Mary Sarsden has worked for Rudyard (Pty) Ltd for the last few years. Due to her enthusiasm and hard work she soon became a key member of the companys accounting staff. Her duties include opening mail, deciding on which creditors will be paid, preparing all cheques, maintaining the cash book and reconciling certain general ledger accounts, including the bank account. You have just discovered that she has defrauded the company, since she arrived, by an estimated R250 000 in the following manner:

a) Each month she would write out a cheque to the Receiver of Revenue for the amount owing in respect of the previous months unemployment insurance for employees.

b) She would reflect the payee as SARS and would leave a small gap between the word Pay and Sars on the cheque.

c) She would take the cheque, and the supporting vouchers prepared by the wages department, to directors Allen Archer and Billy Bugwandeen for signature (directors Chris Chetty and Delron Ruckley are also authorised signatories)

d) Once the cheque had been signed she would return to her office and alter the payee to M Sarsden, and then deposit this cheque into her personal bank account.

e) She would then write out a second cheque for the same amount, once again attach the supporting documents and get the directors Chris Chetty and Delron Ruckley to sign this cheque.

f) She would correctly allocate one cheque to the unemployment insurance expense account, and the second cheque she would allocate to the insurance expense account, incorporating the amount into the companys monthly premiums.

g) When the bank statement and paid cheques arrived through the mail each month, Mary Sarsden would take the cheque made payable to herself and destroy it. She would then take a colour photocopy of the supporting vouchers and valid unemployment insurance cheque and file then along with the rest of the cash book vouchers. So as not to arouse suspicion, Mary Sarsden did not do the above every month.

Required: 1.1.

Describe the weaknesses in the companys system of internal controls which allowed Mary Sarsden to perpetrate this fraud. (20)

1.2. Recommend the changes which should be made to the system of internal controls to prevent he re-occurrence of this type of fraud.

Mary Sarsden has worked for Rudyard (Pty) Ltd for the last few years. Due to her enthusiasm and hard work she soon became a key member of the companys accounting staff. Her duties include opening mail, deciding on which creditors will be paid, preparing all cheques, maintaining the cash book and reconciling certain general ledger accounts, including the bank account. You have just discovered that she has defrauded the company, since she arrived, by an estimated R250 000 in the following manner:

a) Each month she would write out a cheque to the Receiver of Revenue for the amount owing in respect of the previous months unemployment insurance for employees.

b) She would reflect the payee as SARS and would leave a small gap between the word Pay and Sars on the cheque.

c) She would take the cheque, and the supporting vouchers prepared by the wages department, to directors Allen Archer and Billy Bugwandeen for signature (directors Chris Chetty and Delron Ruckley are also authorised signatories)

d) Once the cheque had been signed she would return to her office and alter the payee to M Sarsden, and then deposit this cheque into her personal bank account.

e) She would then write out a second cheque for the same amount, once again attach the supporting documents and get the directors Chris Chetty and Delron Ruckley to sign this cheque.

f) She would correctly allocate one cheque to the unemployment insurance expense account, and the second cheque she would allocate to the insurance expense account, incorporating the amount into the companys monthly premiums.

g) When the bank statement and paid cheques arrived through the mail each month, Mary Sarsden would take the cheque made payable to herself and destroy it. She would then take a colour photocopy of the supporting vouchers and valid unemployment insurance cheque and file then along with the rest of the cash book vouchers. So as not to arouse suspicion, Mary Sarsden did not do the above every month.

Required:

1.1.Describe the weaknesses in the companys system of internal controls which allowed Mary Sarsden to perpetrate this fraud. (20)

1.2. Recommend the changes which should be made to the system of internal controls to prevent he re-occurrence of this type of fraud.