MUNHUMUTAPA SCHOOL OF COMMERCE
DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS
MASTER OF COMMERCE DEGREE IN PROFESSIONAL ACCOUNTING
AND CORPORATE GOVERNANCE/GRAD ICSA
LEVEL 1 SEMESTER 2
INDIVIDUAL ASSIGNMENT
NAME
WALTER MATEKENYA
STUDENT NUMBER
M224415
MODULE CODE
MPAC521
MODULE NARRATION
APPLIED FORENSIC AUDITING
LECTURER
Mrs. S. ZHOU
DUE DATE
25 MAY 2023
___________________________________________________________________
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Question 1
The Board of Better Life Foundation, (a charity organization) dedicated to helping
disadvantaged children in Masvingo Province, asked for a review of controls over their receipts
and expenses for year ending 2020.
A Forensic examiner was engaged to examine the system. The forensic team examining the
director’s expenses noticed that some personal expenses had been charged to the Foundation,
including Z$13 000 for school books that were recently purchased for the director’s children.
The team expanded the review to an entire year and found evidence that car repairs, groceries,
liquor, theatre tickets and a flight to South Africa by the director and her family had been paid
for by the Foundation. The forensic accounting investigators showed the evidence to the Board
Chairman, who was puzzled and who assured the team that the Board had not authorized these
expenditures.
The Board then authorized for a broader investigation. Everyone in the company was surprised
to hear about these clerical errors or misunderstanding. Nobody could think Elizabeth Shashe,
The Foundation Executive Director, an honest woman who had found and saved Better Life
Foundation for years could be a fraudster. Madam Director Elizabeth could not be a fraudster,
said one board member.
The Investigation was allowed to continue with their work. The investigation determined that
the Foundation had been paying the private school tuition of the directors’ children, bringing
the total to Z$190 000, 00. More and more investigations were done to investigate additional
schemes, co-conspirators and the total loss to the company.
The investigation discovered that the director was involved in conducting fund raising and so
they were need for them to track all the donations made to the Foundation company during
the year. The challenge for the investigation was that it would be difficulty to track the monies
if they were converted to personal use.
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The investigation later leant that the Director favored the churches as targets for fundraisings.
A good place to start was the study of the director ‘s travel diary around the country. The
director’s travel reports and correlated with churches near the hotels where she stayed were
the sources of information. Each time that the forensic investigator identified a church where
she had conducted an appeal, they looked for a deposit in the foundation’s bank account. The
team would then call each church to track donations. They did not disclose that they were
investigating a suspected criminal behavior. They only informed the church leaders that they
were auditing the Foundation ‘s books and confirming donations. If the response was that a
donation had not been made and in fact no such appeal had taken place, the forensic
investigator would simply apologize for troubling that church.
Before long, they found what they were looking for. At Presbyterian church in Mbare, the
pastor confirmed to the forensic investigator that the Executive director addressed the
congregants one Sunday and was handed cash amounting to Z$10 000 and USD$1200. The
forensic examiners requested for a proof of payment and were given There was no evidence of
this amount paid or deposited to the Foundation ‘s account. The forensic accountants
requested for a court order to investigate the Director ‘s personal account. The pastor of the
church –Presbyterian Mbare confirmed that the appeal had been videotaped and he provided
the examining team with the copy.
After the investigations were done, a report was compiled and given to the Board. The Board
were stunned and were not yet ready to take the matter to the prosecutor.
(a) Idententify and explain the type of fraud that were committed at Better Life
Foundations. (10marks)
(b) Addvise Foundation Board on the need to engage forensic auditors instead of the
financial auditor. In your answer educate the board on the role and skills needed for a
forensic auditor (10 marks)
(c) Based on your analysis of the case advice the board as to their role in relation to fraud
prevention and detection. (5 marks)
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(a) The type of fraud committed at Better Life Foundation is financial fraud called
embezzlement.
Embezzlement is a type of financial fraud in which a person who is entrusted with someone
else's money or property unlawfully takes it for their own use or benefit. It usually involves
a person who has been given access to funds or assets as part of their job or position of
trust, and then uses that access to steal or divert the funds or assets for their own personal
gain. The key element in embezzlement is that the person who takes the funds or assets
had legal access to them, but then misused that access for their own benefit.
This type of fraud involves the intentional misappropriation of funds or other assets for the
benefit of the perpetrator or to the detriment of the organization. In this case, the director,
Elizabeth was misusing Foundation funds for her own personal benefit, including paying for
her children's school tuition, car repairs, groceries, liquor, theatre tickets, and a flight to
South Africa. She also solicited funds from donors for the Foundation but kept the money
for herself, which is a clear case of embezzlement. From the above, 5 elements have to be
fulfilled for it to constitute fraud. These include:
(i)
Misrepresentation or omission of a material fact
This means that the person committing the fraud makes a false statement or fails to
disclose an important fact that would have affected the victim's decision-making. In the
case, Elizabeth, the director did not disclose that he paid personal expenses out of the
foundation`s funds.
(ii)
Knowledge of falsity
The person committing the fraud must know that the statement they are making is false or
misleading. The director knew that the statements were misleading and false as she
presented the accounts to the forensic auditors.
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(iii)
Intent to deceive
The person committing the fraud must have the intention to deceive the victim. Intention
was there as the director, Elizabeth was misusing Foundation funds for her own personal
benefit, including paying for her children's school tuition, car repairs, groceries, liquor,
theatre tickets, and a flight to South Africa. She also solicited funds from donors for the
Foundation but kept the money for herself, which is a clear case of embezzlement.
