The assistant finance director for the city of Sydney, NSW, was fired after city officials discovered that she had used her access to city computers to cancel her daughters $400 bill. An investigation revealed that she had embezzled a large sum of money from Sydney in this manner over a long period. She was able to conceal the embezzlement for so long because the amount embezzled always fell within a 2% error factor used by the citys internal auditors.

• 3) Whatweaknessesexistedintheauditapproach?Howcouldtheauditplanbeimproved?
• 2) Whatinternalcontrolweaknesseswerepresentinthesystem?
• 3)ShouldSydneysinternalauditorshavediscoveredthisfraudearlier?
• Developthedeeplyanswersbaseonbelowsuggestions:
• 1) What weaknesses existed in the audit approach? How could the audit plan be improved?

a.The question implies Sydney's internal auditors never bothered to investigate transactions below a certain dollar amount, and/or shortages of less than a certain percent. This is not good audit practice.

b.While auditors generally examine transaction samples that are selected to include a high percentage of items having a high dollar value, their sampling procedures should not ignore transactions with lower dollar values. There must have been hundreds of falsified transactions, and an effective sampling plan might have uncovered a few of them.

c.An internal control audit should have detected inadequacies in Tustin's computer access controls, as well as a lack of transaction documentation

Audit software could be used to fully reconcile collections with billings, and list any discrepancies for further investigation.

2) What internal control weaknesses were present in the system?

a. An assistant finance director should not have the authority to enter credits to customer accounts. Certainly, there should have been documentation to support such transactions

b. The assistant finance director should not have been granted rights to cancel water or other utility bills

3) Should Sydneys internal auditors have discovered this fraud earlier?

The easy answer here is yes, they should have uncovered the fraud earlier. While she was able to embezzle a large sum of money from Tustin, it was over a long period. One of the keys to her success was that she did not get greedy and the amounts taken in any one year was probably immaterial to the city. These kinds of frauds are very hard to detect.