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Reference: December’14 (actual), question no. 1b
The following answers came to me as I was attempting this question :
Obtain a list of payroll expense by department, compare to previous yr & budgets to investigate any significant differences. This could help in identifying maybe departments where further fraud has occured.Also, for a sample of employees check clocking in & out records to verify whether these exist – on the presumption that for fictitous employees, no records would be available.
Are the above 2 answers correct pls with regards to the particular question?
Also, I’m confused as when I saw the model answer, there was no mention of additional testing to be undertaken by auditors in the light of a recent payroll fraud. I know auditors have a secondary responsibility when it comes to fraud, but why do auditors limit their 9procedures to just enquiries – this was what the model answer suggested. How can they obtain reasonable assurance if they don’t undertake further testing themselves?
Thank you in advance
A1: That would be OK.
A2: You would trace from employee records to clocking-in records. That would help also.
When alerted to fraud, they would have to investigate to find its extent.
Item 5 on the model answer goes further than just enquiries. It says: Review and test the internal controls surrounding setting up of and payments to new joiners to assess whether furtherfrauds may have occurred.
Thanks for your reply. Yes there was also mention of reviewing of internal controls, however I’m still confused as to why the answer doesn’t include reference to more auditor obtained evidence instead of relying on enquiry which is in itself a weak form of evidence. I find this baffling in the light of the seriousness of fraud. Am I right or am I not understanding properly auditor duties iro fraud? Thanks again for your kind help
If I had been answering it I would have included more about specific audit procedures to collect evidence about the extent of the fraud.
I don’t think we can even assume from the question that the company has quantified or investigated the fraud. Even if it had, we need to audit their findings.
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