Question

Brian's wife, Susan, owns a printing business in town.
Brian works in the accounts payable department of Martin's Shoes.
Susan prints invoices for work supposedly done for Martin's Shoes, even though no actual work was performed for Martin's Shoes. Brian then brings the invoices to work and enters them into the accounts payable system to be approved for payment.
Martin's Shoes pays these invoices and sends Susan's printing company a check.

1. Name two internal controls that might prevent or detect these fraudulent payments.
2. Name two audit procedures that might detect this fraud.

Answer 1

1. Name two internal controls that might prevent or detect these fraudulent payments.

The internal control which prevent or detect fraudulent payments

1)Preventive controls

Preventive control helps prevent errors and misappropriation of assets.For example a control may create an obstacle that prevents the processing of a particular type of transaction. Preventive control include:

1. Segregation of duties
2. Dual control
3. Supervisory review
4. Reasonableness check
5. completeness check

Since no preventive controls can be fool proof, it is equally important to have in p[lace the detective contrl mechanism.

2)Detective control

Detective controls back up preventive controls by detecting erros once they occur.Detective controls compliment preventive controls and are essential components of a well-designed control system

If the above two controls were there Brian could not misaapropriate the assets of the company

2. Name two audit procedures that might detect this fraud

The audit procedures that might detect fraud

1)Financial audits

Financial audits typically involve reviewing internal controls used to ensure reliable financial reporting. For instance internal auditors may examine company records to review whether the purchases are properly authorised by appropriate supervisors.By testing whether this control is properly designed and followed.

2)Operation audits

Operation audits review and examine the effectiveness and efficiency of business processes