Purchasing and Potential Fraud

On January 12, at the beginning of your annual audit of the Grows Manufacturing Companys financial statements for the year just ended December 31, the company CEO confides in you that an employee is living on a scale in excess of what their salary would support.

The employee has been a buyer in the purchasing department for seven years and has been responsible for the purchase of all the raw materials and supplies. He is authorized to sign purchase orders for amounts up to $5000. Purchase orders in excess of $5000 require an additional authorizing signature from the Purchasing Manager Raw Materials.

The CEO understands that the usual audit of financial statements is not designed to disclose immaterial fraud or conflicts of interests, although such events may be discovered. The CEO authorizes you, however, to expand your regular audit procedures and to apply additional audit procedures to determine where there is any evidence that the buyer has been misappropriating company funds or has been engaged in activities that are in conflict of interest.

Required:

1. List four (4) possible audit procedures that you would apply to the company records and documents in an attempt to discover evidence with the purchasing department of possible fraud/misappropriation/defalcations being committed by the buyer.

2. Provide five (5) possible procedures to discover possible collusion between the Buyer and the suppliers.