Fateen Shakran, store supervisor, is responsible for creating a summary of the store’s transactions at the end of each day. He is also responsible for checking the register tape against the credit slips and cash in the register, and then depositing the money in the morning. Fateen recently took a new role as head bookkeeper, when the former one retired. Fateen would occasionally change a transaction on the register and pocket the extra money.

Now, he waits until the end of the year for the store manager to go on holiday break. He writes a check for himself in the amount of an invoice, then cancels the check originally written to pay for the invoice.

He cashes the check for himself, and waits a few weeks before resubmitting the invoice. When the owner writes the second check, Fateen records this in the cash disbursement journal, and then deposits the check. He then files it with all other paid invoices. Fateen has been following this practice successfully for several years and feels confident that he has developed a foolproof method to earn some extra income.

REQUIRED:

1. What is the auditor’s responsibility for discovering this type of embezzlement?

2. What deficiencies exist in the client’s internal control?

3. What evidence can the auditor use to uncover the fraud?