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, my role is to conduct an independent forensic investigation into the suspected payroll fraud at MSc 2 Ltd, following proper procedures to gather, preserve, and analyze evidence that could later be used in legal proceedings if necessary. Here is how I will proceed:
Correct Answer:
I will initiate a forensic investigation by formally accepting the engagement, defining the scope of work, securing all relevant payroll records, and conducting an in-depth analysis of the payroll transactions. I will also gather electronic and documentary evidence, interview key personnel, and identify the extent of the fraud, the methods used, and the individuals involved. Finally, I will prepare a detailed forensic report and advise MSc 2 Ltd on next steps, including legal options.
The first step in any forensic engagement is to formally agree on the terms of the engagement with MSc 2 Ltd. Since the company is not an audit client, there is no independence issue per se, but clear boundaries must be established. This includes defining the scope, objectives, timeline, confidentiality, and fee arrangements in an engagement letter.
Once engaged, I will begin by securing and analyzing payroll records, bank statements, employment contracts, redundancy letters, and management account reports. The purpose is to trace payments made to redundant employees and determine who authorized or processed them. Given that all salary payments were directed to the same bank account, I will obtain the account details and follow up with a forensic review of those transactions.
I will also look into segregation of duties and internal control failures that enabled the fraud. Special attention will be given to the role of Akeem Bello, the senior accountant who is now uncontactable and is potentially implicated.
As part of the process, I will conduct interviews with HR, finance, and IT personnel, and extract data from company systems using forensic data tools. The goal is to quantify the loss, identify the perpetrator(s), and preserve evidence for any civil or criminal proceedings.
Finally, I will produce a forensic report with findings, conclusions, and recommendations for preventing future fraud.
