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 immediate response would involve accepting the engagement in line with professional standards, followed by planning and executing a forensic investigation to uncover the extent and nature of the suspected payroll fraud. The following steps would be taken:
Correct Answer:
As a forensic expert, I would initiate the forensic investigation by first formally accepting the engagement from MSc 2 Ltd in writing, clarifying our role, scope, and limitations. The investigation would begin with understanding the background of the fraud and obtaining all relevant payroll records, redundancy lists, and bank transaction data for analysis. I would conduct detailed payroll and bank reconciliations, interview relevant personnel, and use data analytics to detect anomalies. Special focus would be on identifying how the payments were processed and by whom. Given that Akeem Bello is a suspect and currently unreachable, I would recommend securing his computer and email records for forensic analysis. The findings would be documented in a report that could be used for legal or disciplinary action. I would also advise the company on internal control weaknesses that allowed the fraud to occur and recommend improvements.
Explanation:
Forensic accounting is a specialised field that involves investigating financial misconduct and fraud. In this case, MSc 2 Ltd has identified irregular payroll expenses following the redundancy of 20% of its workforce. Despite the factory closure, payroll costs only dropped by 3%, triggering suspicion. An initial investigation revealed that some redundant employees were still being paid, and all payments were routed to a single bank account—clear red flags for payroll fraud.
As a forensic expert, the first step would be to formally engage with MSc 2 Ltd, confirming the scope, objectives, and deliverables of the investigation. We are not their auditors, so independence in this matter is preserved.
Next, we would gather key evidence—including payroll records before and after the closure, bank statements, redundancy documents, and HR records. Using data analytics, we would identify ghost employees and track the flow of funds to determine if a fraud scheme exists.
We would also perform interviews with relevant staff, especially those involved in payroll processing. Given the suspicion around the senior accountant, digital forensic procedures—such as recovering deleted files or emails—may be necessary if his company-issued devices are available.
Finally, we would compile a comprehensive forensic report outlining our findings, quantifying losses, and presenting evidence that could be used in legal proceedings. We would conclude by advising MSc 2 Ltd on how to strengthen internal controls to prevent recurrence.
