GREAT ZIMBABWE UNIVERSITY
MINHUMUTAPA SCHOOL OF COMMERCE
DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEM
COURSE CODE: MACC525 /MPAC521
COURSE TITLE: APPLIED FORENSIC AUDITING
Question 1
Read the following scenario and answer the questions below.
An article by Kenny Zhou. Fraud and corruption Scanadals.posted by 03 April 2014
On my news 24.com reported the following regarding a local municipality in Harare.
Apart from councilors being overpaid, the Auditor General discovered that $1,8 m of the
Municipal assets could not be verified, millions of outstanding debts were owed, some
of which lied in a suspense account and an official had taken a second vehicle which
exceeded his annual salary. The mayor, who was given the most expensive mayoral car
in the country ($70 000 with a car radio worth $400,00).incurred $5 000 on VIP
protection in just one year, and the Municipal manager had incurred unauthorized credit
card expenses of $110 104 on a trip to Paris. This trip was claimed for twice. It also
emerged that the mayoral took out a new vehicle loan of $9 000 while he still owed $1
600 on an earlier Loan. The mayor earns a whopping $46 000 per annum, yet holds no
degrees, and has only five year experience in municipal management. The local airport
ceased to schedule flights due to neglect, a $4m in effective water desalination plan
was built and the municipality was bankrupty.The cases of fraud and corruption are too
long to list.
1
a
I) Identify and fully describe important benefits of fraud prevention. (10)
II )Explain the concept of ‘tone at the top’ and in light of your explanation, discuss the
effect the mayor’s behavior, as portrayed above, is likely to have on the municipality‘s
staff. (7 marks)
Iii ) In addition to tone at the top, mention 5 other essential elements required to create a
culture of honesty and sound ethics within an organization. (5 marks)
(iv)
Identify and fully describe the 4 most common motives behind fraud. (4 marks)
1 (b) The article reported that the Auditor general discovered the fraudulent /corrupt
activities at the municipality. Accepting that the AG forms part of the oversight
functioning the local government, identify and critically explain the role of other
5 parties that can participate in a multidisciplinary approach to fraud
prevention..(15 marks)
1.( c) Define fraud as given by the Zimbabwean law. Justify whether or not the statement
made in the article ,that the mayor ‘ earned a whopping $ 9 000 per annum yet
holds no degrees and has only five year experience in municipal management” is
likely to be considered as fraud. (10 marks)
Question 2 Fraud detection
Read the following case and answer question (a) and (b) below.
Hove , upon receiving a word from Charlie that the company needed to purchase 50
new computer servers, took Charlie out for lunch and offered him $1 000 , paid into
his wife ‘s personal bank account if Charlie awarded the contract for the supply of the
computer servers to KMP ‘s dealership. .Charlie accepted the offer and the deal was
done.
Hove feeling that the company was not paying him enough for all the efforts he put into
his work, he registered a company with false identity documents(in the name of Low
Cost) .He then proceeded to place orders for stationery at this company for kmp .In the
beginning he purchased the stationery from a reputable dealer and resold it to kmp at a
50% mark up. However, as his lifestyle improved, he needed more and more money to
maintain his lifestyle. He started to raise invoices from the Company forKMP to pay
without delivering any stationery to KMP. As head of procurement, Hove
acknowledged receipt of the fictitious goods and approved payment thereof to the
company.
During the course of one of the transactions, a creditor’s clerk Getrude ,at the finance
section became suspicious of the volumes of stationery that company appears to be
purchasing. She made some enquired and discovered the identity of the owner of the
Company that was supplying the stationery.
(a)Critically explain how CAATS can be used to detect possible fraud in the above
scenario.(10)
(b) Describe by way of examples the techniques you would apply using CAATS and the
results you would expect from the technique used.(30 marks)
Question 3
(i)
(ii)
(iii)
Discuss any four short comings of a red flag.(8 marks)
List five examples of a red flag to misappropriation of assets. (10 marks)
Define Fraud and discuss its elements (10 marks)
Question 4
Discuss the liability of government officials with regard to financial misconduct in terms
of the Public Finance Management Act both from a disciplinary and a criminary point of
view. (20 marks)
Question 5 Investigation
Mr. Nyika is the director of Information Technology at AAAC, a large corporate. He is
unmarried and enjoys the finer things in life. Included in his duties is the procurement of
IT equipment for AAAC.
As part of a promotion, Y, a supplier to AAAC, offers a gift of a motor bike to the firm who
places an order with them that exceeds a certain amount. AAAC has to place an order
with Y anyway to procure IT equipment and so qualifies to get the motor bike. However,
he does not inform Nyika of the special offer, but rather fetches the motor bikes and take
it home for his own use.
