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:
Correct Answer:
Accept the engagement, clarify the objectives, and begin a forensic investigation, including data collection, analysis of payroll records, and interviews with relevant staff.
Detailed Explanation (300+ words):
As a forensic auditing manager, the first step upon receiving such a request from MSc 2 Ltd is to formally accept the engagement, provided there is no conflict of interest and appropriate engagement terms are agreed upon. Although MSc 2 Ltd is not an audit client of your firm, this is not a barrier to performing a forensic investigation. In fact, independence requirements are different from those applicable in statutory audits.
The next step is to clarify the objectives and scope of the forensic investigation with the company’s directors. This includes identifying what they want to achieve (e.g., determining the extent of the fraud, identifying those involved, recommending control improvements, supporting legal proceedings, etc.).
Once the engagement is formally agreed upon, the forensic investigation can proceed. Key initial activities will include:
This systematic and professional approach ensures that the investigation is comprehensive, credible, and legally admissible if needed.