Lifed & Verboten, Public Accountants, are the auditors of numerous credit unions in your city. The CFO of Ethnic Credit Union (ECU) recently called Sarah Lifed about his concerns with respect to one of his loan officers. ECU is a small credit union, with only 10 full-time employees. There are two loan officers who are responsible for approving and administering loans, recording interest rate changes in the master files, and recording pre-authorized payments. The CFO indicated that there have been a number of complaints about duplicated and incorrect loan payments. Upon investi¬ gation, incorrect interest rates were found and the duplicated payments were reversed. The CFO has requested that as part of your annual audit, you perform additional computer- assisted audit tests on member account and transaction data files to pinpoint potential errors in the data files and poten¬ tial irregularities. Since ECU's records are stored in a data base, the firm uses ECU's report writer to run computer- assisted audit tests.

The following semi-permanent information is contained in the data base for each credit union member:

• Member's account number

• Member's name and address

• Sub-account code (1 = savings, 2 = personal loan, 3 = mortgage loan)

• Date account opened

• Last transaction date

• Current balance

• Interest rate (savings and loan accounts)

• Loan payment amount (personal and mortgage loan accounts)

• Interest amount — current month (savings and loan accounts)

• Interest amount — year-to-date (savings and loan accounts)

• Maturity date (personal and mortgage loan accounts)

• Overdue payments amount (personal and mortgage loan accounts)

• Number of loan payments — year-to-date (personal and mortgage loan accounts)

• Number of cash deposit transactions — year-to-date (savings accounts)

• Number of cash withdrawal transactions — year-to- date (savings accounts)

• Total cash deposits year-to-date (savings accounts)

• Total cash withdrawal — year-to-date (savings accounts)

• Original amount (personal and mortgage loan accounts)

The following information is retained for each transaction in the data base:

• Member's account number

• Member's sub-account number

• Transaction code

• Transaction date

• Transaction amount Required

a. Identify potential errors that could occur and potential fraudulent activities that could be conducted by the loan officers. State whether each item is a potential error or a potential fraudulent activity.

b. For each potential error or potential fraudulent activity, identify a test that could be conducted using the report writer to investigate the likely occurrence of that error or activity.