Z, another supplier of AAAC, supplies computer equipment to AAAC .Max, the sales
person of Z is a good friend of Nyika. During the course of this relationship, it happens
often that Nyika receives a quote from Max that is more expensive than other quotes he
obtained from other supplies .In order to help Max; he alters the quotations from other
supplies to reflect prices higher than that of Z. Because he feels that he deserve
something for continuing to be so generous, he mentioned to Max that he could do with
a home entertainment system. Max arranges this and a state of the art system is delivered
to Nyika’s house.
Top Management of AAAC gets suspicious and starts asking question, In order to
ascertain how much they know , and using a hacking tool he purchased on the internet
,Nyika accesses the emails of the CEO and CFO.
Required
5(a) Identifying and discuss all the offenses that are committed by all individuals
mentioned above. ( 20 marks)
5 (b) A creditor‘s clerk decides to give a statement. Compile a statement for her (10
marks)
5 (c ) You have identified Max as a suspect during the investigations. List the possible
sources of information that the police and the investigating officer may consult. (10
marks).
5 (d )
Discuss the Key considerations that a court must take into consideration when
imposing a sentence.(10 MARKS)
6
Reporting
(a) It is essential for a Forensic Auditor to draft a letter of engagement before commencing
with an engagement assignment. Name 8 matters which should be addressed in the letter
of Engagement and briefly explain their relevance. Use a table format.(16marks)
(b) List the risks that a forensic Auditor faces if the letter of Engagement is not formalized
and signed. (4 marks)
(c) It is recommended that forensic auditors use visual aids in the body of their report. List
the types of visual aids which could be included in the report and briefly describe the
benefits of using each of these.( 10 marks)
(d) In many cases , a formal forensic accounting factual findings report will contain an
Executive Summary. Describe the typical content ,purpose and benefits of such an
Executive Summary.(10 marks)
7. Investigations
During the release of the latest results of Macc 503 Group consolidated financial reporting
results it became known that some students, with the assistance of examination
invigilators cheated during the exam. The examinations are written online. During the
marking process of exam papers evidence was found of “group copying.”
It was reported that 5 430, Macc 503 Group financing Reporting candidates from 30 exam
centers were investigated for cheating. The examination and assessment irregularity
committees conducted hearing in order for the affected parties to tell their stories.
You were provided with the list of 30 exam centers where alleged cheating took place
.however you want to perform procedures to see whether other centers were other
centers were also involved. Each student at the different exam centers has a unique
student exam code which is issued in sequence by the Department of Accounting.
Required
(a) Provide the definition of six CAATs that will assist you to identify a list of
subsequent guilty parties and
(b) Using CAATs explain how you will conduct the investigation of the above scenario
and show your expected result .Follow the apply the information provided in the
scenario and describe one example of each CAAT.
Present your answer as follows.
(a) Type of CAATs Description of Audit
that will identify guilty CAAT
procedure
parties
Filtering;
It
Indicates
isolated
and
suspicious data
by selecting or
filtering
out
records based
on
certain
criteria.
( b) One example for
each CAAT based on
the information in the
scenario
At each center 30 sheets of students
of the 30 exam who
wrote
exam
centers where according
to
their
alleged
candidate number. .
cheating took
place, extract
the list and
information of
students who
wrote
their
exams at these
centers
for
further
investigations.
Question 8
Read the following scenario and answer the questions below
Skyrocket is a company that manufactures bio-friendly products, which include stationery,
furniture and a wide range of useful gadgets. You met the Chief executive officer of
Skyrocket Mr. Bonds, at a dinner function organized by the Association for Certified Fraud
Examiners .During the conversation over dinner Mr. Bond started complaining about fraud
and corruption in his company.
Mr. Bonds claimed that despite anything he had tried, he can’t stop his staff from being
dishonest. He mentioned the following incident that the external auditors discovered
during their annual audit the week before.
One of the senior quality checkers called Mr. Zee , apparently felt discontented after
missing a promotion opportunity. He then started to reject items that came off the
production lines that would normally have passed all the quality checks. Knowing that
there was nothing wrong with those items he then used his stall privileges to purchase
those items at cost price and sold it privately for profit. This all happened in the first quarter
of the financial year when the quality manager was on sick leave for three months.
