Preliminary report
SCENARIO
ABC Company is a boutique law firm located in Canberra, specializing in worker’s compensation with 52 permanent full-time staff, 2 permanent part-time staff and a list of seasonal casual law students who work in an ad-hoc manner depending on the demands of the company. ABC Company have three permanent staff members in their Accounts Division: Elisha who is responsible for accounts payable (full-time staff member), Natasha who is responsible for accounts receivable (full-time staff member) and Lincoln who is responsible for processing pay-roll on a fortnightly basis (part-time staff member). The payroll is completed on a fortnightly basis. Only casual members are required to submit paper time-sheets specifying the hours worked and are paid via cheque. The time-sheets are completed by the casual staff and submitted to Lincoln two business days before the close of each pay period for payment. Every staff member in the Accounts Division has signatory authority to approve the issuing of a cheque, with only one signature required for authorisation. ABC Company has their accounts audited every year by an independent audit company, CPA
Partners. CPA Partners noticed discrepancies between the group certificates issued to each casual employee and the wage payments processed in the accounts (the wage expense general ledger), with the latter being substantially higher. Upon closer inspection, the auditor discovered that 5 out of the 7 casual employees had the following discrepancies:[unique_solution]
| Casual Employee Name | Salary Reported on Group Certificate | Salary Recorded in Payroll Accounts |
| Stacey | $12,300 | $23,900 |
| Louise | $19,700 | $24,100 |
| Kevin | $1,200 | $5,200 |
| Tabitha | $6,900 | $8,300 |
| Jeremiah | $32,900 | $44,000 |
The auditors have raised these discrepancies with the Chief Executive Officer (CEO) of ABC Company and suspect Lincoln has been recording fraudulent time-sheets for the affected casual employees and cashing in their cheque into his own personal account. The CEO has contacted the Australian Federal Police to assist in further investigating the discrepancies.
TASK
The responding Officer in Charge (OIC) seeks assistance from the Fraud Squad and the job has been allocated to you. As the nominated Forensic Accountant (sworn officer) attached to the Fraud Squad you have been instructed by your Superintendent to prepare a preliminary report for the OIC to address the following:
- Explain the significance of forensic accounting specific to this case and how a Forensic
Accountant can contribute to the effective investigation of these discrepancies;
- Describe in detail how the business records have been manipulated to allow for the
fraud to occur;
- Provide a comprehensive analysis that (1) identifies the weaknesses in the payroll
cycle, (2) details sound internal controls to be implemented to address the identified
weaknesses and (3) explains how these ramifications will mitigate identified risks.