Case: Saan aabot ang P500.00 mo?

Justin M. is an internal auditor for Blacklist International, a diversified company engaged in the gaming industry. On December 31, 2020, he reviewed his copy of BIR Form 2316 and noticed that the tax withheld on his last paycheck was P500.00 more than the amount indicated on his BIR Form 1701. He used the Form 2316 amount to complete his tax return (since he also runs a business hence a mixed income earner) and made a mental note to visit the payroll department on the third floor of the building and ask about the discrepancy. The next day, Justin was overloaded with work with the new accounting period and simply decided that the P250.00 was small and immaterial.

On January 15, 2021, Dempsey, a coworker, made a side comment that the company had taken P500.00 more from his salary than he was given credit in the BIR Form 2316. Justin came to a realization that he was not the only one with the P500.00 discrepancy. He investigated the matter and discovered that all 750 employees had the same P500.00 discrepancy. He also discovered that the BIR Form 2316 of Louie, the payroll programmer, had hundreds of thousands more in withholdings reported to the Bureau of Internal Revenue than what has been withheld from his salary.

Justin knew that when he reports the situation, management was going to ask some questions.

Instructions:

1. What constitutes a fraud? Was the issue/matter discovered by Justin considered as fraud? Explain.
2. How was the fraud perpetrated? What were Louie's motivations to do such a thing?
3. Why was management not able to catch on with the issue? Was there any weakness in the internal control?
4. How can the company detect and prevent such a thing from happening again?
5. How vulnerable is Blacklist's information system to fraud?