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:
Correct Answer (Role as Forensic Expert):
As a forensic expert, the first step is to formally agree on the scope and terms of the investigation through an engagement letter. This outlines the objectives, responsibilities, timelines, and reporting structure of the forensic audit. The primary objective will be to investigate the suspected payroll fraud, quantify the loss, identify how the fraud was perpetrated, and determine who was involved.
I will then conduct a detailed forensic investigation including:
- Payroll Data Analysis – Examine payroll records before and after the factory closure to identify discrepancies, including any unauthorized payments and duplicate entries.
- Bank Account Tracing – Trace salary payments to the bank account receiving funds for the redundant employees, determining the ownership of the account.
- Employee Verification – Reconcile current employee lists with HR records and redundancy documentation to confirm which employees should have been removed.
- Interviews – Interview key personnel, including HR, payroll staff, and possibly Akeem Bello if contact is re-established.
- Digital Forensics – Review system access logs and emails for evidence of manipulation, especially by personnel involved in payroll processing.
- Internal Control Evaluation – Assess the effectiveness of internal controls over payroll to determine how the fraud was allowed to occur and recommend improvements.
Explanation:
Forensic auditing involves the use of auditing, accounting, and investigative skills to examine financial information for use as evidence in court. In this case, the suspicion revolves around payroll fraud following a factory closure, where redundant employees continued to receive salary payments—indicating possible manipulation of payroll systems.
The role of a forensic expert is to approach the investigation objectively and methodically. The first step is to understand the facts and secure all relevant data and documents to prevent tampering or deletion. This includes payroll records, bank transfers, redundancy letters, and system logs. Since all fraudulent payments went to a single bank account, tracing and identifying the account holder will be crucial to pinpointing the perpetrator.
Given the senior accountant’s sudden absence and the timing, he becomes a person of interest, and further background checks and digital forensics on his system activities may provide vital evidence.
The investigation will culminate in a detailed forensic report outlining the fraud, individuals involved, financial impact, and recommendations for legal and internal actions. This report can serve as evidence in potential disciplinary actions or criminal proceedings.
Since MSc 2 is not an audit client, there are no independence concerns; however, professional standards and confidentiality must be upheld throughout.
