The Audit and Risk Committee of Department of Transport has mandated the internal audit activity to perform a preliminary investigation to determine whether there are any fraudulent activities in the Student Transport Programme funds.

After a week of preliminary investigation, you had an informal progress meeting with the Manager: Internal Audit. He informs you that inadequate internal controls have not only given rise to the flooding of illegal operators but has also led to unnecessary fatalities on the road. In addition, there are several complaints from school principals regarding students arriving late at school, either because they were walking or due to vehicle break-downs. According to one of the principals, one morning a minibus arrived carrying 33 students in a 21-seater minibus.

Furthermore, management does not require monthly reports on the Student Transport Programme. As a result, the responsible manager, Mr. Ruan Sabie does not show interest in addressing falsified claims by service providers on safety issues. Mr. Sabie only works with one staff member to assist in the division and does not show interest in recruiting additional staff members. Despite service providers being paid hundreds of thousands rands per month, there are false travel claims submitted for routes and pickup points that are not in the approved route list.

The Risk Manager sent the auditors a picture received through anonymous reporting of students being transported in heavily overloaded and unsafe vehicles. The auditors struggled to obtain a number of documents such as, tender documents, contracts and roadworthiness certificates of vehicles to determine the validity of the claims paid.

An audio clip of a service provider, Mr. Pare, was also shared through the hotline. In the audio Mr. Pare was heard stating that he only had one bus instead of eight (8) vehicles as indicated in the tender documents. The auditors then checked the bus registration details and it transpired that Mr. Ruan Sabie was the owner instead of Mr. Pare.

The Finance Manager stated that he has been Mr. Sabies neighbour for the past 10 years and noticed a drastic lifestyle change in Mr. Sabie in the past year. He demolished his house and built a double storey house, bought his wife a VW Touareg and his kids have moved from the public school to a private school. Last weekend, a bus parked next to Mr. Sabie house the whole weekend and he recognised the registration number from one of the claims he recently paid.

REQUIRED		MARKS
1.1	Identify eight (8) red flags that can be observed from the scenario.	(8)
1.2	Recommend eight (8) controls that should be in place to avoid similar fraud from taking place.	(8)
1.3	Here are a few some types of fraud: White collar crime; Employee fraud; Embezzlement; Misappropriation; and Computer fraud. From the scenario above, identify, define two (2) types of fraud that has occurred, and explain your selection.	(5)
1.4	Describe the responsibilities of internal audit in fraud investigation.	(4)