Assessment Task Two Session One 2019 Scenario Aa Maj

Acc00718 Assessment Task Two Session One 2019scenario Aa Major A

Identify five (5) procedures and checks that would have reduced the risk to the victim company in a scenario where a promotions company falsely inflated response numbers and overcharged a major Australian public company through invoicing. Also, for a scenario involving suspected fraud in an Australian subsidiary of an American company, identify and discuss internal controls that could have prevented the fraud and five procedures that could have alerted the auditor to the fraud.

Paper For Above instruction

Effective internal controls and audit procedures are vital in safeguarding assets and ensuring the accuracy of financial reporting. The scenarios provided highlight significant risks posed by lapses in internal control and oversight, leading to potential fraud and financial loss. This paper discusses five procedures and checks that could have mitigated the risk of overpayment due to fraudulent invoicing by a promotions company and then explores internal controls and auditor procedures relevant to preventing and detecting fraudulent activities in a large organisation.

Mitigating Risks in Promotions Company Invoice Fraud

The first scenario involves a promotions company falsely inflating the number of responses to generate inflated invoices paid by a major Australian company. To prevent such fraudulent invoicing, specific procedures can be implemented. First, reconciling response data with independently verified source records or databases maintained by the company could verify the actual number of responses and detect discrepancies. For example, cross-checking manual batch numbers with the database logs would help identify inconsistencies.

Second, requiring segregation of duties in invoice processing ensures that no single employee has both the authority to generate responses data and to approve payments. This separation reduces the chance of manipulation. Implementing an approval process where invoices are reviewed by a manager independent of the promotions company staff can help verify that amounts billed are consistent with recorded responses.

Third, frequent and independent audits of response data and invoicing records, including random sampling of responses and manual checks, can identify anomalies or patterns suggestive of fraud. Conducting surprise audits would make manipulation more difficult.

Fourth, adopting electronic tracking systems where responses are timestamped and logged automatically enables a more reliable monitoring of responses received versus responses billed. Automated alerts can be set up to flag unusual increases in responses or invoiced amounts.

Fifth, incorporating contractual controls requiring the promotions company to submit detailed supporting documentation for responses and billing, which are then independently verified, would serve as a deterrent to fraud. This might include receipts, customer confirmation, or logs, which can be cross-verified for authenticity.

Implementing these procedures would substantially reduce the risk of overpayment due to false responses and improve the overall integrity of the invoicing process.

Internal Controls and Auditor Procedures to Prevent and Detect Fraud

In the second scenario, a subsidiary of an American company experienced irregularities in expenses and payments, including forged signatures, duplicate cheques, and unauthorized payments to a travel agent. To mitigate such risks, several internal controls can be applied. First, implementing dual authorization for all payments, especially large or unusual transactions, ensures that no single employee can approve a payment unilaterally. This control reduces the risk of forged signatures and unauthorized transactions.

Second, ensuring regular reconciliation of bank statements with the company's ledger by independent personnel helps detect discrepancies such as duplicate payments or unusual expenses. Regular reconciliation acts as a preventive and detective control.

Third, maintaining a comprehensive and up-to-date register of authorized signatures at the bank and ensuring that bank staff verify signatures against this register during transactions helps prevent forgeries. Additionally, adopting electronic signatures or secure digital authorization processes enhances control further.

Fourth, instituting a rigorous audit trail for all financial transactions, including detailed documentation of payment approval, supporting invoices, and correspondence, allows for easier detection of irregular activities. Periodic internal and external audits reviewing these trails can identify anomalies such as duplicate cheques or unusual payment patterns.

Fifth, instituting a system of surprise cash counts and physical verification of assets and expenses reduces opportunities for theft or misappropriation. Random checks can deter employees from engaging in fraudulent activities.

Regarding procedures that could alert auditors, the first involves scrutinising large or unusual transactions, especially those without proper supporting documentation or those outside normal expense ranges. The second is reviewing the timeliness and authenticity of bank signatory verifications, especially when signatures are seldom checked or are outdated.

Third, auditors should verify the existence of supporting documentation, such as invoices and travel bookings, for expenses claimed. Fourth, conducting analytical procedures such as trend analysis on expenses over multiple periods can reveal abnormal fluctuations warranting further investigation. Fifth, a detailed review of duplicate cheque issuance and cancellation entries can identify patterns of fraudulent or unauthorized payments.

In conclusion, a combination of preventative internal controls and diligent audit procedures can significantly reduce the risk of fraud and enhance financial integrity in organizational operations.

References

• Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2014). Fraud Examination. Cengage Learning.
• COSO. (2013). Internal Control – Integrated Framework. Committee of Sponsoring Organizations of the Treadway Commission.
• Hayes, R., Dassen, R., Schilder, A., & Wallage, P. (2014). Principles of Auditing: An Introduction to International Standards on Auditing and Other Standards. Pearson.