Question 1:

You are an internal auditor for a large private further education college, ABC College Ltd.

You have only been employed at ABC College Ltd. for one month and are about to conduct some internal audit work on one particular academic department. The college administration has reduced the number of academic and support staff working in this particular department over the last two years. Additionally, rumours have been circulating that the college may reduce the size of the department even further and you are aware that the college has not awarded pay rises to staff personnel for budgetary reasons. Many of the employees are very unhappy about their salary situation.

While performing your opening interviews, you notice that morale in the department is very low. In an interview with the management accountant for the department, you notice he seems very agitated and annoyed about the internal audit. He is highly defensive when asked about certain things, almost to the point of belligerence.

During the interview, you ask the management accountant which employees have college purchasing cards. These cards allow employees to incur business expenses which are paid directly by the college without the need for the employee to make a separate expense claim. This is common practice within many organisations. The management accountant gives you the names of three employees and confirms that they are the only ones in the department who have the use of the purchasing cards.

In subsequent interviews with other staff, you find out that the management accountant recently fired two employees, who worked within the finance team, and that no-one assumed the duties of these departed employees.

Later in the week, you take a sample of purchase card transactions to test for compliance with the purchasing policy of the college. You find one purchase that was not made by one of the three staff members you were informed by the management accountant were authorised to use the cards.

You decide to talk to the central purchase card administration at the college to identify who could have made the purchase in question. The purchase card administrators alert you to the fact that the management accountant has a purchase card in his name, not something you have been informed about previously, and that the list of purchases the management accountant has made over the last year includes many items disallowed under college policy.

(a) Highlight and explain FOUR red flags that indicate that fraud may be occurring at ABC College Ltd. [180 words]

(b) How would you gather evidence to build your case without arousing employee suspicion? [180 words]