Question

ABC company operates with a very lean staff strength. The nance function comprises a part time Finance Executive who reports directly to The General Manager (GM) and 2 other supporting staff The Administration Executive (AE) who reports to the GM is responsible for: I Preparing payment vouchers (PV) and attaching the supporting documents for approval I Writing of cheques for payments I Safekeeping of cheques The authorised cheque signatories are the GM and President. Payment vouchers are signed by the cheque signatories as a documentation trail that they signed the cheques. The Finance Executive posts payments made based on the PVs submitted by the Admin Exec. Some creditors had called in to request for settlement of over-due balances that had not been paid for some months. The Finance Exec checked the bank statements and reconciliations that showed that cheques issued had been cleared. She had asked the Admin Exec to request for paid cheques from the bank. Some copies were produced by the Admin Exec which showed that payments were made out to the creditors. The above was reported to the GM who had directly requested the bank for some paid cheques in the absence of the Admin Exec who was away on sick leave. It then became clear that the Admin Exec had made out some cheques in her own name and had forged the signatures of cheque signatories. Management performed an internal investigation which revealed that the Admin Exec had misappropriated a signicant sum. The Admin Exec admitted that she has resorted to the embezzlement of funds out of desperation due to family problems. After the above was brought to the attention of Audit Committee, Internal Audit was requested to perform a review to ensure that appropriate measures have been taken to rectify any control weakness to prevent future occurrences. Some lrther observations were made by Internal Audit: (1) The signatures on the PV looked different from specimen signatures of authorized signatories. (2) There was no review performed to account for the numerical sequence of cheques issued and recorded. (3) Some cheques is sued were without supporting PV's. [4) The Finance Executive had posted some payments to accounting records pending receipt of PV's. (5) Some PVs were not approved by the GM or the President. Some were found to be without supporting documents. (6) Some bank reconciliations were inaccurately prepared. Cheques that had been cleared were still reflected as unpresented cheques. The bank reconciliations were not checked or reviewed. There was no evidence of periodic creditors' reconciliation. Required: (a) The discrepancies did not surface from the monthly bank reconciliations. Assess and determine what could be the reason for this. (4 marks) (b) Given the limited number of stafng and therefore limited segregation of duties, evaluate what are the control measures that need to be put in place to prevent the recurrence of the above fraud. (16 marks}