(b) (i) Procedures to quantify the loss

1 mark for each relevant procedure described.

– Meet with audit committee/management to understand and document what they know about the fraud and who might be involved
– Discuss with the company’s legal team what is known about the fraud at present and the source of the information
– If possible, interview the whistle-blower to identify the potential staff involved and the timescales over which the fraud has been perpetrated
– Obtain the prior year report to management from the auditor and inspect auditor’s reports to identify any deficiencies or discrepancies in inventories identified by the auditors
– Obtain/prepare a reconciliation of all orders placed including cancelled orders to all invoices raised to identify the total of all orders placed but not invoiced to establish the maximum potential value of the theft
– Arrange to conduct a full inventory count to identify discrepancies between the inventory records and physical inventory
– Investigate records of inventory written off to identify possible attempts to disguise the missing items
– Interview sales, warehouse, and accounting staff to identify the system in place for creating a sales order and for setting up customers within the sales and inventory systems
– Use CAATs/data analytics to identify the total of cancelled orders within the inventory records system and any addresses which are associated with large volumes of cancellations
– Identify which cancelled orders are assigned to the sales representative identified by the whistle-blower
– Identify which customers those orders are assigned to and verify their existence within the invoicing system and, where possible, their registered business address to ensure they are genuine customers
– From this, identify fictitious customers and reconcile their cancelled orders to the inventory discrepancies identified
– Assess if the amounts ordered by the fictitious customers agree to the total discrepancies or if there is a further difference to be investigated
– Obtain inventory listing to identify the cost of the parts stolen and calculate the cost of the inventory identified as relating to the fictitious customer orders
– Using CAATs/data analytics identify any other sales staff with unusual levels of cancelled sales dispatches to see if this is a wider issue

Maximum marks 6