued and were paid into the same bank account, we will trace the payments, identify the owner of the receiving bank account, and gather documentation to support our findings. We will ensure evidence is preserved in a manner that would be admissible in court if required.
We will also interview relevant personnel, including HR and payroll staff, and attempt to contact or locate the senior accountant, Akeem Bello. His absence may indicate involvement, and further investigation into his activities, access rights, and communication should be conducted.
After gathering all necessary information, we will perform a detailed analysis, identifying control weaknesses and how the fraud was perpetrated and concealed. A final forensic report will be issued, outlining the findings, parties involved, the financial impact, and recommendations for disciplinary or legal action.
Lastly, we may assist MSc 2 Ltd in strengthening internal controls to prevent future fraud and provide support if legal proceedings follow.
