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 is to formally accept the engagement from MSc 2 Ltd. Since they are not an audit client, ethical clearance and engagement terms must be established, including scope, objectives, fees, confidentiality, and reporting responsibilities. Once accepted, the following steps will be taken:
- Preliminary Risk Assessment and Planning
A risk assessment will be conducted to identify the potential scale, duration, and parties involved in the suspected payroll fraud. Planning includes identifying key data sources (payroll records, bank transactions, HR files), stakeholders to interview, and the timeline of the factory closure and payments. - Evidence Gathering and Analysis
We will obtain payroll records, employment termination notices, bank account details, and payment authorisations. A comparative analysis will be performed between pre- and post-closure payroll data. We’ll trace salary payments for the supposedly redundant employees, especially focusing on the account receiving multiple salaries. - Digital Forensics and Interviewing
A forensic review of the accounting and payroll systems will be performed to trace any unauthorised access or manipulation. Key individuals, including HR staff, payroll clerks, and remaining finance personnel, will be interviewed. If Akeem Bello is found or returns, he will be a central subject of questioning. - Fraud Triangle Evaluation
The investigation will consider rationalisation, pressure, and opportunity—looking into internal control weaknesses and personal circumstances that could have motivated the fraud. - Reporting and Legal Coordination
A detailed forensic report will be prepared, summarising findings, quantifying the fraud, and identifying responsible individuals. We will also advise MSc 2 Ltd on legal recourse, disciplinary action, and system control improvements. If requested, we can liaise with law enforcement or legal advisors.
Our role is not only to uncover the truth but also to ensure robust procedures are implemented to prevent future incidents.
