Sample

Question 3b ii

(b) Having accepted the engagement, the operations director provides you with the following summary of the allegations of the whistle-blower:

‘The warehouse manager has been working with one of the sales representatives to dispatch goods to a fictitious customer which the warehouse manager has created on the dispatch system. The sales orders are input by the sales representative into the dispatch system which is not directly linked to the invoicing and accounting system.

After the goods dispatch note is issued by the warehouse manager and the goods leave the warehouse for delivery to the fictitious customer, the sales representative cancels the original order. The warehouse manager reverses the dispatch immediately so that the daily report on inventory movement used to generate invoices in the sales system does not reflect movement of the goods. The sales representative takes delivery of the goods at the address of the fictitious customer and then sells the parts on the internet, splitting the proceeds with the warehouse manager. The warehouse manager supervises and participates in all inventory counts and this way ensures he is able to adjust the records of inventory to disguise the missing items.’

The operations director has informed you that no authorisation is required for either the cancellation of orders or the reversal of dispatch notes.

Required:

(ii) Evaluate the deficiencies in Beyer Co’s internal control system, and explain how they contributed to the fraud, together with recommendations to prevent such a fraud reoccurring. (6 marks)