Fraud Examination Report
To: Chief Executive Officer of Vortex
From: Kaibin Wang
Re: Examination of Potential Misappropriation
Vortex is a small manufacture company which makes office furniture. It has $300,000 of over-budget annual payroll. I have been retained by Vortex to be a Certified Fraud Examiner to help them detect if there is any fraud in this company.
A. What items would you discuss in your brainstorming sessions to prepare for this audit?
Where the $300,000 go?
Where these cost come from?
Who can touch this money?
Is there any loophole in the internal control process?
Does the IT department have a well design system of safeguard?
Is there any outside party which may did some mistake?
B. What schemes would you be concerned about?
Did Dana misappropriate all or part of the $300,000 over-budget ...view middle of the document...
2. Dana emailed the payroll files to ADP and ADP direct deposits payroll into employees’ bank accounts. Dana is also the employee who prepares the payroll file.
3. Dana is also the person who is responsible for reconciling the ADP payroll file with bank records when the employee suspected of perpetrating the fraud.
4. Dana refuses to add additional personnel to assist her and she already convinced the owner she can control the performing without additional help. That’s might because Dana worries if the new assistant will know what she did and report.
5. Also the payroll files between ADP and Vortex do not reconciled over 9 months.
6. The human resources department of Vortex is over controlling this company. They control the employees’ files and can make any changes.
7. Because the IT designed weak protection to the password, so someone else would easily get the password and make any change.
D. What fraud audit procedures will be necessary to determine if fraud has occurred?
Fraud Brainstorming Session.
Journal Entry Testing.
Significant Unusual Transactions.
Track all bank transactions and recording.
Dana has high living costs, controls all the processes from payroll files generating to the final step, so she has the pressure, rationalization, and opportunity to do the fraud. Base on the factors from this case, there are frauds in Vortex and Dana should responsible for the fraud of Vortex. Moreover, there need a strong inspection on third party-ADP. It would be great if add an additional personnel to make a double check. Furthermore, it needs to enforce the safeguard of the well designing system which made by IT department. At last, the internal control and internal audit also are the loopholes of Vortex. Because the weakness of internal control Dana can have the right to do all these actions without any inspection. Also if the internal auditors can fulfill their obligations, Dana would not have chance to make fraud. Therefore, the internal control should be enforced and also need to emphasize the independence of the internal auditors and any department in the company.
End of the Report