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, the appropriate action is to accept the engagement to perform a forensic investigation into the suspected payroll fraud at MSc 2 Ltd, subject to obtaining a formal engagement letter, and then proceed to carry out a detailed investigation to uncover the nature, extent, and perpetrators of the fraud.
Explanation
The situation described by the finance director, Segun Peter, indicates a potential payroll fraud, where payments were made to ex-employees who had been officially made redundant. The fact that these payments were directed into a single bank account suggests deliberate manipulation, likely by someone with access to payroll systems—possibly the senior accountant, Akeem Bello, who is now uncontactable.
Since MSc 2 Ltd is not an audit client of the firm, there is no independence conflict, and your forensic auditing department can take on this assignment. However, before starting, you must obtain a formal engagement letter clearly outlining the scope of the forensic investigation, responsibilities, fees, confidentiality, and reporting format.
Once engaged, your forensic approach will involve:
- Data preservation and securing evidence – Ensure all payroll records, bank payment data, and employee files are secured to prevent further tampering.
- Transaction analysis – Review payroll data for patterns, such as salaries paid post-redundancy, bank account details, and approval trails.
- Interviewing staff – Speak to HR, payroll personnel, and potentially whistleblowers.
- IT forensic analysis – If digital manipulation is suspected, computer forensics may be required to retrieve deleted or altered records.
- Quantifying the fraud – Calculate the total financial impact to assist in any legal or recovery proceedings.
- Reporting – Prepare a detailed report that outlines findings, identifies responsible parties, quantifies losses, and provides evidence for legal proceedings or internal disciplinary action.
Finally, you may be asked to act as an expert witness if the case is taken to court or results in criminal prosecution
