Question

Ed's wife Diane owns a printing business in town.

Ed works in the accounts payable department of Jiffy Abs Vitamin Company.

Diane prints invoices for work supposedly done for Jiffy Abs (no actual work was performed) and

Ed places in the invoice in the approved for payment invoice pile.

Jiffy Abs pays these invoices and sends Diane 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. Controls include:

• Invoice should be checked with material actual received.

• Physically checked inventory once confirmed signed and stampted on the bill as receiving confirmation

• Voucher package that includes a receiving report.

• An approved vendor list and the requirement that the vendor be on the approved vendor list

• The inclusion of an expense account for the charging of all material. Each department gets a report of all expenses each month for review.

2. Procedures include:

• Review of voucher packages to ensure goods were received.

• Review of voucher packages to ensure vendors are on the approved vendor list

• Analytical procedures to identify increases in expenditures for specific types of products (printing services)

• Analytical procedures to identify increases in expenditures to specific vendors.