While performing his routine internal audit of Some Co's payroll records, Baxter noticed that salaries and wages expense, including overtime pay for Q1 2018 had increase 17%over the previous quarter and 10% over Q1 2017.Baxter found these increases to be unusual given the recent layoffs at the company and its efforts to keep overtime pay to a minimum.He is aware that pay raises, capped at 1%, were issued in Q1 2018, but these alone do not explain the large increase in salaries and wage expense.

After some initial inquiry, Baxter learned that Some Co's controller, Derek, had covered for the human resources manager while she was on vacation for two weeks during Q1 2018.Baxter is concerned that this breach in separation (segregation) of duties might have set the stage for payroll fraud.He is especially concerned about the possibility of a false salaries and wage scheme.

a.Using Red Flags, Documentation, Testing to explain why Not Fraud to show Baxter how you are going to investigate the situation.

b.Assume you have completed the investigate, use an interoffice memo case study format to detail your findings for Baxter.