Mr. bonds further remarked as follows “the guy was given good warning and will sacrifice
his bonus , so he has probably learned his lesson , but how long before the next incident
surface?. I hate being a spy. I would like to spend money on improving the production
processes, but lose everything on account of dishonest and having to consult legal
advisors”
(a)
Critical examine why it is better to prevent fraud than to detect it and the explain
the benefit associated with the process. (12 marks)
(b)
Identify the parties involved in a multidisciplinary approach to fraud prevention and
explain the role of each. (8marks)
(c)
Explain whether or not the actios of Mr ZEE would be regarded af fraud in the
context of the Zimbabwean law.(5 marks).
Question 9
A friend of yours found it very interesting that you are registered for the forensic auditing
course at GZU.Having seen all the reports on fraud and corruption in the newspapers
and noticing the extent of management involvement in those incidents, he wants to know
how a fraudster can be identified ;
(a )
Explain to your friend why it is difficult to identify a fraudster by appearance.
(b) Using fraud theories identify and explain the factors and reasons that motivate most
people to commit fraud.
(c )
Motivate your answer on the reasons why management in particular will commit
fraud.
Question 10
Mary is a bookkeeper in a retail company. Having earned his trust, Mary‘s supervisor
assigned various functions normally reserved for management to her, including the
authority to issue and authorize customer refunds. Mary proceeded to issue refunds to
nonexistent customers and created documents with false names and addresses; she
adjusted the accounting records and stole about $1678 000 in cash. She was caught
when the external auditors sent routine confirmations to customers on mailing lists and
received excessive return to sender replies.
(a) Discuss whether or not Mary‘s actions would be regarded a fraud in terms of the
Zimbabwean Law.
(b) What actions should the management of the company take in response to this
incident if they want to send a clear message that fraud will not be tolerated within
the company?
(c) Explain and motivate as to the reasons why a company will benefit from fraud risk
assessment and explain the main components of such a risk assessment.
Question 11.
James Busumuzi inherited a lot of money from his grandfather and being a born
entrepreneur with keen interest and a degree in information technology, he started a
business that develops computerized games. To aid his cash flow he also sells games,
printer cartridges and paper from front room in the house he is operating from. The
business has been running for two years and because every employee is chasing the
dream of developing the game that will be the new market hit, everybody is working extra
hours and spending a lot of their time developing new games. All employees have some
or other qualifications in it..No positions are advertised James relies on his network and
often appoints family or friends of the staff already working there .Each employee receives
a monthly salary according to fixed rate per rate per hour and is promising a share in the
annual profit relating to successfully developed games. Everybody, including Jim, is busy
on their computers, leaving little time for manager-employee intervention and discussion.
The culture of the company is trusting and fun with very few rules .New employees only
have to sign an agreement not to disclose any project information or software secrets to
other organizations or outside parties .Employees take turns on a weekly basis to take
care o deliveries and sales in the front office and James does all the purchasing, banking
and bookkeeping himself. A staff member got fired recently but although the reason was
rumored to be fraudulent behavior, nobody really knew the reason.
(a) Explain the organization’s operating procedures that encourage fraudulent
behavior. (5 marks)
(b) Based on the information provided in the scenario and taking into account the
informal nature of James ‘ business
(i)
Identify elements to include in a fraud prevention strategy for this
organization .List
the elements according to the priority of
implementation.(6 marks)
(ii)
Explain the purpose of each of the elements listed (9 marks)
(c )
Describe the characteristics of responsible leadership that this organization should
aim to incorporate in its management policies. (6 marks)
Question 12
Read the following case and answer question (a) and (b) below.
Over their bear Disaster learnt that Davie ‘s company Mutimukuru is flighting a tender
for the supply of stationery. Disaster arranged a lunch with Davie. He offered Davie $10
000 , paid into his wife ‘s personal bank account if Davie awarded the contract for the
supply of the stationer Disatser ‘s company Books ltd. Davie accepted the offer and the
deal was done.
Disaster feeling that the company was not paying him enough for all the efforts he put
into his work, he registered a company with false identity documents (in the name of Blue
Sky) .He then proceeded to place orders for stationery at this company Blue Sky for Books
ltd .In the beginning he purchased the stationery from a reputable dealer and resold it to
Books Ltd at a 50% mark up. However, as his lifestyle improved, he needed more and
more money to maintain his lifestyle. He started to raise invoices from the Blue Sky Ltd
for Books Ltd to pay without delivering any stationery to Books ltd . As head of
procurement, Disatser acknowledged receipt of the fictitious goods and approved
payment there of to the company.
During the course of one of the transactions, a creditor’s clerk Gertrude ,at the finance
section became suspicious of the volumes of stationery that Books Ltd appears to be
purchasing. She made some enquired and discovered the identity of the owner of the
Company that was supplying the stationery.
