ACC 00718 Risk Reduction and Fraud Detection Questions

ACC00718 – Assessment Task Two – Session One 2019Scenario “A”
A major Australian Public Company ran promotions advertising for a number of its products through
a promotions company. The promotions company falsely inflated the number of responses it
received from purchasers of the company’s product. The false number of respondents was invoiced
by the promotions company to the public company resulting in the overpayment of thousands of
dollars. The records kept by the promotions company were those on its computer database as well
as manual batch numbers of responses to the promotions.
REQUIRED
Identify five (5) procedures and checks that would have reduced the risk to the victim company?
Scenario “B”
You were engaged to conduct an examination on an Australian subsidiary of an American company
following a discovery by the financial controller that freight and travel expenses were too high
during a certain period. You have found the following:
The entries posted to the general ledger were examined and it was found that whereas normal
expenses would be $10,000 to $12,000 for a particular month, they were in fact $33,442.19. Entries
posted to the freight account were checked and in some cases there were no corresponding
invoices.
Staff were frustrated in their efforts because the trade payables clerk, who was responsible for the
payment of accounts and cashing of wages cheques, was either off sick or evasive when questioned.
The system for the payment of accounts was that the trade payables clerk would prepare a cheque
to pay an invoice and would then present the cheque with the invoice and relevant documents for
signing by two authorised signatories.
All company accounts were paid by cheque; the only cheques used to obtain cash were wages
cheques. This would be done by stamping the reverse of the cheque with the words, ‘Please pay
cash’; the trade payables clerk would then present the cheque to the bank and obtain the cash.
Specimen signatures were, of course, held at the bank but they were rarely checked as the trade
payables clerk was so well known to bank staff.
Duplicate cheques had been issued for payment of accounts already paid by the company and
cashed at the bank by the trade payables clerk. The signatures on the cheques were, in some cases,
forgeries and, in other cases, genuine (obviously people were signing things without due care). A
payment of $6,217.60 was used to pay a travel company for a trip for two to Tahiti — the clerk had
cancelled this entry with the words, ‘OK paid by me’.
When questioned, the trade payables clerk said that she had used her own cheque to pay for the
travel. You checked with the travel company and found that, in fact, a company cheque had been
used for the trip. You and officials of the company called in local detectives and all parties adjourned
to the local police station. By this time, it was outside office hours and police were unable to contact
the travel agent themselves and had no documentation to rely on to negate the clerk’s story. The
clerk was released for further investigation by them, but the clerk left the country and is now living
happily in Greece, $164,000 richer.
Required
1) Identify and discuss which internal control could have prevented this fraud and give five (5)
examples
2) Identify and discuss five (5) procedures could have alerted the auditor to the fraud?