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 course of action is to accept the engagement to conduct a forensic investigation into the suspected payroll fraud at MSc 2 Ltd, subject to obtaining appropriate authorization and terms of reference. The investigation will aim to determine the extent of the fraud, identify those involved, quantify financial losses, and gather evidence that may be used in disciplinary proceedings or legal action.
300-Word Explanation
Upon receiving the request from MSc 2 Ltd’s finance director, the first step is to formally accept the engagement by obtaining written instructions from the company, outlining the scope of the forensic investigation. Since MSc 2 Ltd is not an audit client of our firm, there are no threats to independence or objectivity, which simplifies acceptance from an ethical standpoint.
The investigation will begin with an in-depth planning stage, which involves understanding the company’s payroll system, internal controls, and staff responsibilities. Preliminary findings suggest that salary payments continued to be made to employees who were made redundant, and these payments were all deposited into a single bank account, suggesting a deliberate and fraudulent manipulation of the payroll records.
A forensic audit team would gather documentary evidence, including payroll records, bank statements, employee files, and redundancy records. Data analysis techniques will be used to trace transactions, confirm redundancies, and identify the period and total value of unauthorized payments. Interviews will be conducted with relevant staff, including HR and payroll personnel. The absence of the senior accountant, Akeem Bello, and his possible involvement, will be closely scrutinized.
The findings will be compiled into a comprehensive forensic report, including evidence suitable for court proceedings. The report will also provide recommendations to improve internal controls and prevent similar frauds in the future. Throughout the process, the forensic team must maintain professional skepticism, confidentiality, and integrity to ensure the investigation is credible and legally defensible.
As a forensic expert, the appropriate course of action is to accept the engagement to conduct a forensic investigation into the suspected payroll fraud at MSc 2 Ltd, subject to obtaining appropriate authorization and terms of reference. The investigation will aim to determine the extent of the fraud, identify those involved, quantify financial losses, and gather evidence that may be used in disciplinary proceedings or legal action.