(iv)
Reliance
The victim, Better Life Foundation, relied on the false statement or omission to their
detriment.
(v)
Harm
The victim must suffer some harm or loss as a result of the fraud. Better Life Foundation
suffered financial loss not limited to the following:
Director`s children books Z$13 000
Private school tuition Z$190 000
Donations in cash amounting to Z$10 000 and USD1 200
(b) The Foundation Board should engage forensic auditors instead of financial auditors because
forensic auditors are specifically trained to identify and investigate fraud.
Unlike financial auditors who focus on the accuracy of financial statements, forensic auditors
use specialized techniques to investigate financial fraud and misconduct.
Forensic auditors also have a deeper understanding of the legal and regulatory requirements
related to fraud detection and prevention.
Forensic auditors also have skills in data analysis, interview techniques, and investigative
procedures that are necessary to identify and investigate fraud.
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Forensic auditors play a critical role in investigating and preventing financial fraud, misconduct,
and other financial crimes. The following are some of the roles and skills needed for a forensic
auditor:
(i)
Investigative skills
Forensic auditors must have strong investigative skills to gather and analyse financial
data, as well as other evidence related to fraudulent activities. They must be able to
identify patterns and trends, and be able to use specialized tools and techniques to
uncover hidden financial transactions like what they did on church donations. They
tracked up until they got incriminating evidence in the form of a videotaped appeal and
then presented findings to the board.
(ii)
Knowledge of financial and accounting principles
Forensic auditors must have a deep understanding of financial and accounting
principles, including financial reporting, auditing, and fraud detection. They must be
able to identify and interpret financial statements and other financial data, and be able
to analyse and evaluate financial information. For example, they managed to pick and
separate private business transactions to the ones for Better Foundation business. The
errors were made by employees of the foundation. Financial Auditors would not have
picked these since their audit scope is not wider as compared to forensic auditors.
(iii)
Legal and regulatory knowledge
Forensic auditors must have a strong understanding of the legal and regulatory
requirements related to fraud detection and prevention. They must be familiar with the
rules and regulations related to financial reporting, auditing, and fraud investigation. For
example, forensic auditors applied for a court order to investigate the personal account
of the director Elizabeth.
(iv)
Communication skills
Forensic auditors must be effective communicators and be able to present complex
financial information in a clear and concise manner. They must be able to communicate
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their findings to clients, other stakeholders, and law enforcement agencies. There were
constantly updating the board on findings and their reports were clear and concise.
They also managed to negotiate with Mbare Presbyterian leaders in a bid to get
concrete evidence on the matter.
(v)
Technology skills
Forensic auditors must be proficient in the use of technology, including specialized
software tools used in forensic accounting. They must be able to extract data from
financial systems and other sources, and be able to use a variety of analytical tools to
analyse and interpret the data. They managed to extract data on director`s expenses
and found so many errors as evidence that there was really misappropriation of funds.
(vi)
Attention to detail
Forensic auditors must have a keen attention to detail, as even small errors or
inconsistencies in financial data can be a sign of fraudulent activity. They must be able
to identify and investigate discrepancies in financial data and be able to determine the
root cause of any issues. They managed to dig dip into the director`s expense account
and saw many errors, so small like buying of stationery for Elizabeth`s children.
Overall, forensic auditors play a critical role in identifying and investigating financial fraud,
misconduct, and other financial crimes. They must have a wide range of skills and expertise to
be able to effectively carry out their role in preventing financial fraud and misconduct.
c)
The Board has a critical role to play in fraud prevention and detection. The Board
should ensure that appropriate controls and procedures are in place to prevent and
detect fraud. This includes the following:
(i) Segregation of duties: The Board should ensure that no single individual has complete
control over financial transactions. This means separating duties such as authorization,
custody, and recording of transactions among different individuals or departments.
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(ii)
Regular audits: The Board should make sure that regular audits of financial statements
and operations to ensure that all transactions are properly recorded and accounted for.
This includes an examination of the accounting records, bank reconciliations, and other
financial documents.
(iii)
Independent reviews: The Board should engage an independent third party to review
financial statements and operations. This can help to identify any weaknesses in the
internal control system and provide recommendations for improvement.
(iv)
Policies and procedures: The Board should develop and implement policies and
procedures for financial transactions, including the approval process for expenditures,
the use of credit cards, and the handling of cash.
(v)
Training and awareness: The Board should ensure that all employees and volunteers are
properly trained on ethics and fraud prevention. This includes providing training on the
Foundation's policies and procedures, as well as on the importance of reporting any
suspected fraud or misconduct.
(vi)
Whistle-blower policy: The Board should establish a whistle-blower policy to encourage
employees and volunteers to report any suspected fraud or misconduct. The policy
should provide protection for whistle-blowers and ensure that all reports are thoroughly
investigated.
(vii)
The Board should review and approve all fundraising activities and ensure that all funds
received are properly accounted for and deposited in the Foundation's bank account.
(viii)
Finally, the Board should take swift action if any evidence of fraud or misconduct is
discovered, including notifying law enforcement authorities and seeking restitution for
any losses incurred.
By implementing these internal control systems, the Board can help to prevent and detect
fraud, and ensure that the Foundation's resources are used for their intended purpose of
helping disadvantaged children in Masvingo Province.
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