Dada is an internal auditor for Beggy Company, a diversified company engaged in the construction industry. On April 30, 2015, she reviewed his copy of BIR Form 2316 and noticed that the tax withheld on her last paycheck was P700.00 more than the amount indicated on her BIR Form 1701. She used the Form 2316 amount to complete her tax return (since she also runs a business hence a mixed income earner) and made a mental note to visit the payroll department on the fourt floor of the building and ask about the discrepancy. The next day, Dada was overloaded with work with the new accounting period and simply decided that the P300.00 was small and immaterial.

On May 31, 2015, Mae, a coworker, made a side comment that the company had taken P700.00 more from her salary than she was given credit in the BIR Form 2316. Dada came to a realization that she was not the only one with the P700.00 discrepancy. She investigated the matter and discovered that all 600 employees had the same P700.00 discrepancy. She also discovered that the BIR Form 2316 of Emmy, the payroll programmer, had hundreds of thousands more in withholdings reported to the Bureau of Internal Revenue than what has been withheld from her salary.

Dada knew that when she reports the situation, management was going to ask some questions.

Instructions:

1. What constitutes a fraud? Was the issue/matter discovered by Dada considered as fraud? Explain.
2. How was the fraud perpetrated? What were Emmy'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 Beggy's information system to fraud?