(a)Describe by giving examples how CAATS can be used to detect possible fraud in the
above scenario.(10)
(b) Using the fraud theory carry out the investigation of the above case. For each CAAT
used show the audit procedures and the expected results.(15 marks)
Question13
(a) It is essential for a Forensic Auditor to draft a letter of engagement before commencing
with an engagement assignment. Critically examine the matters which should be
addressed in the letter of Engagement and briefly explain their relevance. .(16marks)
(b) Examine the risks that a forensic Auditor faces if the letter of Engagement is not
formalized and signed. (4 marks)
(c) In many cases , a formal forensic accounting factual findings report will contain an
Executive Summary. Criticaly examine the typical content ,purpose and benefits of such
an Executive Summary.(5 marks)
Question 14.
James Busumuzi inherited a lot of money from his grandfather and being a born
entrepreneur with keen interest and a degree in information technology, he started a
business that develops computerized games. To aid his cash flow he also sells games,
printer cartridges and paper from front room in the house he is operating from. The
business has been running for two years and because every employee is chasing the
dream of developing the game that will be the new market hit, everybody is working extra
hours and spending a lot of their time developing new games. All employees have some
or other qualifications in it..No positions are advertised James relies on his network and
often appoints family or friends of the staff already working there .Each employee receives
a monthly salary according to fixed rate per rate per hour and is promising a share in the
annual profit relating to successfully developed games. Everybody, including Jim, is busy
on their computers, leaving little time for manager-employee intervention and discussion.
The culture of the company is trusting and fun with very few rules .New employees only
have to sign an agreement not to disclose any project information or software secrets to
other organizations or outside parties .Employees take turns on a weekly basis to take
care o deliveries and sales in the front office and James does all the purchasing, banking
and bookkeeping himself. A staff member got fired recently but although the reason was
rumored to be fraudulent behavior, nobody really knew the reason.
(a) Explain the organization’s operating procedures that encourage fraudulent behavior.
(5 marks)
(b) Based on the information provided in the scenario and taking into account the
informal nature of James ‘business
(a)
Identify and explain the main elements to include in a fraud prevention strategy for
this organization. The answer should be according to the priority of implementation.(20
marks)
(b ) Describe the characteristics of responsible leadership that this organization should
aim to incorporate in its management policies. (5 marks)
Question 16
(a) Motivate why the forensic auditor should issue an engagement letter before
accepting a new assignment. (10 marks)
(b) After you have completed your investigation and are ready to present your factual
Findings report.
List and explain the dos and don’ts when compiling what you believe to be a
good report. (15 marks)
Question 17
( a) List and explain the structure of a Factual Findings Report. (10marks)
(b) It is recommended that a formal forensic accounting factual Findings report should
contain an Executive Summary. Describe the typical content, purpose and benefits
of such an Executive Summary. (15 marks)
QUESTION 18
An article by Prof Magofuli..Fraud and corruption Scandals. Posted by 03 August
2018 on my news 24.com reported the following regarding a local municipality in Harare.
Apart from councillors being overpaid, the Auditor General discovered that $1,8 m of the
Municipal assets could not be verified, millions of outstanding debts were owed, some of
which lied in a suspense account and an official had taken a second vehicle which
exceeded his annual salary. The mayor, who was given the most expensive mayoral car
in the country ($70 000 with a car radio worth $400,00).incurred $5 000 on VIP protection
in just one year, and the Municipal manager had incurred unauthorized credit card
expenses of $110 104 on a trip to Paris. This trip was claimed for twice. It also emerged
that the mayoral took out a new vehicle loan of $9 000 while he still owed $1 600 on an
earlier Loan. The mayor earns a whopping $46 000 per annum, yet holds no degrees,
and has only five year experience in municipal management. The local airport ceased to
schedule flights due to neglect, a $4m in effective water desalination plan was built and
the municipality was bankruptcy. The cases of fraud and corruption are too long to list.
(i )
Identify and fully describe important benefits of fraud prevention. (5marks)
(ii )
Explain the concept of ‘tone at the top’ and in light of your explanation, discuss the
effect the mayor’s behaviour, as portrayed above, is likely to have on the
municipality‘s staff. (8 marks)
(iiii )
In addition to tone at the top, mention 5 other essential elements required to create
a culture of honesty and sound ethics within an organization. (12 marks)
Question 19
(a)
Identify and fully describe the most common motives behind employee fraud.
(10 marks)
( vi)
Define the term “ fraud” as given by the Zimbabwean law.
(5 marks)
(vii)
explain the reasons why managers commit fraud.
