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 first step I will take is to accept the engagement in writing after obtaining proper authorization from the directors of MSc 2 Ltd, since they are requesting the investigation and the company is not an audit client of our firm. Once the engagement is formally accepted, I will proceed with the following steps:
Forensic accounting is a specialized field that focuses on investigating financial discrepancies, particularly fraud. In the case of MSc 2 Ltd, the evidence strongly suggests a payroll fraud scheme, where salary payments were fraudulently continued for employees who had been officially made redundant. The key red flag was a discrepancy in payroll reduction—only a 3% drop despite a 20% workforce cut.
A forensic expert’s role is to investigate facts objectively and gather admissible evidence. This differs from an external audit, as the goal is not to express an opinion on financial statements, but to identify, analyze, and document fraudulent activity. The investigation will involve both documentary evidence (e.g., payroll, bank records) and interviews with employees and management.
The absence of the senior accountant and the concentration of funds into a single account raise suspicion of internal collusion. Forensic procedures would also involve data analysis techniques like trend analysis, bank reconciliations, and matching of payroll to HR records.
The ultimate outcome will be a forensic report that can support internal disciplinary action, recovery of funds, or even criminal proceedings. Throughout, maintaining objectivity, confidentiality, and legal compliance is critical, especially since the firm has no audit relationship with MSc 2 Ltd, and all engagement terms must be clearly documented to avoid conflicts of interest or liability issues.
