Each year near 30 June, when the Managing Director of Ajay Construction Ltd takes a three-week holiday to the Barrier Reef, she signs several cheques to pay major bills during the period she is absent. Tanya Dhingra, head accountant for the company, uses this practice to her advantage. Tanya makes out a cheque to herself for the amount of a large vendors invoice and, because there is no acquisitions journal, she records the amount in the cash payments journal as an acquisition from the supplier listed on the invoice. She holds the cheque until several weeks into the subsequent period to make sure that the auditors are unable to apply reconciliation procedure for the presented cheques. Shortly, after the commencement of the new financial year when the Managing Director returns, Tanya resubmits the invoice for payment and again records the cheque in the cash payments journal. At that point, she marks the invoice paid and files it with all other paid invoices. Tanya has been following this practice successfully for several years and feels confident that she has developed a foolproof method.

Required:

1. What is the auditors responsibility for discovering this type of embezzlement? (2 marks)
2. What two (2) procedures could have alerted the auditor to the fraud? Explain. (3 marks)