(10 marks)
Question 20
Mr Peter is the director of Information Technology at Mudyahoto, a large corporate. He
is unmarried and enjoys the finer things in life. Included in his duties is the procurement
of IT equipment for Mudyahoto.
As part of a promotion, Dayton, a supplier to Mudyahoto, offers a gift of a motor bike to
the firm who places an order with them that exceeds a certain amount. Politician has to
place an order with Dayton anyway to procure IT equipment and so qualifies to get the
motor bike. However, he does not inform Madyahoto of the special offer, but rather
fetches the motor bikes and take it home for his own use.
Kanguru, another supplier of Mudyahoto, supplies computer equipment to Mudyahoto.
Zirima, the sales person of Kanguru is a good friend of Politician. During the course of
this relationship, it happens often that Politician receives a quote from Zirima that is more
expensive than other quotes he obtained from other supplies .In order to help Zirima; he
alters the quotations from other supplies to reflect prices higher than that of Kanguru.
Because he feels that he deserve something for continuing to be so generous, he
mentioned to Zirima that he could do with a home entertainment system. Zirima arranges
this and a state of the art system is delivered to Politician’s house.
Top Management of Mudyahoto gets suspicious and starts asking question, In order to
ascertain how much they know , and using a hacking tool he purchased on the internet
,Peter accesses the emails of the CEO and CFO.
Required
Identifying and discuss all the offenses that are committed by all individuals mentioned
above. Present your answer in a tabular form ( 25 marks)
QUESTION 21
During the release of the latest results of AC415 Group Consolidated Financial Reporting
module results it became known that some students, with the assistance of examination
invigilators cheated during the exam. The examinations are written online. During the
marking process of exam papers evidence was found of “group copying.”
It was reported that 1500, Bachelor writing Group Consolidated Financing Reporting
candidates from 50 exam centers were investigated for cheating. The Students
Disciplinary committee conducted hearing in order for the affected parties to tell their
stories.
You were provided with the list of 50 exam centers where alleged cheating took place
and the notes from the hearing committee. However you want to perform procedures to
see whether other centres were also involved. Each student at the different exam centres
has a unique student exam code which is issued in sequence by the Examination office.
Required
(a)
Provide the definition for the following investing techniques
(i) Predication theory (5marks)
(ii) Fraud Theory
(5 marks)
(b) State and explain at least ten CAATs that will assist you to identify the
anomalies in this scenario (15 marks)
Question 22
A friend of yours found it very interesting that you are registered for the forensic auditing
course at GZU. Having seen all the reports on fraud and corruption in the newspapers
and noticing the extent of management involvement in those incidents, he wants to know
how a fraudster can be identified ;
(a )
Explain to your friend why it is difficult to identify a fraudster by
appearance.(12 marks)
(b)
Describe the factors and reasons that motivate most people to commit
fraud. (13 marks)
Question 23
Mary is a bookkeeper in a retail company. Having earned his trust, Mary‘s supervisor
assigned various functions normally reserved for management to her, including the
authority to issue and authorize customer refunds. Mary proceeded to issue refunds to
nonexistent customers and created documents with false names and addresses; she
adjusted the accounting records and stole about $1 678 000 in cash. She was caught
when the external auditors sent routine confirmations to customers on mailing lists and
received excessive return to sender replies.
(d) Discuss whether or not Mary‘s actions would be regarded a fraud in terms of the
Zimbabwean Law.
(12 marks)
(e) What actions should the management of the company take in response to this
incident if they want to send a clear message that fraud will not be tolerated within
the company?
(13 marks)
Question 24
The management of story Time Booksellers , a wholesaler with branches all over the
country,is concerned about the following matters that was reported to them by their
internal auditors
Firstly ,Mr Viky ,the manager of their Masvingo branch was late in submitting his August
and October monthly report.he also failed to present original documents when creditors
were paid.On enquiry he replied that it is important to him to have immediate access to
original documents in his office.
The auditors mentioned that Mr Brook despite sufficient staff ,works many hours of
overtime to keep the creditors system, the bank reconciliation and the inventory system
of the branch up to date.
Mrs. Clarity who is responsible for inventory and dispatch at the Masvingo branch has
,for a period of approximately 2 yrs,regularly applied for petty cash advance of $v8000
to pay casual workers .As proof she prepared fictitious acknowledgments of receipt on
which she placed fictitious names and signatures. She gained 20 000.
Required
According to the definition of fraud in Zimbabwe. Discuss whether or not the actions of
the above individuals can be regarded as fraud
END OFQUESTION BANK