You have been asked by your senior, Mr Bryan, to carry out an investigation of a suspected fraud at one of your clients company. They suspected, the fraud was conducted by Mrs Maria, an accountant in the company. The accountant has left the company without giving any notice and she is suspected of carrying out a fraud in the cash receipts and payments systems. Mrs. Maria is a professional accountant and her responsibilities include maintaining the nominal ledger, from which auditors prepare the annual accounts. Your client company is a Small Median Size (SME) company, and there have been few controls and checks overs accountants work as she has been employed by the company for many years.

Your client shared that the accountant is responsible for:

(a) Receiving cash from customers for both credit and cash sales

(b) Making all payments, including purchase ledgers payments and sundry payments

(c) Drawing the cash for wages

(d) Recording all receipts and payments in the cash book and preparing a bank reconciliation. Only the auditors check the reconciliation, which they do during their annual visit.

The computerized sales and purchases ledgers are maintained by staff in the sales and purchases accounting departments who post all transactions to these ledgers. The cashier sends to the sales ledger clerk a schedule showing the cash he has received. The remittance advices from customers are attached to this schedule, which shows the invoices that are being paid.

For cash sales, the sales department raises a sales order, which is sent to the dispatch department who raises a dispatch note. The first copy of the dispatch note is given to customer. The second copy is sent to the sales accounting department and the third copy is retained in the dispatch department. The sales accounting department price the invoice and the customer pays the cash to the cashier or into company banks account, who retains a copy of the invoice for his records. The accountants then record the sales details in her analyzed cash book and the months cash sales are posted from the total in the cash book to the nominal ledger.

The purchase ledger controller informs the accountant of the payments he wishes to make, and the accountant prepares the cheque, which are signed by the chairman. A remittance advice is attached to the payment, which is sent to the supplier. The accountant has prepared the purchase and sales ledger control accounts each month and the reconciliations of these balance to the total balances on the respective ledgers.

The wages are calculated by the wages department. The accountant draws the cheque to pay the wages and receives the cash. The wages department make up the wage packets and pay the wages to employees. Any wage packets not given to employees at the pay-out are retained by the accountant, who either pays the wages to the employees or retains the unclaimed wage packets. Periodically, the accountant is expected to bank unclaimed wage packets.

The owner of the business explains that sometimes, he signs blank cheques that are held by the accountants to make payments when he is away visiting customers or attending to the other business he owns. While the owner is on holiday, the accountant has been authorized to sign cheques on the companys behalf.

Required:

You are required to identify audit objectives and conduct relevant substantive procedures to determine whether a fraud has been carried out by the accountant. Your answers should consider of the following items;

1.The bank reconciliations at the year end at the date of your investigation.

2.Cash receipts from the (i) sales ledger and (ii) cash sales.

3.Cash payments for (i) Purchase ledgers payments (ii) payment of wages and unclaimed wages and (iii) other payments.